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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 MARCH 31,
2000
[ ] 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 1-7884
MESA ROYALTY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 74-6284806
(STATE OF INCORPORATION (I.R.S. EMPLOYER
OR ORGANIZATION) IDENTIFICATION NO.)
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION
CORPORATE TRUST DIVISION
712 MAIN STREET
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
1-800-852-1422
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
As of May 10, 2000 -- 1,863,590 Units of Beneficial Interest in Mesa
Royalty Trust.
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MESA ROYALTY TRUST
STATEMENTS OF DISTRIBUTABLE INCOME
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------
2000 1999
------------- -------------
Royalty income....................... $ 1,621,389 $ 1,208,881
Interest income...................... 22,124 12,549
General and administrative expense... (4,763) (9,535)
------------- -------------
Distributable income............ $ 1,638,750 $ 1,211,895
============= =============
Distributable income per unit... $ 0.8794 $ 0.6503
============= =============
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
MARCH 31, DECEMBER 31,
2000 1999
------------ ------------
(UNAUDITED)
ASSETS
Cash and short-term investments...... $ 1,616,626 $ 1,678,624
Interest receivable.................. 22,124 6,528
Net overriding royalty interest in
oil and gas properties............. 42,498,034 42,498,034
Accumulated amortization............. (30,107,206) (29,824,772)
------------ ------------
$ 14,029,578 $ 14,358,414
============ ============
LIABILITIES AND TRUST CORPUS
Distributions payable................ $ 1,638,750 $ 1,685,152
Trust corpus (1,863,590 units of
beneficial interest
authorized and outstanding)........ 12,390,828 12,673,262
------------ ------------
$ 14,029,578 $ 14,358,414
============ ============
(The accompanying notes are an integral part of these financial statements.)
1
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MESA ROYALTY TRUST
STATEMENTS OF CHANGES IN TRUST CORPUS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
------------------------------
2000 1999
-------------- --------------
Trust corpus, beginning of period.... $ 12,673,262 $ 13,889,555
Distributable income............ 1,638,750 1,211,895
Distributions to unitholders.... (1,638,750) (1,211,895)
Amortization of net overriding
royalty interest............. (282,434) (364,466)
-------------- --------------
Trust corpus, end of period.......... $ 12,390,828 $ 13,525,089
============== ==============
(The accompanying notes are an integral part of these financial statements.)
2
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MESA ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- TRUST ORGANIZATION
The Mesa Royalty Trust (the "Trust") was created on November 1, 1979 when
Mesa Petroleum Co. conveyed to the Trust a 90% net profits overriding royalty
interest (the "Royalty") in certain producing oil and gas properties located
in the Hugoton field of Kansas, the San Juan Basin field of New Mexico and
Colorado and the Yellow Creek field of Wyoming (collectively, the "Royalty
Properties"). Mesa Petroleum Co. was the predecessor to Mesa Limited
Partnership ("MLP"), the predecessor to MESA Inc. On April 30, 1991, MLP sold
its interests in the Royalty Properties located in the San Juan Basin field to
Conoco Inc. ("Conoco"). Conoco sold the portion of its interests in the San
Juan Basin Royalty Properties located in Colorado to MarkWest Energy Partners,
Ltd. (effective January 1, 1993) and Red Willow Production Company (effective
April 1, 1992). On October 26, 1994, MarkWest Energy Partners, Ltd. sold
substantially all of its interest in the Colorado San Juan Basin Royalty
Properties to Amoco Production Company ("Amoco"), a subsidiary of BP Amoco.
Until August 7, 1997, MESA Inc. operated the Hugoton Royalty Properties through
Mesa Operating Co., a wholly owned subsidiary of MESA Inc. On August 7, 1997,
MESA Inc. merged with and into Pioneer Natural Resources Company ("Pioneer"),
formerly a wholly owned subsidiary of MESA Inc., and Parker & Parsley Petroleum
Company merged with and into Pioneer Natural Resources USA, Inc. (successor to
Mesa Operating Co.), a wholly owned subsidiary of Pioneer ("PNR")
(collectively, the mergers are referred to herein as the "Merger"). Subsequent
to the Merger, the Hugoton Royalty Properties have been operated by PNR. The San
Juan Basin Royalty Properties located in New Mexico are operated by Conoco. The
San Juan Basin Royalty Properties located in Colorado are operated by Amoco. As
used in this report, PNR refers to the operator of the Hugoton Royalty
Properties, Conoco refers to the operator of the San Juan Basin Royalty
Properties, other than the portion of such properties located in Colorado, and
Amoco refers to the operator of the Colorado San Juan Basin Royalty Properties
unless otherwise indicated. The terms "working interest owner" and "working
interest owners" generally refer to the operators of the Royalty Properties as
described above, unless the context in which such terms are used indicates
otherwise.
