BP Prudhoe Bay Royalty Trust 10-Q
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 March 31, 2007
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
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(I.R.S. Employer |
Incorporation or Organization)
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Identification No.) |
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The Bank of New York, 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 is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated
filer in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated filer þ Accelerated filer o Non-accelerated filer o
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 May 9, 2007, 21,400,000 Units of Beneficial Interest were outstanding.
TABLE OF CONTENTS
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
BP Prudhoe Bay Royalty Trust
Statement of Assets, Liabilities and Trust Corpus
(Prepared on a modified basis of cash receipts and disbursements)
(Unaudited)
(In thousands, except unit data)
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March 31, |
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December 31, |
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2007 |
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2006 |
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Assets |
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Royalty Interest, net (Notes 1, 2 and 3) |
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$ |
7,532 |
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$ |
8,034 |
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Cash and cash equivalents (Note 2) |
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1,008 |
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1,010 |
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Total Assets |
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$ |
8,540 |
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$ |
9,044 |
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Liabilities and Trust Corpus |
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Accrued expenses |
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$ |
412 |
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$ |
191 |
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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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8,128 |
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8,853 |
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Total Liabilities and Trust Corpus |
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$ |
8,540 |
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$ |
9,044 |
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See accompanying notes to financial statements (unaudited).
2
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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March 31, |
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2007 |
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2006 |
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Royalty revenues |
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$ |
43,206 |
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$ |
45,383 |
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Interest income |
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20 |
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14 |
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Less: Trust administrative expenses |
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(169 |
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(157 |
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Cash earnings |
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$ |
43,057 |
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$ |
45,240 |
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Cash distributions |
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$ |
43,059 |
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$ |
45,246 |
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Cash distributions per unit |
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$ |
2.0121 |
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$ |
2.1143 |
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Units outstanding |
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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).
3
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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March 31, |
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2007 |
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2006 |
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Trust Corpus at beginning of period |
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$ |
8,853 |
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$ |
10,876 |
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Cash earnings |
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43,057 |
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45,240 |
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Increase in accrued expenses |
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(221 |
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(138 |
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Cash distributions |
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(43,059 |
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(45,246 |
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Amortization of Royalty Interest |
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(502 |
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(502 |
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Trust Corpus at end of period |
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$ |
8,128 |
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$ |
10,230 |
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See accompanying notes to financial statements (unaudited).
4
BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
March 31, 2007
(1) |
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Formation of the Trust and Organization |
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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 (the Trustee) and 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). |
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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. |
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The trustees of the Trust are The Bank of New York, a New York banking corporation, and The Bank
of New York (Delaware), a Delaware banking corporation. The Bank of New York (Delaware) serves
as co-trustee in order to satisfy certain requirements of the Delaware Statutory Trust Act. The
Bank of New York alone is able to exercise the rights and powers granted to the Trustee in the
Trust Agreement. |
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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). See Note 5 for
information concerning a change in Alaska oil and gas production taxes which affects the
calculation of the Per Barrel Royalty. |
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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 |
5
BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
March 31, 2007
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expenses, in the month succeeding the end of each calendar quarter. The Trust will terminate
upon the first to occur of the following events: |
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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
events). |
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In order to ensure 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. |
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(2) |
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Basis of Accounting |
