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, 1997
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 1-10243
BP PRUDHOE BAY ROYALTY TRUST
(Exact name of registrant as specified in its charter)
Delaware 13-6943724
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
THE BANK OF NEW YORK
101 Barclay Street
New York, New York 10286
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 815-5092
Not applicable
(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 [ ]
As of May 14, 1997 21,400,000 Units of Beneficial Interest were
outstanding.
<PAGE> 1
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
BP PRUDHOE BAY ROYALTY TRUST
Statement of Assets, Liabilities and Trust Corpus
March 31, 1997
(In thousands, except unit data)
(Unaudited)
<CAPTION>
March 31, December 31,
Assets 1997 1996
------ ------------ ------------
<S> <C> <C>
Royalty Interest (notes 1 and 2) $ 535,000 535,000
Less: accumulated amortization (272,383) (265,970)
-------- --------
Total assets $ 262,617 269,030
======== ========
Liabilities and Trust Corpus
----------------------------
Accrued expenses 214 90
Trust corpus (40,000,000 units of
beneficial interest authorized,
21,400,000 units issued and
outstanding) 262,403 268,940
-------- --------
Total liabilities and
Trust corpus $ 262,617 269,030
======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 2
<TABLE>
BP PRUDHOE BAY ROYALTY TRUST
Statement of Cash Earnings and Distributions
(In thousands, except unit data)
(Unaudited)
<CAPTION>
Three months ended
March 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Royalty revenues $ 15,138 8,411
Trust administrative expenses 107 151
------ -----
Cash earnings $ 15,031 8,260
====== =====
Cash distributions $ 15,031 8,260
====== =====
Cash distributions per unit $ .70 .39
====== =====
Units outstanding 21,400,000 21,400,000
========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
<TABLE>
BP PRUDHOE BAY ROYALTY TRUST
Statement of Changes in Trust Corpus
(In thousands)
(Unaudited)
<CAPTION>
Three months ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Trust corpus at beginning of period $ 268,940 304,544
Cash Earnings 15,031 8,260
Increase in accrued Trust expenses (124) (52)
Cash distributions (15,031) (8,260)
Amortization of Royalty Interest (6,413) (8,885)
------- -------
Trust corpus at end of period $ 262,403 295,607
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements
March 31, 1997
(Unaudited)
(1) Formation of the Trust and Organization
BP Prudhoe Bay Royalty Trust (the "Trust") was formed pursuant to a
Trust Agreement dated February 28, 1989 among The Standard Oil Company
("Standard Oil"), BP Exploration (Alaska) Inc. (the "Company"), The Bank of New
York (the "Trustee") and a co-trustee. Standard Oil and the Company are
indirect wholly owned subsidiaries of The British Petroleum Company p.l.c.
("BP").
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, effective February 28, 1989, a per
barrel royalty (the "Per Barrel Royalty") on 16.4246% of 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 (the "Royalty Production") from the Company's
working interest as of February 28, 1989 in the Prudhoe Bay Unit, located on
the North Slope of Alaska. Trust Unit holders will remain subject at all
times 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 by the Company of its payment obligations with respect to the
Royalty Interest.
The co-trustees of the Trust are The Bank of New York, a New York
corporation authorized to do a banking business, 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
Trust Act. The Bank of New York alone is able to exercise the rights and
powers granted to the Trustee in the Trust Agreement.
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 in certain situations for inflation) and
Production Taxes (based on statutory rates then in existence). For years
subsequent to 2001, Chargeable Costs will be reduced up to a maximum amount of
$1.20 per barrel in each year if additions to the Prudhoe Bay Unit's proved
reserved do not meet certain specific levels.
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
<PAGE> 5
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 expenses, in the month succeeding the end of each calendar quarter.
The Trust will terminate upon the first to occur of the following events:
(a) On or prior to December 31, 2010: upon a vote of Trust Unit
holders of not less than 70% of the outstanding Trust Units.
(b) After December 31, 2010: (i) upon a vote of Trust Unit 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).
(2) Basis of Accounting
The financial statements of the Trust are prepared on a modified cash
basis and reflect the Trust's assets, liabilities and trust corpus and
earnings and distributions as follows:
(a) 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.
(b) Trust expenses (which include accounting, engineering, legal,
and other professional fees, trustees' fees and out-of-pocket expenses)
are recorded when incurred.
(c) Amortization of the Royalty Interest is calculated based on
the units-of-production attributable to the Trust over the production of
estimated proved reserves attributable to the Trust (approximately
111,000,000 barrels at December 31, 1996), is charged directly to the
Trust corpus, and does not affect cash earnings. The rate for
amortization per net equivalent barrel of oil and condensate was $4.82
and $6.61 for the three months ended March 31, 1997 and 1996,
respectively. The remaining unamortized balance of the net overriding
Royalty Interest at March 31, 1997 is not necessarily indicative of the
fair market value of the interest held by the Trust.