NOTE 2 -- BASIS OF PRESENTATION
The accompanying unaudited financial information has been prepared by Chase
Bank of Texas, National Association ("Trustee") in accordance with the
instructions to Form 10-Q, and the Trustee believes such information includes
all the disclosures necessary to make the information presented not misleading.
The information furnished reflects all adjustments which are, in the opinion of
the Trustee, necessary for a fair presentation of the results for the interim
periods presented. The financial information should be read in conjunction with
the financial statements and notes thereto included in the Trust's 1999 Annual
Report on Form 10-K.
The Mesa Royalty Trust Indenture was amended in 1985, the effect of which
was an overall reduction of approximately 88.56% in the size of the Trust;
therefore, the Trust is now entitled to receive 90% of 11.44% of the net
proceeds for the preceding month. Generally, net proceeds means the excess of
the amounts received by the working interest owners from sales of oil and gas
from the Royalty Properties over operating and capital costs incurred.
3
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The financial statements of the Trust are prepared on the following basis:
(a) Royalty income recorded for a month is the amount computed and
paid by the working interest owners to the Trustee for such month rather
than either the value of a portion of the oil and gas produced by the
working interest owners for such month or the amount subsequently
determined to be the Trust's proportionate share of the net proceeds for
such month;
(b) Interest income, interest receivable, and distributions payable
to unitholders include interest to be earned on short-term investments from
the financial statement date through the next date of distribution and;
(c) Trust general and administrative expenses, net of reimbursements,
are recorded in the month they accrue;
(d) Amortization of the net overriding royalty interests, which is
calculated on a unit-of-production basis, is charged directly to trust
corpus since such amount does not affect distributable income; and
(e) Distributions payable are determined on a monthly basis and are
payable to unitholders of record as of the last business day of each month
or such other day as the Trustee determines is required to comply with
legal or stock exchange requirements. However, cash distributions are made
quarterly in January, April, July and October, and include interest earned
from the monthly record dates to the date of distribution.
This basis for reporting distributable income is thought to be the most
meaningful because distributions to the unitholders for a month are based on net
cash receipts for such month. However, it will differ from the basis used for
financial statements prepared in accordance with accounting principles generally
accepted in the United States under such accounting principles, royalty income
for a month would be based on net proceeds from production for such month
without regard to when calculated or received and interest income for a month
would be calculated only through the end of such month.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-Q, including without
limitation the statements under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" are forward-looking statements.
Although the Working Interest Owners have advised the Trust that they believe
that the expectations reflected in the forward-looking statements contained
herein are reasonable, no assurance can be given that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from expectations ("Cautionary Statements") are disclosed in
this Form 10-Q and in the Trust's Form 10-K. All subsequent written and oral
forward-looking statements attributable to the Trust or persons acting on its
behalf are expressly qualified in their entirety by the Cautionary Statements.
SUMMARY OF ROYALTY INCOME AND AVERAGE PRICES
(UNAUDITED)
Royalty income is computed after deducting the Trust's proportionate share
of capital costs, operating costs and interest on any cost carryforward from the
Trust's proportionate share of "Gross Proceeds," as defined in the Royalty
conveyance. The following summary illustrates the net effect of the components
of the actual Royalty computation for the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------------------------
2000 1999
---------------------------- ----------------------------
OIL, OIL,
CONDENSATE CONDENSATE
NATURAL AND NATURAL NATURAL AND NATURAL
GAS GAS LIQUIDS GAS GAS LIQUIDS
------------- ------------ ------------- ------------
The Trust's proportionate share of
Gross Proceeds(1).................. $ 1,804,813 616,042 $ 1,572,933 $ 330,924
<S> <C> <C> <C> <C>
Less the Trust's proportionate share
of:
Capital costs recovered(2)(3)... (149,975) -- 24,697 --
Operating costs................. (565,379) (75,043) (691,959) (27,714)
Interest on cost carryforward... (9,069) -- -- --
------------- ------------ ------------- ------------
Royalty income....................... $ 1,080,390 540,999 $ 905,671 $ 303,210
============= ============ ============= ============
Average sales price.................. $ 2.34 17.03 $ 1.79 $ 8.68
============= ============ ============= ============
<CAPTION>
(Mcf) (Bbls) (Mcf) (Bbls)
<S> <C> <C> <C> <C>
Net production volumes attributable
to the Royalty..................... 462,586 31,762 505,339 34,926
============= ============ ============= ============
</TABLE>
- ------------
(1) Gross Proceeds from natural gas liquids attributable to the Hugoton and San
Juan Basin Properties are net of a volumetric in-kind processing fee
retained by PNR and Conoco, respectively.
