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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 0-8677
TIDELANDS ROYALTY TRUST "B"
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 75-6007863
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
NATIONSBANK, N.A. 75283-0241
P.O. BOX 830241, DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code (800) 985-0794
None
(Former name, former address and former fiscal year
if changed since last report)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _____
Indicate number of units of beneficial interest outstanding as of the last
practicable date.
<TABLE>
<CAPTION>
Title of Each Class of Units Number of Units of Beneficial Interest
of Beneficial Interest September 30, 1998
---------------------------- --------------------------------------
<S> <C>
UNITS OF BENEFICIAL INTEREST 1,386,375
</TABLE>
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TIDELANDS ROYALTY
TRUST "B"
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS................................ 2
Condensed Consolidated Balance Sheets September 30, 1998 and
December 31, 1997 (Unaudited)............................. 2
Condensed Consolidated Statements of Income and
Undistributed Income Three Months and Nine Months Ended
September 30, 1998 and 1997 (Unaudited)................... 3
Condensed Consolidated Statements of Cash Flows Nine Months
Ended September 30, 1998 and 1997 (Unaudited)............. 4
Notes to Condensed Consolidated Financial Statements........ 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 5
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK...................................................... 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 8
Signatures.................................................. 9
Exhibit Index............................................... 10
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $1,740,037 $2,257,909
Oil and gas royalties receivable.......................... 115,158 159,737
Federal income taxes receivable........................... 6,828 3,578
---------- ----------
Total current assets.............................. $1,862,023 $2,421,224
Oil, gas and other mineral properties....................... 2 2
---------- ----------
$1,862,025 $2,421,226
========== ==========
LIABILITIES AND TRUST EQUITY
Current Liabilities:
Accounts payable.......................................... $ 773,705 $ 987,641
Income distributable to unitholders....................... 398,925 629,612
---------- ----------
Total current liabilities......................... $1,172,630 $1,617,253
---------- ----------
Trust Equity:
Corpus -- authorized 1,386,525 units of beneficial
interest, issued 1,386,375 units at nominal value...... 2 2
Undistributed income...................................... 689,393 803,971
---------- ----------
Total trust equity................................ 689,395 803,973
---------- ----------
$1,862,025 $2,421,226
========== ==========
</TABLE>
2
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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND UNDISTRIBUTED INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
------------------------ ------------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Oil and gas royalties................... $ 191,244 $ 373,876 $ 910,459 $ 897,884
Interest and other...................... 19,531 19,867 59,449 58,122
---------- ---------- ---------- ----------
Total income.................... 210,775 393,743 969,908 956,006
---------- ---------- ---------- ----------
Expenses:
Production and other taxes.............. -- -- 620 620
General and administrative.............. 21,762 32,033 77,810 69,502
---------- ---------- ---------- ----------
Total expenses.................. 21,762 32,033 78,430 70,122
---------- ---------- ---------- ----------
Income before Federal income taxes...... 189,013 361,710 891,478 885,884
Federal income taxes of subsidiary...... 2,000 3,300 9,750 10,900
---------- ---------- ---------- ----------
Net income...................... 187,013 358,410 881,728 874,984
Undistributed income at beginning of
period.................................. 901,302 836,358 803,971 734,909
---------- ---------- ---------- ----------
1,088,315 1,194,768 1,685,699 1,609,893
Distributions to unitholders.............. 398,922 121,188 996,306 536,313
---------- ---------- ---------- ----------
Undistributed income at end of period..... $ 689,393 $1,073,580 $ 689,393 $1,073,580
========== ========== ========== ==========
Net income per unit....................... $ 0.13 $ 0.26 $ 0.64 $ 0.63
========== ========== ========== ==========
Distributions per unit.................... $ 0.29 $ 0.09 $ 0.72 $ 0.39
========== ========== ========== ==========
</TABLE>
3
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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 881,728 $ 874,984
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in assets and liabilities:
Oil and gas royalties receivable..................... 44,579 (334,654)
Federal income taxes receivable...................... (3,250) 2,548
Accounts payable..................................... (213,936) 6,925
----------- ----------
Net cash provided by operating activities......... 709,121 549,803
----------- ----------
Cash flows from financing activities -- distributions to
unitholders............................................... (1,226,993) (642,038)
Net decrease in cash and cash equivalents................. (517,872) (92,235)
Cash and cash equivalents at beginning of period............ 2,257,909 1,763,020
----------- ----------
Cash and cash equivalents at end of period.................. $ 1,740,037 $1,670,785
=========== ==========
</TABLE>
4
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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
ACCOUNTING POLICIES
The financial statements include the financial statements of Tidelands
Royalty Trust B (the "Trust") and its wholly-owned subsidiary, are condensed,
and should be read in conjunction with the annual report for the fiscal year
ended December 31, 1997. The financial statements included herein are unaudited,
but in the opinion of management include all adjustments necessary for a fair
presentation of the results of operations for the periods indicated.
