<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
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, 1999
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.)
BANK OF AMERICA, 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, 1999
---------------------------- --------------------------------------
<S> <C>
UNITS OF BENEFICIAL INTEREST 1,386,375
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
TIDELANDS ROYALTY TRUST "B"
INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED).................... 2
Condensed Consolidated Balance Sheets September 30, 1999 and
December 31, 1998......................................... 2
Condensed Consolidated Statements of Income and
Undistributed Income -- Three Months and Nine Months Ended
September 30, 1999 and 1998............................... 3
Condensed Consolidated Statements of Cash Flows -- Nine
Months Ended September 30, 1999 and 1998.................. 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 DISCLOSURES ABOUT
MARKET RISK............................................... 8
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................... 8
Signatures.................................................. 9
Exhibit Index............................................... 10
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $1,556,723 $1,525,131
Oil and gas royalties receivable.......................... 144,094 113,214
Federal income taxes receivable........................... 2,699 7,578
---------- ----------
Total current assets.............................. $1,703,516 $1,645,923
Oil, gas and other mineral properties....................... 2 2
---------- ----------
$1,703,518 $1,645,925
========== ==========
LIABILITIES AND TRUST EQUITY
Current Liabilities:
Accounts payable.......................................... $ 451,424 $ 645,567
Income distributable to unitholders....................... 336,857 107,334
---------- ----------
Total current liabilities......................... $ 788,281 $ 752,901
---------- ----------
Trust Equity:
Corpus -- authorized 1,386,525 units of beneficial
interest, issued 1,386,375 units at nominal value...... 2 2
Undistributed income...................................... 915,235 893,022
---------- ----------
Total trust equity................................ 915,237 893,024
---------- ----------
$1,703,518 $1,645,925
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 4
TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND UNDISTRIBUTED INCOME
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Income:
Oil and gas royalties...................... $ 272,059 $ 191,244 $ 842,543 $ 910,459
Interest and other......................... 16,448 19,531 49,825 59,449
---------- ---------- ---------- ----------
Total income....................... 288,507 210,775 892,368 969,908
---------- ---------- ---------- ----------
Expenses:
General and administrative................. 19,379 21,762 70,670 78,430
---------- ---------- ---------- ----------
Income before Federal income taxes......... 269,128 189,013 821,698 891,478
Federal income taxes of subsidiary........... 4,075 2,000 10,590 9,750
---------- ---------- ---------- ----------
Net income......................... 265,053 187,013 811,108 881,728
Undistributed income at beginning of
period..................................... 987,039 901,302 893,022 803,971
---------- ---------- ---------- ----------
1,252,092 1,008,315 1,704,130 1,685,699
Distributions to unitholders................. 336,857 398,922 788,895 996,306
---------- ---------- ---------- ----------
Undistributed income at end of period........ $ 915,235 $ 689,393 $ 915,235 $ 689,393
========== ========== ========== ==========
Net income per unit.......................... $ 0.19 $ 0.13 $ 0.59 $ 0.64
========== ========== ========== ==========
Distributions per unit....................... $ 0.24 $ 0.29 $ 0.57 $ 0.72
========== ========== ========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial Statements.
3
<PAGE> 5
TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 811,108 $ 881,728
Adjustments to reconcile net income to net cash provided
by operating activities:
Change in assets and liabilities:
Oil and gas royalties receivable..................... (30,880) 44,579
Federal income taxes receivable...................... 4,879 (3,250)
Accounts payable..................................... (194,146) (213,936)
---------- -----------
Net cash provided by operating activities......... 590,961 709,121
---------- -----------
Cash flows from financing activities -- distributions to
unitholders............................................... (559,369) (1,226,993)
Net increase (decrease) in cash and cash equivalents...... 31,592 (517,872)
Cash and cash equivalents at beginning of period............ 1,525,131 2,257,909
---------- -----------
Cash and cash equivalents at end of period.................. $1,556,723 $ 1,740,037
========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 6
TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(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 on Form 10-K for the
fiscal year ended December 31, 1998. 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. Operating results for the three and nine months ended September 30,
1999, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999.
UNDISTRIBUTED INCOME
Undistributed income as of September 30, 1999 consisted of $255,258
applicable to the Trust and $659,977 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
The Trust's Subsidiary, Tidelands Royalty B Corporation, has a remaining
account payable of $99,000 to cover refunds that may be required upon
redetermination of gas prices for royalty payments in prior periods and $346,268
for possible overpayments received on production payments. During the quarter
ended September 30, 1999 it was determined that $71,138 was no longer required
to be reserved for possible royalty overpayments. Accordingly accounts payable
was reduced and oil and gas royalties were increased by that amount.
5
<PAGE> 7
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
Natural gas sales started to decline during the second quarter of 1999 and
while there was an increase in the third quarter, sales did not return to the
levels of the first quarter. The decline is due to the decrease in gas
production from the Galveston Block 303 Field.
