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 June 30, 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 August 13, 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
Statements of Assets, Liabilities and Trust Corpus
June 30, 1997
(In thousands, except unit data)
(Unaudited)
<CAPTION>
June 30, December 31,
Assets 1997 1996
------ ------------ ------------
<S> <C> <C>
Royalty Interest (notes 1 and 2) $ 535,000 535,000
Less: accumulated amortization (278,866) (265,970)
-------- --------
Total assets $ 256,134 269,030
======== ========
Liabilities and Trust Corpus
----------------------------
Accrued expenses 185 90
Trust corpus (40,000,000 units of beneficial
interest authorized, 21,400,000 units
issued and outstanding) 255,949 268,940
-------- --------
Total liabilities and
Trust corpus $ 256,134 269,030
======== ========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 2
<TABLE>
BP PRUDHOE BAY ROYALTY TRUST
Statements of Cash Earnings and Distributions
(In thousands, except unit data)
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Royalty revenues $ 12,052 9,610 27,190 18,021
Trust administrative expenses 257 213 364 364
------ ----- ------ ------
Cash earnings $ 11,795 9,397 26,826 17,657
====== ===== ====== ======
Cash distributions $ 11,795 9,397 26,826 17,657
====== ===== ====== ======
Cash distributions per unit $ .551 .439 1.253 .825
====== ===== ====== ======
Units outstanding 21,400,000 21,400,000 21,400,000 21,400,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
<TABLE>
BP PRUDHOE BAY ROYALTY TRUST
Statements of Changes in Trust Corpus
(In thousands)
(Unaudited)
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Trust corpus at beginning of period $ 262,403 295,607 268,940 304,544
Cash Earnings 11,795 9,397 26,826 17,657
Decrease (increase) in
accrued expenses 29 (72) (95) (124)
Cash distributions (11,795) (9,397) (26,826) (17,657)
Amortization of Royalty Interest (6,483) (8,886) (12,896) (17,771)
------- ------- ------- -------
Trust corpus at end of period $ 255,949 286,649 255,949 286,649
======= ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements
June 30, 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 The Bank of New York (Delaware), as 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 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 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.
(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
for the three and six months ended June 30, 1997 and and $6.61 for the
<PAGE> 5
three and six months ended June 30, 1996. The remaining unamortized
balance of the net overriding Royalty Interest at June 30, 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 June 30, 1997 and December 31, 1996 and the modified
cash earnings and distributions and changes in Trust corpus for the three and
six months ended June 30, 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.
(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> 6
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 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 June 30, 1997
and 1996 are attributable to the Company's operations during the three-month
periods ended March 31, 1997 and 1996, respectively.
The following table shows the factors employed to compute the Per Barrel
Royalty received by the Trust during the quarters ended June 30, 1997 and 1996
(see "THE ROYALTY INTEREST" in Part I, Item 1 of the Trust's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996 for an explanation of
the items listed below):
<TABLE>
<CAPTION>
Quarter Ended
March 31,
-------------------
1997 1996
---- ----
<S> <C> <C>
Average WTI Price $22.86 $19.74
------ ------
Chargeable Costs $ 8.85 $ 8.50
Cost Adjustment Factor 1.2647 1.2274
------ ------
Adjusted Chargeable Costs 11.19 10.43
Production Taxes 2.61 2.17
------ ------
13.80 12.60
------ ------
Per Barrel Royalty $ 9.06 $ 7.14
====== ======
</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
<PAGE> 7
continue until the year 2009, the only factors affecting the Trust's revenues
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.
Three and Six Months Ended June 30, 1997 Compared to
Three and Six Months Ended June 30, 1996
The Trust's royalty revenues in the three-month and six-month periods
ended June 30, 1997 increased approximately 25.4% and 50.9%, respectively,
over revenues in the comparable periods ended June 30, 1996, principally as a
result of increases in the Average WTI Prices for the quarter ended March 31,
1997 (which exceeded the Average WTI Price for the quarter ended March 31,
1996 by $3.12) and for the quarter ended December 31, 1996 (which exceeded the
Average WTI Price for the quarter ended December 31, 1995 by $6.55). Total
deductions from the Average WTI Price (consisting of Adjusted Chargeable Costs
and Production Taxes) increased by only $1.20 (approximately 9.5%) from the
first quarter of 1996 to the first quarter of 1997, and by only $1.59
(approximately 13%) from the fourth quarter of 1995 to the fourth quarter of
1996.
Trust administrative expenses for the three months ended June 30, 1997
increased approximately 20.7% over the comparable period of 1996, although
Trust administrative expenses for the six months ended June 30, 1997 were
unchanged from the six months ended June 30, 1996. However, Trust
administrative expenses fell from 2.2% of revenues for the three months ended
June 30, 1996 to 2.1% of revenues for the three months ended June 30, 1997;
and from 2.0% of revenues for the six months ended June 30, 1996 to 1.3% of
revenues for the six months ended June 30, 1997.
<PAGE> 8
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 July 15, 1997, the Trust received a cash royalty payment of $8,770,318
from the Company with respect to the period April 1, 1997 to June 30, 1997
and, after deducting expenses of $221,176, distributed $8,549,142, or
approximately $0.399 per Unit, on July 23, 1997 to Unit holders of record on
July 21, 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 June 30, 1997.
<PAGE> 9
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: August 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> 10
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 six months ended June 30, 1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 535,000
<DEPRECIATION> (278,866)
<TOTAL-ASSETS> 256,134
<CURRENT-LIABILITIES> 185
<BONDS> 0
0
0
<COMMON> 255,949
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 256,134
<SALES> 0
<TOTAL-REVENUES> 27,190
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 364
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 26,826
<INCOME-TAX> 0
<INCOME-CONTINUING> 26,826
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,826
<EPS-PRIMARY> 1.253
<EPS-DILUTED> 1.253
</TABLE>