UNDISTRIBUTED INCOME
Undistributed income as of September 30, 1998 consisted of $98,298
applicable to the Trust and $591,095 applicable to Tidelands Royalty B
Corporation, the Trust's wholly-owned subsidiary. Distributions to unitholders
are dependent on the volume and price of oil and gas sold by others and will
fluctuate from quarter to quarter.
ACCOUNTS PAYABLE
Accounts payable of $346,402 have been provided to cover refunds that may
be required upon redetermination of gas prices for royalty payments in prior
periods and $421,214 has been reserved for possible overpayments received on
production payments, which amounts have been substantially supplied by Tidelands
Royalty B Corporation. During the quarter ended September 30, 1998 it was
determined that $60,379 was no longer required to be reserved for possible
royalty overpayments. Accordingly accounts payable was reduced and net income
increased by that amount.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES
The Trust is a "royalty trust" with overriding royalty interests in oil and
gas leases in the Gulf of Mexico. The Trust's indenture (and the charter and
by-laws of its subsidiary) expressly prohibit the operation of any kind of trade
or business. All royalties received by the Trust, less administrative expenses,
are distributed quarterly to unitholders. Since the Trust's sole purpose is to
collect and distribute cash collected from royalties, there are no requirements
for capital.
GENERAL
Net income for the nine months ended September 30, 1998 amounted to $.64
per unit, an increase of $.01 over the $.63 realized in the comparable period a
year ago. Cash distributions to unitholders amounted to
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$.72 per unit in the current nine month period, an increase of $.33 from the
$.39 per unit distributed in the comparable period a year ago.
The Trust realizes most of its income from the sale of natural gas, which
sales accounted for approximately 94% of income in the current nine month period
as compared to approximately 87% in the comparable period last year.
Net income decreased approximately 48% in the current quarter over that
realized in the comparable quarter a year ago. Net income per unit amounted to
$.13 in the quarter ended September 30, 1998 and was $.26 in the quarter ended
September 30, 1997.
Distributions fluctuate from quarter to quarter due to changes in prices
and production quantities. Net income is determined by the revenue from oil and
gas produced and sold during the accounting period. Distributions, however, are
determined by the cash available on the determination date.
The distribution made to unitholders during October 1998 amounted to $.29
per unit. This distribution included approximately $.10 per unit that is
allocable to the period from October to December 1998. The overpayment resulted
from the miscalculation of the Trust's distributable cash held by the Trust as
of the date of such calculation, relating to the amount of the Trust's net
profits interests on properties located offshore of Louisiana. Due to the
overpayment to unitholders for the period ending September 30, 1998, the Trust
will have less cash to distribute for the period ending on December 31, 1998,
than it would have had if the earlier distribution had not included the
additional $.10 per unit.
The following table presents the net production quantities of oil and gas
and the net income and distributions per unit for the last five quarters.
<TABLE>
<CAPTION>
PRODUCTION
----------------------- NET CASH
QUARTER OIL (bbls) GAS (mcf) INCOME DISTRIBUTION
------- ---------- --------- ------ ------------
<S> <C> <C> <C> <C>
September 30, 1997................................ 3,608 161,936 $.26 $.09
December 31, 1997................................. 1,877 155,164 .29 .45
March 31, 1998.................................... 2,287 138,667 .33 .19
June 30, 1998..................................... 2,172 69,982 .17 .24
September 30, 1998................................ 2,006 54,454 .13 .29
</TABLE>
No wells were drilled during the current quarter. However, a well in the
West Cameron Block 165 Field was re-completed in April and tested 3,716 mcf of
gas per day (gross). The Trust has a 4.17% overriding royalty interest in the
production from the well.
The Trust's revenues are derived from the oil and gas production activities
of unrelated parties. The Trust's revenues and distributions fluctuate from
period to period based upon factors beyond the Trust's control, including
without limitation the number of leases bid on and obtained by parties subject
to the contract between the Trust's predecessors and Gulf Oil Corporation dated
April 30, 1951 (The "1951 Contract"), the number of productive wells drilled and
maintained on leases subject to the Trust's interest, the level of production
over time from such wells and the prices at which the oil and gas from such
wells is sold. The Trust believes that it will continue to have revenues
sufficient to permit distributions to be made to unitholders for the foreseeable
future, although no assurance can be made regarding the amounts thereof. The
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foregoing sentence is a forward-looking statement. Factors that might cause
actual results to differ from expected results include reductions in prices or
demand for oil and gas, which might then lead to decreased production;
reductions in production due to depletion of existing wells or disruptions in
service, including as the result of storm damage, blowouts or other production
accidents, and geological changes such as cratering of productive formations;
expiration or release of leases subject to the Trust's interests; and the
discontinuation by parties subject to the 1951 Contract of their efforts to
obtain leases in the area that is subject to the Trust's interests.
