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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 JUNE 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 OF TEXAS, 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)
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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 June 30, 1998
---------------------------- --------------------------------------
<S> <C>
UNITS OF BENEFICIAL INTEREST 1,386,375
</TABLE>
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PART I. FINANCIAL INFORMATION
TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
---------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $1,924,316 $2,257,909
Oil and gas royalties receivable.......................... 138,934 159,737
Federal income taxes refundable........................... 4,828 3,578
---------- ----------
Total current assets.............................. $2,068,078 $2,421,224
---------- ----------
Oil, gas and other mineral properties....................... 2 2
---------- ----------
$2,068,080 $2,421,226
========== ==========
LIABILITIES AND TRUST EQUITY
Current Liabilities:
Accounts payable.......................................... $ 837,208 $ 987,641
Income distributable to unitholders....................... 329,568 629,612
---------- ----------
Total current liabilities......................... $1,166,776 $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...................................... 901,302 803,971
---------- ----------
Total trust equity................................ 901,304 803,973
---------- ----------
$2,068,080 $2,421,226
========== ==========
</TABLE>
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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
-------------------- --------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income:
Oil and gas royalties......................... $251,970 $291,695 $719,215 $524,008
Interest and other............................ 20,233 19,794 39,918 38,255
-------- -------- -------- --------
$272,203 $311,489 $759,133 $562,263
-------- -------- -------- --------
Expenses:
Production and other taxes.................... 0 0 620 620
General and administrative.................... 34,288 18,176 56,048 37,469
-------- -------- -------- --------
Total expenses........................ 34,288 18,176 56,668 38,089
-------- -------- -------- --------
Income before Federal income taxes............ 237,915 293,313 702,465 524,174
Federal income taxes of subsidiary............ 3,750 3,900 7,750 7,600
-------- -------- -------- --------
Net income............................ $234,165 $289,413 $694,715 $516,574
======== ======== ======== ========
Net income per unit............................. $ 0.17 $ 0.21 $ 0.50 $ 0.37
======== ======== ======== ========
Distributions per unit.......................... $ 0.24 $ 0.13 $ 0.43 $ 0.30
======== ======== ======== ========
</TABLE>
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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 694,715 $ 516,574
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in assets and liabilities:
Accounts receivable.................................. 20,803 (107,736)
Federal income taxes................................. (1,250) 3,248
Accounts payable..................................... (150,433) (1,100)
---------- ----------
Net cash provided by operating activities......... 563,835 410,986
---------- ----------
Cash flows from financing activities -- distributions to
unitholders............................................... (897,428) (457,225)
Net increase (decrease) in cash and cash equivalents...... (333,593) (46,239)
Cash and cash equivalents at beginning of period............ 2,257,909 1,763,020
---------- ----------
Cash and cash equivalents at end of period.................. $1,924,316 $1,716,781
========== ==========
</TABLE>
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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30, 1998 consisted of $322,609 applicable
to the Trust and $578,693 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 $406,781 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.
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 six months ended June 30, 1998 amounted to $.50 per
unit, an increase of $.13 over the $.37 realized in the comparable period a year
ago. Cash distributions to unitholders amounted to $.43 per unit in the current
period, an increase of $.13 from the $.30 per unit distributed in the comparable
period a year ago.
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The Trust realizes most of its income from the sale of natural gas, which
sales accounted for approximately 95% of income in the current six month period
as compared to approximately 86% in the comparable period last year. Revenue
from the sale of oil was responsible for approximately 5% of the Trust's income
in the current six month period, down from approximately 14% in the comparable
period last year. The change in the ratio of income from the sale of natural gas
to income from the sale of oil resulted primarily from an increase in natural
gas revenue and lower oil prices in the current six month period.
Net income decreased approximately 19% in the current quarter over that
realized in the comparable quarter a year ago. Net income per unit amounted to
$.17 in the quarter ended June 30, 1998 and was $.21 in the quarter ended June
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 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>
June 30, 1997..................................... 3,287 106,286 $.21 $.13
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
</TABLE>
One new well has been drilled during the current quarter. The well is
located on West Cameron Block 291 and was drilled to a total depth of 14,625
feet. Production from this well, if any, is not expected until the fourth
quarter.