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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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a. |
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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 March 31, 2007 and 2006 was $0.38 during each period. 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 Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. 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. |
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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 |
6
BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
March 31, 2007
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quarterly distributions to the Trust Unit holders are based on net cash receipts. The
accompanying modified cash basis financial statements contain all adjustments necessary to
present fairly the assets, liabilities and Corpus of the Trust as of March 31, 2007 and 2006,
and the modified cash earning and distributions and changes in Trust Corpus for the three-month
periods ended March 31, 2007 and 2006. The adjustments are of a normal recurring nature and are,
in the opinion of the Trustee, necessary to fairly present the results of operations. |
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As of March 31, 2007 and December 31, 2006, cash equivalents which represent the cash reserve
consist of US treasury bills with an initial term of less than three months. |
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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. |
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The 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, 2006. The
cash earnings and distributions for the interim period presented are not necessarily indicative
of the results to be expected for the full year. |
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(3) |
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Royalty Interest |
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The Royalty Interest is comprised of the following at March 31, 2007 and December 31, 2006 (in
thousands): |
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March 31, |
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December 31, |
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2007 |
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2006 |
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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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(353,950 |
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(353,448 |
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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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$ |
7,532 |
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$ |
8,034 |
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(4) |
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Income Taxes |
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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. |
7
BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
March 31, 2007
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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. |
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(5) |
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Alaska Oil and Gas Production Tax |
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On August 20, 2006 a new Alaska oil and gas production tax (the New Tax) became effective. The
New Tax replaced an oil production tax levied at the flat rate of 15% of the gross value at the
point of production of taxable oil produced from a producers leases or properties in the State
of Alaska and is retroactive to April 1, 2006. |
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Under the New Tax, producers are taxed on the production tax value of taxable oil (gross value
at the point of production for the calendar year less the producers direct costs of exploring
for, developing, or producing oil or gas deposits located within the producers leases or
properties in Alaska for the year) at a rate equal to the sum of 22.5% plus a progressivity
rate determined by the average monthly production tax value of the oil produced. The
progressivity portion of the New Tax is equal to 0.25% times the amount by which the simple
average for each calendar month of the daily taxable values per barrel of the oil produced
during the month exceeds $40 per barrel. |
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The Trustee and BP Alaska entered into a letter agreement (the Letter Agreement) to resolve
the major issues associated with the New Tax. The Letter Agreement modified the calculation of
Production Taxes in the daily Per Barrel Royalty calculation effective as of August 20, 2006. |
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(6) |
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Royalty Revenue Adjustment |
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In January 2007, the Trust received a payment of $43,206,000 from BP Alaska. This payment
consisted of $41,470,000, representing the royalty payment due with respect to the Royalty
Interest for the quarter ended December 31, 2006, plus $1,736,000, representing the amount of an
underpayment by BP Alaska, including interest on the underpayment, of the royalty payment due
with respect to the quarter ended September 30, 2006. The royalty payment of $36,145,000 with
respect to the third quarter of 2006, which the Trust received in October 2006, was calculated
based on estimated average net production of crude oil and condensate during the third quarter
of 2006 of approximately 59,300 barrels per day. Actual average net production of crude oil and
condensate during the quarter was approximately 62,100 barrels per day. On the basis of the
actual production data, the royalty payment owed by BP Alaska with respect to the quarter ended
September 30, 2006 was $37,881,000. |
8
Item 2. 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, 2006 (the 2006 Annual Report) and in
Item 1A of Part II this 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 2006 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 2006 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 2006
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 2006 Annual Report.
In 1999, due to declines in oil prices during the fourth quarter of 1998 and the first quarter of
1999, which resulted in the Trust not receiving cash distributions for two quarters, the Trustee
established 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
9
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 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 on each Quarterly Record Date.
As discussed under CERTAIN TAX CONSIDERATIONS in Part I, Item 1 of the 2006 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 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 OPEC and other producing countries. The effect of changing economic
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 2006 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 the Quarterly Record
Date on which the revenues for the quarter are received. For the statement of cash earnings and
distributions, revenues and Trust expenses are recorded on a modified cash basis and, as a result,
royalties paid to the Trust and distributions to Unit holders in the quarters ended March 31, 2007
and 2006, respectively, are attributable to BP Alaskas operations during the quarters ended
December 31, 2006 and 2005, respectively.
The following tables show the factors which were employed to compute the Per Barrel Royalty
payments received by the Trust during the first quarter of 2007 and the first quarter of 2006 (see
Note 1 of Notes to Financial Statements in Part I, Item 1). The information in the table has been
furnished by BP Alaska.
