<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 2000
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Commission file number 1-10243
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BP PRUDHOE BAY ROYALTY TRUST
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-6943724
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(State or Other Jurisdiction (I.R.S. Employer
of incorporation or Organization) Identification No.)
The Bank of New York, 101 Barclay Street, New York, NY 10286
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(Address of Principal Executive Office of Trustee) (Zip Code)
Trustee's Telephone Number, Including Area Code: (212) 815-5092
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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 [ ]
As of August 15, 2000, 21,400,000 Units of Beneficial Interest were
outstanding
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements.
BP PRUDHOE BAY ROYALTY TRUST
Statements of Assets, Liabilities and Trust Corpus
(In thousands, except unit data)
<TABLE>
<CAPTION>
June 30,
2000 December 31,
(Unaudited) 1999
------- -------
Assets
<S> <C> <C>
Royalty Interest, net (note 3) $21,340 22,596
Cash 1,000 500
------- -------
Total assets $22,340 23,096
======= =======
Liabilities and Trust Corpus
Accrued expenses $ 538 470
Trust Corpus (40,000,000 units of beneficial
interest authorized, 21,400,000 units issued
and outstanding) 21,802 22,626
------- -------
Total liabilities and Trust Corpus $22,340 23,096
======= =======
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
BP PRUDHOE BAY ROYALTY TRUST
Statements of Cash Earnings and Distributions
(In thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Royalty revenues $ 16,841 0 28,946 0
Interest Income 16 0 16 0
Less: Trust administrative expenses (274) 0 (438) 0
Expense reserve (250) 0 (500) 0
------------ ------------ ------------ ------------
Cash earnings $ 16,333 0 28,024 0
============ ============ ============ ============
Cash distributions $ 16,333 0 28,024 0
============ ============ ============ ============
Cash distributions per unit $ 0.7632 0 1.3095 0
============ ============ ============ ============
Units outstanding $ 21,400,000 21,400,000 21,400,000 21,400,000
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
BP PRUDHOE BAY ROYALTY TRUST
Statements of Changes in Trust Corpus
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Trust Corpus at beginning of period $ 22,138 23,739 22,626 25,008
Change in cash balance 250 0 500 0
Cash earnings 16,333 0 28,024 0
Decrease (increase) in accrued expenses 42 (136) (68) (786)
Cash distributions (16,333) 0 (28,024) 0
Amortization of Royalty Interest (628) (628) (1,256) (1,247)
-------- -------- -------- --------
Trust Corpus at end of period $ 21,802 22,975 21,802 22,975
======== ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements
June 30, 2000
(Unaudited)
(1) Formation of the Trust and Organization
BP Prudhoe Bay Royalty Trust (the "Trust"), a grantor trust, was
created as a Delaware business trust 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").
During the fourth quarter of 1998, British Petroleum Company p.l.c.
merged with Amoco Corporation to form BP Amoco. This transaction is not
expected to have a material effect on the Trust's operations.
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") of 16.4246% on 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 in the Prudhoe Bay Field (the "Field") as of February
28, 1989, 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 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
Field's proved reserves 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 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.
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<PAGE>
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements (Continued)
(1), Continued
(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).
In order to ensure the Trust has the ability to pay future expenses,
the Trust established a cash reserve account over the past four quarters
sufficient to pay approximately one year's current and expected
liabilities and expenses of the Trust.
(2) Basis of Accounting
The financial statements of the Trust are prepared on a modified cash
basis and reflect the Trust's assets, liabilities, Corpus, 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 on an accrual basis.
(c) Amortization of the Royalty Interest is calculated using the
units of production method. Such amortization is charged directly
to the Trust Corpus, and does not affect cash earnings. The daily
rate for amortization per net equivalent barrel of oil for the
three months ended June 30, 2000 and 1999 was $0.47. The Trust
evaluates impairment of the Royalty Interest by comparing the
undiscounted cash flows expected to be realized from the Royalty
Interest to the carrying value, pursuant to Statement of
Financial Accounting Standards No. 121 ("SFAS 121") "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of". If the expected future undiscounted cash
flows are less than the carrying value, the Trust recognizes an
impairment loss for the difference between the carrying value and
the estimated fair value of the Royalty Interest.
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, 2000 and
December 31, 1999 and the modified cash earnings and distributions and
changes in Trust corpus for the three and six month periods ended June
30, 2000 and 1999. The adjustments are of a normal recurring nature and
are, in the opinion of management, necessary to fairly present the
results of operations.
