SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-11450
-------------------
SANTA FE ENERGY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-6081498
(STATE OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION
NO.)
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
CORPORATE TRUST DIVISION
600 TRAVIS, SUITE 1150
HOUSTON, TEXAS 77002
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 216-5100
-------------------
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 / /
Depository Units outstanding at November 10, 1994 -- 6,300,000
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
SANTA FE ENERGY TRUST
STATEMENT OF CASH PROCEEDS AND DISTRIBUTABLE CASH (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT AS NOTED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Royalty Income
ODC Royalty---------------------- $ 628 $ 598 $ 2,509 $ 1,285
Willard Royalty------------------ 526 528 1,314 1,421
Net Profits Royalty-------------- 1,568 2,215 4,354 5,720
---------- ---------- ---------- ----------
Total Royalties---------------------- 2,722 3,341 8,177 8,426
Administrative Fee to Santa Fe------- (52) (50) (154) (133)
Trust Formation Costs---------------- -- (98) (108) (173)
Advance from Santa Fe Energy
Resources, Inc.-------------------- 90 25 396 25
Repayment of Advance from Santa Fe
Energy Resources, Inc. ------------ (150) -- (361) --
Cash Withheld for Trust Expenses----- (90) (100) (390) (150)
---------- ---------- ---------- ----------
Distributable Cash------------------- $ 2,520 $ 3,118 $ 7,560 $ 7,995
========== ========== ========== ==========
Distributable Cash per Trust Unit (in
dollars)--------------------------- 0.40000 0.49485 1.20000 1.26898
========== ========== ========== ==========
Trust Units Outstanding
(thousands)-------------------------- 6,300 6,300 6,300 6,300
========== ========== ========== ==========
</TABLE>
STATEMENT OF ASSETS, LIABILITIES AND TRUST CORPUS
(DOLLARS IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(UNAUDITED)
ASSETS
Cash------------------------------------------- $ 51 $ --
---------- --------
Investment in Royalty Interests, at cost------- 87,276 87,276
Less: Accumulated Amortization----------------- (17,501) (9,920)
----------- ---------
69,775 77,356
----------- ---------
$ 69,826 $ 77,356
=========== ========
LIABILITIES AND TRUST CORPUS
Advance from Santa Fe Energy Resources, Inc.--- $ 90 $ 55
Trust Corpus (6,300,000 Trust Units
issued and outstanding)---------------------- 69,736 77,301
----------- ---------
$ 69,826 $ 77,356
=========== ========
The accompanying notes are an integral part of these financial statements.
2
SANTA FE ENERGY TRUST
STATEMENT OF CHANGES IN TRUST CORPUS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
Balance at December 31, 1993--------- $ 77,301
Cash Proceeds---------------------- 7,915
Cash Distributions----------------- (7,560)
Trust Expenses--------------------- (339)
Amortization of Royalty
Interests------------------------ (7,581)
---------
Balance at September 30, 1994-------- $ 69,736
=========
Balance at December 31, 1992--------- $ 87,277
Cash Proceeds---------------------- 8,120
Cash Distributions----------------- (7,995)
Trust Expenses--------------------- (141)
Amortization of Royalty
Interests------------------------ (7,127)
---------
Balance at September 30, 1993-------- $ 80,134
=========
The accompanying notes are an integral part of these financial statements.
3
SANTA FE ENERGY TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(1) THE TRUST
Santa Fe Energy Trust (the "Trust") was formed on October 22, 1992, with
Texas Commerce Bank National Association as trustee (the "Trustee"), to acquire
and hold certain royalty interests (the "Royalty Interests") in certain
properties (the "Royalty Properties") conveyed to the Trust by Santa Fe Energy
Resources, Inc. ("Santa Fe"). The Royalty Interests consist of two term royalty
interests in two production units in the Wasson field in west Texas (the "Wasson
Royalties") and a net profits royalty interest in certain royalty and working
interests in a diversified portfolio of properties located in twelve states (the
"Net Profits Royalties"). The Royalty Interests are passive in nature and the
Trustee has no control over or responsibility relating to the operation of the
Royalty Properties. The Trust will be liquidated on February 15, 2008 (the
"Liquidation Date").
In November 1992, 5,725,000 Depositary Units, each consisting of beneficial
ownership of one unit of undivided beneficial interest in the Trust ("Trust
Units") and a $20 face amount beneficial ownership interest in a $1,000 face
amount zero coupon United States Treasury obligation maturing on or about
February 15, 2008, were sold in a public offering for $20 per Depositary Unit. A
total of $114.5 million was received from public investors, of which $38.7
million was used to purchase the Treasury obligations and $5.7 million was used
to pay underwriting commissions and discounts. Santa Fe received the remaining
$70.1 million and 575,000 Depositary Units. In the first quarter of 1994 Santa
Fe sold in a public offering the 575,000 Depositary Units which it held.