Important aspects of the Trust's operations are conducted by third parties.
These include the production and sale of oil and gas and the calculation and
payment of royalty payments to the Trust, which are conducted by oil and gas
companies that lease tracts subject to the Trust's interests. Similarly, the
Trust's distributions are processed and paid by The Bank of New York as the
agent for the trustee of the Trust. Any disruption of the Trust's operations
that results from Year 2000 problems of these third parties could have a
material adverse effect on the Trust. The Trust does not have access to
information that would permit the Trust to determine the status of these third
parties' efforts to analyze and address Year 2000 issues. The Trust intends to
monitor these parties' public announcements and disclosure regarding Year 2000
issues, and to seek direct assurances where appropriate, in an effort to ensure
that these parties address Year 2000 issues that could adversely affect the
Trust.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED SEPTEMBER 30, 1998
During the quarter ended September 30, 1998, Tidelands Royalty B
Corporation determined that $60,379 was no longer required to be reserved for
possible royalty overpayments. Accordingly accounts payable was reduced and net
income increased by that amount.
Net income for the current quarter, before the adjustment discussed in the
preceding paragraph, amounted to $126,634, down approximately 65% from the
$358,410 realized in the comparable quarter a year ago. Oil production declined
approximately 44% and gas production declined approximately 66%. Oil prices fell
approximately 47% to an average of $6.94 and the average price realized for
natural gas amounted to $3.26, including the income realized from the adjustment
referred to in the previous paragraph. The average price realized for natural
gas excluding the aforementioned adjustment was $2.15. The average price
realized in the comparable quarter a year ago was $2.02 and there were no
comparable adjustments in that quarter.
The quantities of oil and gas sold and the average prices realized for the
three months ended September 30, 1998, and those realized in the comparable 1997
quarter, are presented in the following table:
<TABLE>
<CAPTION>
1998 1997
------ -------
<S> <C> <C>
OIL
Barrels sold.............................................. 2,006 3,608
Average Price............................................. $6.94 $13.10
NATURAL GAS
Mcf sold.................................................. 54,454 161,936
Average price............................................. $3.26 $2.02
</TABLE>
7
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RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 1998
During the nine months ended September 30, 1998, Tidelands Royalty B
Corporation determined that an aggregate amount of $210,540 was no longer
required to be reserved for possible royalty overpayments. Accordingly accounts
payable was reduced and net income increased by that amount.
Net income for the current nine months, before the adjustment discussed in
the previous paragraph, amounted to $671,188, down approximately 23% from the
$874,984 realized in the comparable period a year ago. Oil production declined
24% and gas production also declined 24%. Oil prices fell approximately 43% to
an average price of $8.12 and the average price realized for natural gas
amounted to $3.26, including the income realized from the adjustment referred to
above. The average price realized for natural gas excluding the adjustment
amounted to $2.46. The $2.46 price compares to $2.25 realized a year ago. There
were no comparable adjustments a year ago.
The quantities of oil and gas sold and the average prices realized for the
nine months ended September 30, 1998 and those realized for the comparable 1997
period, are presented in the following table:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
OIL
Barrels sold.............................................. 6,465 8,471
Average Price............................................. $8.12 $14.14
NATURAL GAS
Mcf sold.................................................. 263,103 346,480
Average price............................................. $3.26 $2.25
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
27 -- Financial Data Schedule
</TABLE>
(b) Current Reports on Form 8-K:
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
TIDELANDS ROYALTY TRUST "B"
NationsBank, N.A., Trustee
November 11, 1998 By: /s/ JANE J. SHEA
-------------------------------------------------
Jane J. Shea
Vice President
November 11, 1998 By: /s/ R. RAY BELL
-------------------------------------------------
R. Ray Bell
Principal Accounting Officer
</TABLE>
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
<C> <S>
27 -- Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,740,037
<SECURITIES> 0
<RECEIVABLES> 115,158
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,862,023
<PP&E> 2
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,862,025
<CURRENT-LIABILITIES> 1,172,630
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 689,393
<TOTAL-LIABILITY-AND-EQUITY> 1,862,025
<SALES> 910,459
<TOTAL-REVENUES> 969,908
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 78,430
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 891,478
<INCOME-TAX> 9,750
<INCOME-CONTINUING> 881,728
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 881,728
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
</TABLE>