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<PAGE>
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements (Continued)
(2), Continued
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.
The financial statements should be read in conjunction with the
financial statements and related notes in the Trust's 1999 Annual Report
on Form 10-K. The cash earnings and distributions for the interim period
presented are not necessarily indicative of the results to be expected
for the full year.
(3) Royalty Interest
The Royalty Interest is comprised of the following at June 30, 2000
(in thousands):
Royalty Interest $ 535,000
Less: Accumulated amortization (340,142)
Impairment writedown ( 173,518)
---------
$ 21,340
=========
(4) 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 as 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.
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<PAGE>
Item 2. Trustee's Discussion and Analysis of Financial Condition and Results of
Operations.
Cautionary Statement
The Trustee, its officers or its agents on behalf of the Trustee may,
from time to time, make forward-looking statements (other than statements of
historical fact). When used herein, the words "anticipates," "expects,"
"believes," "intends" or "projects" and similar expressions are intended to
identify forward-looking statements. To the extent that any forward-looking
statements are made, the Trustee is unable to predict future changes in oil
prices, oil production levels, economic activity, legislation and regulation,
and certain changes in expenses of the Trust. In addition, the Trust's future
results of operations and other forward looking statements contained in this
item and elsewhere in this report involve a number of risks and uncertainties.
As a result of variations in such factors, actual results may differ materially
from any forward looking statements. Some of these factors are described below.
The Trustee disclaims any obligation to update forward looking statements and
all such forward-looking statements in this document are expressly qualified in
their entirety by the cautionary statements in this paragraph.
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. Generally, 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 the discussion under
"THE ROYALTY INTEREST" for a description of the calculation of the Per Barrel
Royalty, and the discussion under "THE PRUDHOE BAY UNIT - Reserve Estimates" and
"INDEPENDENT OIL AND GAS CONSULTANTS' REPORT" in Part I, Item 1 of the Trust's
Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (the
"Annual Report") for information concerning the estimated future net revenues of
the Trust. However, the Trustee does have a limited power to borrow, establish a
cash reserve, or dispose of all or part of the Trust Estate, under limited
circumstances pursuant to the terms of the Trust Agreement. See the discussion
under "THE TRUST" in Part I, Item 1 of the Annual Report.
The depressed WTI Prices during the fourth quarter of 1998 and first
quarter of 1999 resulted in the Trust not receiving distributions during the
first and second quarters of 1999. The Trustee, therefore, determined to
exercise certain of its limited powers under the Trust Agreement to obtain
liquidity in order to meet the Trust's future liabilities and expenses. Given
the unpredictability of WTI Prices and that the Trust only receives quarterly
distributions, the Trustee determined that a cash reserve is necessary to cover
any such future liabilities which may exceed those quarterly distributions
received by drawing upon the cash reserve. The Trustee has received an opinion
of counsel relating to certain tax matters as they pertain to the establishment
of the cash reserve.
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<PAGE>
Upon the resumption of distributions in the third quarter of 1999,
attributable to the increase in the WTI Price in the second quarter of 1999, the
Trustee established a cash reserve to provide liquidity to the Trust during any
future periods in which the Trust does not receive a distribution. Out of
quarterly distributions received by the Trust, the Trustee set aside $1,000,000
in the cash reserve, an amount equal to approximately one year's expected
liabilities and expenses of the Trust. The $1,000,000 in the cash reserve was
set aside over the course of four quarters, with one quarter of such amount
being set aside from each quarterly distribution received by the Trust with the
fourth amount set aside from the April 15th distribution. The Trustee will draw
funds from the cash reserve account during any quarter in which the quarterly
distribution received by the Trust does not exceed the liabilities and expenses
of the Trust, and will replenish the reserve from future quarterly
distributions, if any.
Amounts set aside for the cash reserve from time to time are being
invested in U.S. government or agency securities secured by the full faith and
credit of the United States. The Trustee has determined to distribute any
interest received from the investment to the holders of Units upon maturity on
that next Quarterly Record Date. The Trustee anticipates that it will keep this
cash reserve program in place until termination of the Trust.
As discussed under CERTAIN TAX CONSIDERATIONS in the Annual Report,
amounts received by the Trust as quarterly distributions are income to the
holders of the Units, (as will be any earning on investment of the cash reserve)
and must be reported by the holders of the Units, even if such amounts are used
to repay borrowings or establish a cash reserve and are not received by the
holders of the Units.