The trust agreement under which the Trust was formed (the "Trust Agreement")
provides, among other things, that
* the Trustee shall not engage in any business or commercial activity
or acquire any asset other than the Royalty Interests initially
conveyed to the Trust;
* the Trustee may not sell all or any portion of the Wasson Royalties
or substantially all of the Net Profits Royalties without the prior
consent of Santa Fe;
* Santa Fe may sell the Royalty Properties, subject to and burdened
by the Royalty Interests, without consent of the holders of the
Trust Units; following any such transfer, the Royalty Properties
will continue to be burdened by the Royalty Interests and after any
such transfer the royalty payment attributable to the transferred
property will be calculated separately and paid by the transferee;
* the Trustee may establish a cash reserve for the payment of any
liability which is contingent, uncertain in amount or that is not
currently due and payable;
* the Trustee is authorized to borrow funds required to pay
liabilities of the Trust, provided that such borrowings are repaid
in full prior to further distributions to the holders of the Trust
Units;
* the Trustee will make quarterly cash distributions to the holders
of the Trust Units.
(2) BASIS OF ACCOUNTING
The financial statements of the Trust are prepared on the cash basis of
accounting for revenues and expenses. Royalty income is recorded when received
(generally during the quarter following the end of the quarter in which the
income from the Royalty Properties is received by Santa Fe) and is net
4
of any cash basis exploration and development expenditures and amounts reserved
for future exploration and development costs. Expenses of the Trust, which will
include accounting, engineering, legal, and other professional fees, Trustee
fees, an administrative fee paid to Santa Fe and out-of-pocket expenses, are
recognized when paid. Under generally accepted accounting principles, revenues
and expenses would be recognized on an accrual basis. Amortization of the
Trust's investment in Royalty Interests is recorded using the unit-of-production
method in the period in which the cash is received with respect to such
production.
The conveyance of the Royalty Interests to the Trust was accounted for as a
purchase transaction. The $87,276,000 reflected in the Statement of Assets and
Trust Corpus as Investment in Royalty Interests represents 6,300,000 Trust Units
valued at $20 per unit less the $38,724,000 paid for the Treasury obligations.
The carrying value of the Trust's investment in the Royalty Interests is not
necessarily indicative of the fair value of such Royalty Interests.
The Trust is a grantor trust and as such is not subject to income taxes and
accordingly no recognition has been given to income taxes in the Trust's
financial statements. The tax consequences of owning Trust Units are included in
the income tax returns of the individual Trust Unit holders.
During 1993 net cash proceeds (before deducting Trust expenses) exceeded
cash distributions by $125,000. In order to pay current Trust expenses Santa Fe
advanced the Trust $55,000, which amount was due to Santa Fe at December 31,
1993. During the first nine months of 1994 net cash proceeds (before deducting
Trust expenses) exceeded cash distributions by $355,000, a portion of which was
used to repay the advance received from Santa Fe in 1993. In order to pay
current Trust expenses, during the first nine months of 1994 Santa Fe advanced
the Trust $396,000, of which $90,000 was due to Santa Fe at September 30, 1994.
(3) THE ROYALTY INTERESTS
The Wasson Royalties consist of interests conveyed out of Santa Fe's royalty
interest in the Wasson ODC Unit (the "ODC Royalty") and the Wasson Willard Unit
(the "Willard Royalty"). The ODC Royalty entitles the Trust to receive quarterly
royalty payments with respect to 12.3934% of the actual gross oil production
from the Wasson ODC Unit, subject to certain quarterly limitations set forth in
the conveyance agreement, for the period from November 1, 1992 to December 31,
2007. The Willard Royalty entitles the Trust to receive quarterly royalty
payments with respect to 6.8355% of the actual gross oil production from the
Wasson Willard Unit, subject to certain quarterly limitations set forth in the
conveyance agreement, for the period from November 1, 1992 to December 31, 2003.
The Net Profits Royalties entitle the Trust to receive, on a quarterly
basis, 90% of the net proceeds, as defined in the conveyance agreement, from the
sale of production from the properties subject to the conveyance agreement. The
Net Profits Royalties are not limited in term, although the Trustee is required
to sell such royalties prior to the Liquidation Date.