10
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Cost |
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Adjusted |
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Average Per |
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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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Barrel |
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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 (1) |
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Royalty (2) |
2006: |
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4th Quarter |
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$ |
60.17 |
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$ |
12.50 |
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1.552 |
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$ |
19.39 |
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$ |
9.31 |
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$ |
31.46 |
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2005: |
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4th Quarter |
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$ |
60.01 |
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$ |
12.25 |
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1.521 |
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$ |
18.63 |
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$ |
8.01 |
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$ |
33.37 |
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(1) |
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Production Taxes for the fourth quarter of 2006 reflect the new Alaska oil and gas production
tax and the application of the Consensus Principles described below. |
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(2) |
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Average per barrel royalty for the fourth quarter of 2006 is calculated on the basis of
87,221 barrels (estimated) average daily net production of oil and condensate from the BP
Working Interests; average per barrel royalty for the fourth quarter of 2005 is calculated on
the basis of 90,000 barrels of average daily net production. |
Royalty Production for each day in a calendar quarter is 16.4246 percent 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. As 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. BP Alaska has advised
the Trustee that, as a consequence of a program of field wide infrastructure renewal, pipeline
replacement and well mechanical improvements, it anticipates that net production of oil and
condensate from the BP Working Interests will be below 90,000 barrels per day on an annual average
basis beginning in 2007. However, BP Alaska reported that average daily net production from the BP
Working Interests during the quarter ended March 31, 2007 exceeded 90,000 barrels per day.
On August 20, 2006 a new Alaska oil and gas production tax (the New Tax) became effective. The
New Tax replaced an oil production tax levied at the flat rate of 15% of the gross value at the
point of production of taxable oil produced from a producers leases or properties in the State of
Alaska (the Old Tax) and is retroactive to April 1, 2006.
Under the New Tax, producers are taxed on the production tax value of taxable oil (gross value at
the point of production for the calendar year less the producers direct costs of exploring for,
developing, or producing oil or gas deposits located within the producers leases or properties in
Alaska (Lease Expenditures) for the year) at a rate equal to the sum of 22.5% plus a
progressivity rate determined by the average monthly production tax value of the oil produced.
The progressivity portion of the New Tax is equal to 0.25% times the amount by which the simple
average for each calendar month of the daily taxable values per barrel of the oil produced during
the month exceeds $40 per barrel.
The Conveyance provides that Production Taxes are the sum of any severance taxes, excise taxes
(including windfall profit tax, if any), sales taxes, value added taxes or other similar or direct
taxes imposed upon the reserves or production, delivery or sale of Royalty Production, computed at
defined statutory rates. In the case of taxes based upon wellhead or field value, the
11
Conveyance
provides that the WTI Price less the product of $4.50 and the Cost Adjustment factor will be deemed
to be the wellhead or field value.
In order to resolve uncertainties in the interpretation of the Conveyance resulting from the New
Tax, the Trustee entered into a letter agreement with BP Alaska (the Letter Agreement) which is
incorporated as Exhibit 4.5 to this report. The Letter Agreement sets forth consensus principles
agreed by the parties to resolve issues presented by the New Tax. The Consensus Principles provide
that the amount of New Tax chargeable against the Royalty Interest under the Conveyance is
determined as follows:
a) The taxable value per barrel equals the WTI Price minus the Chargeable Costs as adjusted
by the Cost Adjustment Factor.
b) The tax rate for the progressivity portion of the New Tax equals 0.25 percentage points
times the amount by which the simple average for each calendar month of the daily taxable
values per barrel under a) above exceeds $40 per barrel. If that average taxable value per
barrel is $40 or less, the progressivity rate is zero. The $40 figure is not subject to
adjustment over time.
c) The amount of New Tax chargeable against the Royalty Interest equals the taxable value
per barrel under a) above times the Royalty Production under the Conveyance, times a rate
equal to the sum of 22.5% plus the progressivity rate determined under b) above.