While these statements differ from financial statements prepared in
accordance with generally accepted accounting principles, the cash basis of
reporting revenues and distributions is considered to be the most meaningful
because quarterly distributions to the 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 Trust
corpus of the Trust as of March 31, 1997 and December 31, 1996 and the
modified cash earnings and distributions and changes in Trust corpus for the
three months ended March 31, 1997 and 1996. The adjustments are of a normal
recurring nature and are, in the opinion of management, necessary to fairly
present the results of operations for the period.
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.
<PAGE> 6
(3) Income Taxes
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 an association taxable as a corporation. The
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 Unit Holders on
their respective tax returns.
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 Trust's tax liability as an association.
<PAGE> 7
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Trust is a passive entity, and the Trustee's activities are limited
to collecting and distributing the revenues from the Royalty Interest and
paying liabilities and expenses of the Trust. 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, generally, Note 1
of Notes to Financial Statements in Part I, Item 1, and the discussion under
"THE PRUDHOE BAY UNIT - Reserve Estimates" and "INDEPENDENT OIL AND GAS
CONSULTANTS' REPORT" in Item 1 of the Trust s Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 for information concerning the
estimated future net revenues of the Trust.
Results of Operations
Royalty revenues are generally received on the Quarterly Record Date
(generally the fifteenth day of the month) following the end of the calendar
quarter in which the related Royalty Production occurred. The Trustee, to the
extent possible, pays all expenses of the Trust for each quarter on the
Quarterly Record Date on which the revenues for the quarter are received.
Both revenues and Trust expenses are recorded on a cash basis and, as a
result, royalties paid to the Trust and distributions to Unit holders in the
quarters ended March 31, 1997 and 1996 are attributable to the Company's
operations during the three-month periods ended December 31, 1996 and 1995,
respectively.
The following table shows the factors employed to compute the Per Barrel
Royalty received by the Trust during the quarters ended March 31, 1997 and
1996 (see Note 1 of Notes to Financial Statements in Part I, Item 1):
<TABLE>
<CAPTION>
Quarter Ended
December 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
Average WTI Price $24.71 $18.16
------ ------
Chargeable Costs $ 8.50 $ 8.25
Cost Adjustment Factor 1.2568 1.2171
------ ------
Adjusted Chargeable Costs 10.68 10.04
Production Taxes 2.89 1.94
------ ------
13.57 11.98
------ ------
Per Barrel Royalty $11.13 $ 6.18
====== ======
</TABLE>
As long as the Company's average daily net production from the Prudhoe
Bay Unit exceeds 90,000 barrels, which the Company currently projects will
continue until the year 2009, the only factors affecting the Trust's revenues
<PAGE> 8
and distributions to Unit holders are changes in WTI Prices, scheduled annual
increases in Chargeable Costs, changes in the Consumer Price Index, changes in
Production Taxes and changes in the expenses of the Trust.
Quarter Ended March 31, 1997 Compared to
Quarter Ended March 31, 1996
The Trust's royalty revenues in the quarter ended March 31, 1997
increased approximately 80 percent over revenues in the quarter ended
March 31, 1996, principally as a result of the increase in the Average WTI
Price for the quarter ended December 31, 1996, which exceeded the Average WTI
Price for the quarter ended December 31, 1995 by $6.55 (an increase of
approximately 36 percent). Total deductions from the Average WTI Price
(consisting of Adjusted Chargeable Costs and Production Taxes) increased by
only $1.59 (approximately 13 percent) from the fourth quarter of 1995 to the
fourth quarter of 1996.
Cash earnings and distributions for the first quarter of 1997 increased
by approximately 82 percent over the first quarter of 1996 due to lower Trust
administrative expenses in the quarter ended March 31, 1997 than in the
corresponding quarter of 1996.
<PAGE> 9
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
On April 15, 1997, the Trust received a cash distribution of $12,052,511
from the Company with respect to the quarter ended March 31, 1997 and, after
deducting expenses of $257,416, distributed $11,795,095, or approximately
$0.55 per Unit, to Unit holders of record on April 15, 1997.
ITEM 6. EXHIBITS AND REPORTS ON 8-K
(a) 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.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
1997.
<PAGE> 10
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.
BP PRUDHOE BAY ROYALTY TRUST
BY: THE BANK OF NEW YORK,
as Trustee
By: /s/ Marie Trimboli
------------------------
Marie Trimboli
Assistant Treasurer
Date: May 14, 1997
The registrant is a trust and has no officers or persons performing
similar functions. No additional signatures are available and none have been
provided.
<PAGE>
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.
**27. Financial Data Schedule.
- ---------
* Incorporated by reference to the correspondingly numbered exhibit to
the registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (Commission File No. 1-10243).
** Filed herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
unaudited financial statements of BP Prudhoe Bay Royalty Trust as of and for the
fiscal quarter ended March 31, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 535,000
<DEPRECIATION> (272,383)
<TOTAL-ASSETS> 262,617
<CURRENT-LIABILITIES> 214
<BONDS> 0
0
0
<COMMON> 262,403
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 262,617
<SALES> 0
<TOTAL-REVENUES> 15,138
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,031
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,031
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,031
<EPS-PRIMARY> 0.70
<EPS-DILUTED> 0.70
</TABLE>