(2) Capital costs recovered represents capital costs incurred during the current
or prior periods to the extent that such costs have been recovered by the
working interest owners from current period Gross Proceeds. Cost
carryforward represents capital costs incurred during the current or prior
periods which will be recovered from future period Gross Proceeds. The cost
carryforward resulting from the Fruitland Coal drilling program was $504,876
and $489,117 at March 31, 2000 and March 31, 1999, respectively. The cost
carryforward at March 31, 2000 and March 31, 1999 relate solely to the San
Juan Basin Colorado properties.
(3) In the first quarter of 1999, the Trust received credits from Conoco related
to prior overcharges on capital expenditures.
5
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THREE MONTHS ENDED MARCH 31, 2000 AND 1999
The distributable income of the Trust for each period includes the royalty
income received from the working interest owners during such period, plus
interest income earned to the date of distribution. Trust administration
expenses are deducted in the computation of distributable income. Distributable
income for the quarter ended March 31, 2000 was $1,638,750, representing $.8794
per unit, compared to $1,211,895, representing $.6503 per unit, in the first
quarter ended March 31, 1999. Based on 1,863,590 units outstanding for the
quarters ended March 31, 2000 and 1999, respectively, the per unit distributions
were as follows:
2000 1999
--------- ---------
January.............................. $ .3510 $ .1964
February............................. .2801 .2361
March................................ .2483 .2178
--------- ---------
$ .8794 $ .6503
========= =========
HUGOTON FIELD
PNR has advised the Trust that since June 1, 1995 natural gas produced from
the Hugoton field has generally been sold under short-term and multi-month
contracts at market clearing prices to multiple purchasers including Williams
Energy Supply ("WESCO"), Oneok Gas Marketing, Inc., Amoco Production Company
and Anadarko Energy Services, Inc. PNR has advised the Trust that it expects to
continue to market gas production from the Hugoton field under short-term and
multi-month contracts. Overall market prices received for natural gas from the
Hugoton Royalty Properties were higher in the first quarter of 2000 compared to
the first quarter of 1999.
In June 1994, PNR entered into a Gas Transportation Agreement ("Gas
Transportation Agreement") with Western Resources, Inc. ("WRI") for a primary
term of five years commencing June 1, 1995 and ending June 1, 2000, but which
may be continued in effect year-to-year thereafter. Pursuant to the Gas
Transportation Agreement, WRI has agreed to compress and transport up to 160
MMcf per day of gas and redeliver such gas to PNR at the inlet of PNR's Satanta
Plant. PNR agreed to pay WRI a fee of $0.06 per Mcf escalating 4% annually as of
June 1, 1996. This Gas Transportation Agreement was assigned to Midcontinent
Market Center.
Royalty income attributable to the Hugoton Royalty increased to $1,111,789
in the first quarter of 2000, from $707,960 in the first quarter of 1999
primarily due to higher prices received for production of natural gas and
liquids from the Hugoton Royalty Properties. The average price received in the
first quarter of 2000 for natural gas and natural gas liquids sold from the
Hugoton Royalty Properties was $2.41 per MCF and $16.41 per barrel,
respectively, compared to $1.82 per Mcf and $8.53 per barrel, respectively, in
the first quarter of 1999. Net production attributable to the Hugoton Royalty
increased to 306,027 Mcf of natural gas and decreased to 22,807 barrels of
natural gas liquids in the first quarter of 2000 from 271,234 Mcf of natural gas
and 25,125 barrels of natural gas liquids in the first quarter of 1999.
Allowable rates of production in the Hugoton field are set by the Kansas
Corporation Commission (the "KCC") based on the level of market demand. The
KCC has set the Hugoton field allowable for the period April 1, 2000 through
September 30, 2000, at 170.5 Bcf of gas, compared with 184.6 Bcf of gas during
the same period last year.
SAN JUAN BASIN
Royalty income from the San Juan Basin Royalty Properties is calculated and
paid to the Trust on a state-by-state basis. Royalty income from the San Juan
Basin Royalty Properties located in the state of New Mexico was $509,600 during
the first quarter of 2000 as compared with royalty income of
6
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$500,921 in the first quarter of 1999. The increase in Royalty income was due
primarily to increased natural gas and natural gas liquids prices in the first
quarter of 2000. No royalty income was received from Amoco with respect to
the San Juan Basin Royalty Properties located in the state of Colorado for the
first quarter of 2000 or 1999, as costs associated with the Fruitland Coal
drilling program on such properties have not been fully recovered. Net
production attributable to the San Juan Basin Royalty was 156,559 Mcf of natural
gas and 8,955 barrels of natural gas liquids in the first quarter of 2000,
compared to 234,105 Mcf of natural gas and 9,801 barrels of natural gas liquids
in the first quarter of 1999. The average price received in the first quarter of
2000 for natural gas sold from the San Juan Basin Royalty Properties was $2.19
per Mcf, compared to $1.76 per Mcf during the same period in 1999.