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 2007
and future years, calculation 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 may result in quarterly royalty payments by BP Alaska which reflect adjustments 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 Distribution received by the Trust from BP Alaska in April 2007 was reduced by
$47,414 to reimburse BP Alaska for the amount of an overpayment (including interest on the
overpayment) by BP Alaska of the royalty payment due in January 2007 with respect to the quarter
ended December 31, 2006. Because the statement of cash earnings and distributions of the Trust is
prepared on a modified cash basis, royalty revenues for the quarter ended March 31, 2007 include
the amount of the January 2007 overpayment.
Quarter Ended March 31, 2007 Compared to
Quarter Ended March 31, 2006
As explained above, Trust royalty revenues received during the first quarter of the fiscal year are
based on Royalty Production during the fourth quarter of the preceding fiscal year. Royalty
revenues received by the Trust in the quarter ended March 31, 2007 decreased 4.8% from the
revenues received in the corresponding quarter of 2006, in spite of a 0.3% period-to-period
12
increase in the Average WTI Price from $60.01 per barrel during the quarter ended December 31, 2005
to $60.17 per barrel during the quarter ended December 31, 2006. The decrease in royalty revenues
would have been 8.6%, if $1,736,000 paid by BP Alaska in January 2007 to compensate for its royalty
underpayment in the fourth quarter of 2006 had been excluded (see Note 6 of the Notes to Financial
Statements (Unaudited) in Item 1 of Part I). A 7.7% period-to-period increase in total deductible
costs from $26.94 per barrel to $28.70 per Barrel was due principally to a 16.2% increase in
Production Taxes chargeable with respect to the quarter ended December 31, 2005.
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 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
13
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
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.
Michael Goldman v. BP P.L.C., et al.
Item 3 in Part I of the Trusts 2006 Annual Report contains information concerning a complaint
filed on November 7, 2006, in the United States District Court for the District of Alaska (case
number 3:06-CV-00260 TMB), purportedly as a class action by the plaintiff, Michael Goldman, on
behalf of the public holders of Units in the Trust, against BP, the Trust, BP Alaska, Standard Oil
and other unnamed defendants.
On April 26, 2007 the plaintiff filed a notice with the Court of the voluntary dismissal, without
prejudice, of the Trust from the suit. The action continues against the defendants BP, BP Alaska
and Standard Oil.
Item 1A. Risk Factors
There are no material changes from the risk factors previously disclosed in Item 1A of Part I of
the Trusts 2006 Annual Report.
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) On April 16, 2007 the Trust received a cash distribution of $39,249,777 from BP Alaska
with respect to the quarter ended March 31, 2007 (net of a deduction of $47,414 to reimburse BP
Alaska for an overpayment in January 2007). On April 19, 2007, after adding interest income
received from investment of the cash reserve and deducting Trust administrative expenses, the
Trustee distributed $38,879,174 (approximately $1.817 per Unit) to Unit holders of record on April
17, 2006 (Form 8-K, Item 8.01).
(b) Not applicable.
15
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 |
|
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 dated October 13, 2006 between BP Exploration (Alaska) Inc. and The Bank of
New York, as Trustee. |
|
31 |
|
Rule 13a-14(a)/15d-14(a) Certification. |
|
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.
|
|
|
|
|
|
BP PRUDHOE BAY ROYALTY TRUST
By: THE BANK OF NEW YORK,
as Trustee
|
|
|
By: |
/s/ Remo Reale |
|
|
|
Remo Reale |
|
|
|
Vice President |
|
|
Date:
May 9, 2007
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
|
|
|
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. |
|
|
|
*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 dated October 13, 2006 between BP Exploration
(Alaska) Inc. and The Bank of New York, as Trustee. |
|
|
|
31.
|
|
Rule 13a-14(a)/15d-14(a) Certification. |
|
|
|
32
|
|
Section 1350 Certification. |
|
|
|
* |
|
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 (Commission File No. 1-10243). |
|
** |
|
Incorporated by reference to the correspondingly numbered exhibit to the registrants
Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (Commission File No.
1-10243). |