<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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
--------------
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, NY 10286
- ------------------------------------------------------ ----------
(Address of Principal Executive Office of Trustee) (Zip Code)
Trustee's Telephone Number, Including Area Code: (212) 815-5092
------------------
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 10, 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)
March 31,
2000 December 31,
(Unaudited) 1999
----------- ----
Assets
Royalty Interest, net (note 3) $ 21,968 22,596
Cash 750 500
--------- ---------
Total assets $ 22,718 23,096
========= =========
Liabilities and Trust Corpus
Accrued expenses $ 580 470
Trust Corpus (40,000,000 units of beneficial
interest authorized, 21,400,000 units issued
and outstanding) 22,138 22,626
--------- ---------
Total liabilities and Trust Corpus $ 22,718 23,096
========= =========
See accompanying notes to financial statements.
- 1 -
<PAGE>
BP PRUDHOE BAY ROYALTY TRUST
Statements of Cash Earnings and Distributions
(In thousands, except unit data)
(Unaudited)
Three months ended
March 31,
-----------------------
2000 1999
---- ----
Royalty revenues $ 12,105 0
Less: Trust administrative expenses (164) 0
Expense reserve (250) 0
----------- -----------
Cash earnings $ 11,691 0
=========== ===========
Cash distributions $ 11,691 0
=========== ===========
Cash distributions per unit $ 0.5463 0
=========== ===========
Units outstanding 21,400,000 21,400,000
=========== ===========
See accompanying notes to financial statements.
- 2 -
<PAGE>
BP PRUDHOE BAY ROYALTY TRUST
Statements of Changes in Trust Corpus
(In thousands)
(Unaudited)
Three months ended
March 31,
-----------------------
2000 1999
---- ----
Trust Corpus at beginning of period $ 22,626 25,008
Change in cash balance 250 0
Cash earnings 11,691 0
Increase in accrued expenses (110) (650)
Cash distributions (11,691) 0
Amortization of Royalty Interest (628) (619)
-------- --------
Trust Corpus at end of period $ 22,138 23,739
======== ========
See accompanying notes to financial statements.
- 3 -
<PAGE>
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements
March 31, 1999
(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 conduct 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.
- 4 -
<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 is establishing a cash reserve account over the next several 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 March 31, 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 March 31, 2000 and December
31, 1999 and the modified cash earnings and distributions and changes in
Trust corpus for the three month periods ended March 31, 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.
- 5 -
<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 March 31, 2000 (in
thousands):
Royalty Interest $ 535,000
Less: Accumulated amortization (339,514)
Impairment writedown (173,518)
---------
$ 21,968
=========
(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.
- 6 -
<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.
- 7 -
<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. The Trustee
anticipates setting aside and adding to such cash reserve account, out of any
quarterly distributions received by the Trust, an amount equal to approximately
one year's expected liabilities and expenses of the Trust, which the Trustee
estimates to be approximately $1,000,000. This amount is being set aside over
the course of four quarters, with one quarter of such amount being set aside
each quarter, assuming the availability of funds from quarterly distributions.
The Trustee has set aside $250,000 from the July 15, 1999 distribution, $250,000
from the October 15, 1999 distribution and an additional $250,000 from the
January 15, 2000 distribution for such cash reserve. 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 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 quarters ended March 31, 2000 and 1999 are
attributable to the Company's operations during the three-month periods ended
December 31, 1999 and 1998, 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):
Quarter Ended December 31
---------------------------------------------
1999 1998
------------------- --------------------
Average WTI Price $ 24.60 $ 12.80
Chargeable Costs 9.80 9.30
Cost Adjustment Factor x 1.296 x 1.280
-------- --------
Production Taxes + 2.84 + 1.09
-------- -------
15.54 12.99
----- -----
Per Barrel Royalty $9.05 $0.00
===== =====
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 March 31, 2000 Compared to
Quarter Ended March 31, 1999
The Trust's royalty revenues in the quarter ended March 31, 2000 were
$12,105,00 as compared to the same period a year ago in which the Trust had no
revenues. This was due to a signficant increase in the Average WTI Price from
$12.80 for the quarter ended December 31, 1998 to $24.60 for the quarter ended
December 31, 1999. Total deductions from the Average WTI Price (consisting of
Adjusted Chargeable Costs and Production Taxes) increased by $2.55
(approximately 20% percent) to $15.54 for the quarter ending December 31, 1999
from $12.99 for the quarter ending December 31, 1998. The 20% increase was due
to an increase of $0.80 in the Adjusted Chargeable Costs over the same period a
year ago, $0.50 of which is attributable to the scheduled increase in Chareable
Costs and $0.30 due to an increase in the cost adjustment factor, and an
increase of $1.75 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 March 31, 2000 was
$0.5463 per unit as compared to the same period a year ago in which the Trust
had no distribution.
- 9 -
<PAGE>
The Trustee's fees and expenses paid during quarter ended March 31, 2000
were $164,000 as compared to the same period a year ago in which the Trustee's
fees and expenses were unpaid. The Trustee's fees and expenses for the quarter
ending March 31, 1999 were accrued to the quarter ending September 30, 1999
because there was no distribution to the Trust during the quarter ending March
31, 1999. The Trustee's fees and expenses paid during the quarter ending
September 30, 1999 were $625,000, which satisfied the Trustee's fees and
expenses incurred during the January 1, 1999 through September 30, 1999 period.
Upon paying the Trust's fees and expenses for the quarter ending March 31, 2000
of $164,000, the Trustee set aside a $250,000 contribution to the cash reserve,
which bought the total cash reserve to $750,000.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
- 10 -
<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.
- 11 -
<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 March 31, 2000.
- 12 -
<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: May 10, 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
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.
<PAGE>
<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 September 30, 1999 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-31-1999
<PERIOD-END> MAR-31-2000
<CASH> 750
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 21,968
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,968
<CURRENT-LIABILITIES> 580
<BONDS> 0
0
0
<COMMON> 22,138
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 22,718
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