The Trust's interest in the San Juan Basin was conveyed from PNR's working
interest in 31,328 net producing acres in northwestern New Mexico and
southwestern Colorado. The San Juan Basin-New Mexico reserves represent
approximately 51% of the Trust's reserves. Substantially all of the natural gas
produced from the San Juan Basin is currently being sold on the spot market. PNR
completed the sale of its underlying interest in the San Juan Basin Royalty
Properties to Conoco on April 30, 1991. Conoco subsequently sold its underlying
interest in the Colorado portion of the San Juan Basin Royalty Properties to
MarkWest Energy Partners, Ltd. (effective January 1, 1993) and Red Willow
Production Company (effective April 1, 1992). On October 26, 1994, MarkWest
Energy Partners, Ltd. sold substantially all of its interest in the Colorado San
Juan Basin Royalty Properties to Amoco. The San Juan Basin Royalty Properties
located in Colorado account for less than 5% of the Trust's reserves.
No distributions related to the Colorado portion of the San Juan Basin
Royalty have been made since 1990, as the costs of the Fruitland Coal drilling
in Colorado have not yet been recovered. The San Juan Basin development drilling
program has no effect on Royalty income or distributions relating to the Hugoton
Royalty.
Conoco has informed the Trust that it believes the production from the
Fruitland Coal formation will generally qualify for the tax credits provided
under Section 29 of the Internal Revenue Code of 1986, as amended. Thus,
unitholders are potentially eligible to claim their share of the tax credit
attributable to this qualifying production. Each unitholder should consult his
tax advisor regarding the limitations and requirements for claiming this tax
credit.
7
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PART II -- OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
(Asterisk indicates exhibit previously filed with the Securities and
Exchange Commission and incorporated herein by reference. Chase Bank of Texas,
National Association is the successor name of Texas Commerce Bank National
Association.)
<TABLE>
<CAPTION>
SEC FILE
OR
REGISTRATION EXHIBIT
NUMBER NUMBER
------------ -------
<C> <S> <C> <C>
4(a) *Mesa Royalty Trust Indenture between Mesa Petroleum Co. and Texas
Commerce Bank National Association, as Trustee, dated November 1,
1979.................................................................... 2-65217 1(a)
4(b) *Overriding Royalty Conveyance between Mesa Petroleum Co. and Texas
Commerce Bank, as Trustee, dated November 1, 1979....................... 2-65217 1(b)
4(c) *First Amendment to the Mesa Royalty Trust Indenture dated as of March
14, 1985 (Exhibit 4(c) to Form 10-K for year ended December 31, 1984 of
Mesa Royalty Trust)..................................................... 1-7884 4(c)
4(d) *Form of Assignment of Overriding Royalty Interest, effective April 1,
1985, from Texas Commerce Bank National Association, as Trustee, to MTR
Holding Co. (Exhibit 4(d) to Form 10-K for year ended December 31, 1984
of Mesa Royalty Trust).................................................. 1-7884 4(d)
4(e) *Purchase and Sale Agreement, dated March 25, 1991, by and among Mesa
Limited Partnership, Mesa Operating Limited Partnership and Conoco, as
amended on April 30, 1991 (Exhibit 4(e) to Form 10-K for year ended
December 31, 1991 of Mesa Royalty Trust)................................ 1-7884 4(e)
27 Financial Data Schedule
</TABLE>
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission by the Trust during the first quarter of 2000.
8
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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.
MESA ROYALTY TRUST
CHASE BANK OF TEXAS,
By NATIONAL ASSOCIATION
-----------------------------------
TRUSTEE
By /s/ PETE FOSTER
-----------------------------------
PETE FOSTER
SENIOR VICE PRESIDENT & TRUST
OFFICER
Date: May 10, 2000
The Registrant, Mesa Royalty Trust, has no principal executive officer,
principal financial officer, board of directors or persons performing similar
functions. Accordingly, no additional signatures are available and none have
been provided.
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MESA ROYALTY
TRUST FORM 10-Q FOR THE QUARTERLY PERIOD ENDED 03/31/00 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,616,626
<SECURITIES> 0
<RECEIVABLES> 22,124
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 42,498,034
<DEPRECIATION> (30,107,206)
<TOTAL-ASSETS> 14,029,578
<CURRENT-LIABILITIES> 1,638,750
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 12,390,828
<TOTAL-LIABILITY-AND-EQUITY> 14,029,578
<SALES> 0
<TOTAL-REVENUES> 1,643,513
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,763
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,638,750
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,638,750
<EPS-BASIC> .87
<EPS-DILUTED> .87
</TABLE>