Oil sales volumes in the first nine months of 1999 were up from the levels
realized in the comparable period in 1998. And oil sales volumes for the third
quarter of 1999 are up over the comparable period in 1998. Also oil prices have
increased significantly during the past year. Oil royalties amounted to 15% of
the Trust's total royalties during the first nine months of 1999, up from 6% a
year ago.
The average price received for natural gas so far in 1999 is less than that
realized in the comparable period in 1998. However, the average price received
in the third quarter shows a significant upward trend. Royalties from gas sales
accounted for 85% of total royalties during the current nine month period, down
from 94% in the comparable period a year ago.
There were no wells drilled on the leases during the quarter but Well
Number 1 on High Island Block 128 was recompleted in an upper zone.
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, 1998................................ 2,006 54,454 $.13 $.29
December 31, 1998................................. 3,470 142,233 .22 .08
March 31, 1999.................................... 2,573 171,015 .26 .17
June 30, 1999..................................... 4,710 28,913 .13 .16
September 30, 1999................................ 2,791 51,287 .19 .24
</TABLE>
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
6
<PAGE> 8
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 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 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 has inquired of certain of these
third parties regarding their Year 2000 compliance efforts and will continue to
monitor these parties' public announcements regarding Year 2000 issues.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
During the quarters ended September 30, 1999 and 1998, Tidelands Royalty B
Corporation determined that $71,138 and $60,379 respectively, was no longer
required to be reserved for possible royalty overpayments. Accordingly accounts
payable was reduced and oil and gas royalties were increased by those amounts.
Net income for the current quarter amounted to $265,053 (including the
$71,138 release of the accounts payable reserve), up approximately 42% from the
$187,013 (including the $60,379 release of the accounts payable reserve),
realized in the comparable quarter a year ago.
Revenue from oil royalties increased to $49,650 in the current quarter from
$13,916 realized in the comparable period a year ago. Increases were realized in
sales quantities and price.
Revenue from gas royalties increased 25% to $222,409 in the current quarter
from $177,328 in the comparable period a year ago. The gas revenue figures
include the additional revenue from the reduction of the accounts payable
reserve as discussed above. The decline in sales quantities was offset by the
increase in price.
7
<PAGE> 9
The quantities of oil and gas sold and the average prices realized from
current operations without the revenues realized from the reduction of the
accounts payable reserve as described above for the three months ended September
30, 1999, and those realized in the comparable 1998 quarter, are presented in
the following table:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
OIL
Barrels sold.............................................. 2,791 2,006
Average Price............................................. $17.79 $6.94
NATURAL GAS
Mcf sold.................................................. 51,287 54,454
Average price............................................. $2.95 $2.15
</TABLE>
RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
During the nine months ended September 30, 1999 and 1998, Tidelands Royalty
B Corporation determined that $192,402 and $210,540 respectively, was no longer
required to be reserved for possible royalty overpayments. Accordingly accounts
payable was reduced and oil and gas royalties were increased by those amounts.
Net income for the current nine months amounted to $811,108 (including the
$192,402 release of the accounts payable reserve), down approximately 8% from
the $881,728 (including the $210,540 release of the accounts payable reserve),
realized in the comparable period a year ago.
Revenue from oil royalties increased to $130,094 in the current nine months
from $52,525 realized in the comparable period a year ago. Increases were
realized in sales quantities and price.
Revenue from gas royalties decreased 17% to $712,449 in the current nine
months from $857,934 in the comparable period a year ago. The gas revenue
figures include the additional revenue from the reduction of the accounts
payable reserve as discussed above. Decreases were realized in both sales
quantities and price.
The quantities of oil and gas sold and the average prices realized from
current operations without the revenues realized from the reduction of the
accounts payable reserve as described above for the nine months ended September
30, 1999, and those realized in the comparable 1998 period, are presented in the
following table:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
OIL
Barrels sold.............................................. 10,074 6,465
Average Price............................................. $12.91 $8.12
NATURAL GAS
Mcf sold.................................................. 251,215 263,103
Average price............................................. $2.07 $2.46
</TABLE>
8
<PAGE> 10
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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
9
<PAGE> 11
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"
Bank of America, N.A., Trustee
November 15, 1999 By: /s/ CINDY STOVER MILLER
-------------------------------------------------
Cindy Stover Miller
Vice President
November 15, 1999 By: /s/ R. RAY BELL
-------------------------------------------------
R. Ray Bell
Principal Accounting Officer
</TABLE>
10
<PAGE> 12
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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,556,723
<SECURITIES> 0
<RECEIVABLES> 144,094
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,703,516
<PP&E> 2
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,703,518
<CURRENT-LIABILITIES> 788,281
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 915,235
<TOTAL-LIABILITY-AND-EQUITY> 1,703,518
<SALES> 842,543
<TOTAL-REVENUES> 892,368
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 70,670
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 821,698
<INCOME-TAX> 10,590
<INCOME-CONTINUING> 811,108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 811,108
<EPS-BASIC> 0.59
<EPS-DILUTED> 0.59
</TABLE>