During the past six months the posted price for oil delivered onshore in
Louisiana reached a low of $12.65 in June down approximately 22% from the price
in January. The average price received by Tidelands was $8.66. The price is low
due to the high cost of transportation from the lease to the onshore delivery
point.
The spot-price indicators for gas delivered onshore in Louisiana was $2.27
per Mmbtu in January. In June the price was $2.03. The average well head price
received by Tidelands during the past six months, for current production, was
$2.54 per mcf.
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.
The Trust's business consists solely of the collection of royalty payments,
the payment of expenses and the distribution of remaining amounts to
unitholders. The Trust owns only one personal computer, which is used by the
Trust for certain accounting and general business functions. The Trust believes
that the computer and the software used thereon are Year 2000 compliant. The
Trust also believes that the Trust does not own or lease any other assets
containing imbedded computer chips, the failure of which would have a material
adverse effect on the Trust.
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 JUNE 30, 1998
During the quarter ended June 30, 1998, Tidelands Royalty B Corporation
determined that $77,524 was no longer required to be reserved for possible
royalty overpayments. Accordingly accounts payable was reduced and net income
increased by $77,524.
Net income for the current quarter, before the adjustment discussed in the
previous paragraph, amounted to $156,641, down approximately 46% from the
$289,413 realized in the comparable quarter a year ago. Oil production was down
approximately 34% and gas production was down approximately 46%. Oil prices
declined approximately 44% to an average price of $7.82 and the average price
realized for natural gas amounted to $3.36, including the income realized from
the adjustment referred to above. The average price realized for natural gas
amounted to $2.25 excluding such adjustment. The $2.25 price compares to $2.30 a
year ago.
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The quantities of oil and gas sold and the average prices for oil and gas
for the three months ended June 30, 1998, and those recorded for the comparable
1997 period, are presented in the following table:
<TABLE>
<CAPTION>
1998 1997
------ -------
<S> <C> <C>
OIL
Barrels sold.............................................. 2,172 3,287
Average Price............................................. $7.82 $13.95
NATURAL GAS
mcf sold.................................................. 69,982 106,286
Average price............................................. $3.36 $2.30
</TABLE>
RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1998
During the six months ended June 30, 1998, Tidelands Royalty B Corporation
determined that an aggregate amount of $150,161 was no longer required to be
reserved for possible royalty overpayments. Accordingly accounts payable was
reduced and net income increased by $150,161.
Net income for the current six months, before the adjustment discussed in
the previous paragraph, amounted to $544,554, up approximately 5% from the
$516,574 realized in the comparable period a year ago. Oil production was down
approximately 8% and gas production was up approximately 13%. Oil prices
declined approximately 42% to an average price of $8.66 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
amounted to $2.54 excluding such adjustment. The $2.54 price compares to $2.45 a
year ago.
The quantities of oil and gas sold and the average prices for oil and gas
for the six months ended June 30, 1997, and those recorded for the comparable
1996 period, are presented in the following table:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
OIL
Barrels sold.............................................. 4,459 4,863
Average Price............................................. $8.66 $14.92
NATURAL GAS
mcf sold.................................................. 208,649 184,554
Average price............................................. $3.26 $2.45
</TABLE>
PART II. OTHER INFORMATION
There were no events reportable under Part II of the Quarterly Report on
Form 10-Q.
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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 of Texas, N.A., Trustee
August 11, 1998 By: /s/ JANE J. SHEA
-------------------------------------------------
Jane J. Shea
Vice President
August 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,924,316
<SECURITIES> 0
<RECEIVABLES> 138,934
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,068,078
<PP&E> 2
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,068,080
<CURRENT-LIABILITIES> 1,166,776
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 901,302
<TOTAL-LIABILITY-AND-EQUITY> 2,068,080
<SALES> 719,215
<TOTAL-REVENUES> 759,133
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 56,668
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 702,465
<INCOME-TAX> 7,750
<INCOME-CONTINUING> 694,715
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 694,715
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
</TABLE>