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. For
the statement of cash earnings and distributions, 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 three and six month periods ended June 30,
2000 and 1999 are attributable to the Company's operations during the three and
six month periods ended March 31, 2000 and 1999, respectively.
-8-
<PAGE>
The following table shows the factors employed to compute the Per
Barrel Royalty received by the Trust during the quarters ended March 31, 2000
and 1999 (see Note 1 of Notes to Financial Statements in Part I, Item 1):
<TABLE>
<CAPTION>
Quarter March 31,
-----------------------------------------------------------------
2000 1999
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
Average WTI Price $ 28.86 $ 13.08
Chargeable Costs 10.00 9.80
Cost Adjustment Factor x 1.307 x 1.280
-------- --------
Adjusted Chargeable Costs 13.07 12.54
Production Taxes + 3.48 + 1.13
-------- -------
16.55 13.67
----- -----
Per Barrel Royalty $12.31 $0.00
====== =====
</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
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 June 30, 2000 Compared to
Quarter Ended June 30, 1999
The Trust's royalty revenues in the quarter ended June 30, 2000 were
$16,841,000 as compared to the same period a year ago in which the Trust had no
revenues. This was due to a significant increase in the Average WTI Price from
$13.08 for the quarter ended March 31, 1999 to $28.86 for the quarter ended
March 31, 2000. Total deductions from the Average WTI Price (consisting of
Adjusted Chargeable Costs and Production Taxes) increased by $2.88
(approximately 21% percent) to $16.55 for the quarter ending March 31, 2000 from
$13.67 for the quarter ending March 31, 1999. The 21% increase was due to an
increase of $0.53 in the Adjusted Chargeable Costs over the same period a year
ago, $0.20 of which is attributable to the scheduled increase in Chargeable
Costs and $0.33 due to an increase in the cost adjustment factor, and an
increase of $2.35 in production taxes over the same period a year ago. See the
discussion under "THE ROYALTY INTEREST" for a description of the calculation of
the Per Barrel Royalty in the Annual Report.
The Trust's cash distribution in the quarter ended June 30, 2000 was $
0.7632 per unit as compared to the same period a year ago in which the Trust had
no distribution.
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<PAGE>
The Trustee's fees and expenses paid during quarter ended June 30, 2000
were $274,000 as compared to the same period a year ago in which the Trustee's
fees and expenses were unpaid. Upon paying the Trust's fees and expenses for the
quarter ending June 30, 2000 of $274,000, the Trustee set aside a $250,000
contribution to the cash reserve, which bought the total cash reserve to
$1,000,000.
[Six Months Ended June 30, 2000 Compared to
Six Months Ended June 30, 1999
The Trust's royalty revenues for the six months ended June 30, 2000
were $28,946,000 as compared to the same period a year ago in which the Trust
had no revenues. This was due to a significant increase in the Average WTI Price
from $12.94 for the six month period ended March 31, 1999 to $26.73 for the six
month period ended March 31, 2000. Total deductions from the Average WTI Price
(consisting of Adjusted Chargeable Costs and Production Taxes) increased by
$2.72 (approximately 20% percent) to $16.05 for the six month period ended March
31, 2000 from $13.33 for the six month period ended March 31, 1999. The 20%
increase was due to an increase of $0.67 in the Adjusted Chargeable Costs over
the same period a year ago, $0.35 of which is attributable to the scheduled
increase in Chargeable Costs and $0.32 due to an increase in the cost adjustment
factor, and an increase of $2.05 in production taxes over the same period a year
ago. See the discussion under "THE ROYALTY INTEREST" for a description of the
calculation of the Per Barrel Royalty in the Annual Report.
The Trust's cash distribution in the six month period ended June 30,
2000 was $1.3095 per unit as compared to the same period a year ago in which the
Trust had no distribution.
The Trustee's fees and expenses paid during six month period ended June
30, 2000 were $438,000 as compared to the same period a year ago in which the
Trustee's fees and expenses were unpaid.]
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
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<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
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<PAGE>
Item 6. Exhibits and Reports on Form 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, 2000.
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<PAGE>
SIGNATURE
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 E. Trimboli
-----------------------------
Marie E. Trimboli
Assistant Treasurer
Date: August 14, 2000
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
<TABLE>
<CAPTION>
Exhibit Exhibit
No. Description
------- ------------------
<S> <C>
*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.
</TABLE>
-----------------------------
* 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.