For any calendar quarter ending on or prior to December 31, 2002, the Trust
will receive additional royalty payments ("Support Payments") to the extent it
needs such payments to distribute $0.40 per Trust Unit per quarter. Such Support
Payments are limited to Santa Fe's remaining royalty interest in the Wasson ODC
Unit. If such Support Payments are received, certain proceeds otherwise
5
payable to the Trust in subsequent quarters may be reduced to recoup the amount
of such Support Payments. The aggregate of the Support Payments, net of any
amounts recouped, will be limited to $20,000,000 on a revolving basis. The
royalty payment received by the Trust in the first quarter of 1994 included a
Support Payment of $362,000, or $0.0575 per Trust Unit, and the royalty payment
received by the Trust in the second quarter of 1994 included a Support Payment
of $506,000, or $0.08027 per Trust Unit.
(4) DISTRIBUTIONS TO TRUST UNIT HOLDERS
The Trust has received royalty payments and made distributions as follows
(in thousands of dollars, except as noted):
DISTRIBUTIONS
ROYALTY -------------------------
PAYMENT PER TRUST UNIT
RECEIVED(A) AMOUNT (IN DOLLARS)
----------- ------- --------------
1993
First quarter-------------------- 1,937 1,937 0.30753
Second quarter------------------- 2,990 2,940 0.46660
Third quarter-------------------- 3,193 3,118 0.49485
Fourth quarter------------------- 2,786 2,786 0.44218
----------- ------- --------------
Total year------------------- 10,906 10,781 1.71116
=========== ======= ==============
1994
First quarter (b)---------------- 2,575 2,520 0.40000
Second quarter (c)--------------- 2,670 2,520 0.40000
Third quarter-------------------- 2,670 2,520 0.40000
(a) The payment received in the first quarter of 1993 relates to the initial
quarter of operations of the Trust and includes only two months of
operations with respect to the Royalty Properties. Payments received in
subsequent quarters relate to the three-month period preceding the quarter
in which the payment was received.
(b) Includes a Support Payment of $362,000, or $0.0575 per Trust Unit.
(c) Includes a Support Payment of $506,000, or $0.08027 per Trust Unit.
In the fourth quarter of 1994 the Trust will receive a royalty payment of
$2,612,000 and on November 30, 1994 will make a cash distribution of $2,520,000,
or $0.40 per Trust Unit, to unit holders of record on November 14, 1994. The
payment to be received in the fourth quarter does not include a Support Payment.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL; LIQUIDITY AND CAPITAL RESOURCES
The Trust is a passive entity with the Trustee's primary responsibility
being the collection and distribution of proceeds from the Wasson Royalties and
the Net Profits Royalties and the payment of Trust liabilities and expenses (see
Note 1 to the financial statements of the Trust).
The Trust's results of operations are dependent upon the difference between
the prices received for oil and gas and the costs of producing such resources.
Since, on an equivalent basis, a majority of the Trust's proved reserves are
crude oil, even relatively modest changes in crude oil prices may significantly
affect the Trust's revenues and results of operations. Crude oil prices are
subject to significant changes in response to fluctuations in the domestic and
world supply and demand and other market conditions as well as the world
political situation as it affects OPEC, the Middle East and other producing
countries. In addition, a substantial portion of the Trust's revenues come from
properties which produce sour (i.e. high sulfur content) crude oil which sells
at prices lower than sweeter (i.e. low sulfur) crude oils. The effect of changes
in the sales price of crude oil, which declined significantly in the latter part
of 1993 and early 1994 and began to show improvement in the second calendar
quarter of 1994 is reflected in the average prices with respect to the royalty
payments received in the first three quarters of 1994 (see Results of
Operations).
For any calendar quarter ending on or prior to December 31, 2002, the Trust
will receive additional royalty payments ("Support Payments") to the extent it
needs such payments to distribute $0.40 per Trust Unit per quarter. Such Support
Payments are limited to Santa Fe's remaining royalty interest in the Wasson ODC
Unit. Certain proceeds otherwise payable to the Trust in subsequent quarters may
be reduced to recoup the amount of such Support Payments. The aggregate amount
of the Support Payments (net of any amounts recouped) is limited to $20.0
million on a revolving basis.
Cash proceeds from the Royalty Properties in the first and second quarters
of 1994 included Support Payments of $362,000 and $506,000, respectively,
primarily due to lower realized oil prices and capital expenditures incurred
with respect to certain Royalty Properties, a substantial portion of which
related to the drilling of new wells.
7
<PAGE>
RESULTS OF OPERATIONS
The following table reflects pertinent information with respect to the cash
proceeds from the Royalty Properties and the net distributable cash of the Trust
(in thousands of dollars, except as noted):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED THREE MONTHS
SEPTEMBER 30, SEPTEMBER 30, ENDED
---------------------- ------------------------ DECEMBER 31,
1994 1993 1994 1993 1994(A)
---------- ---------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
VOLUMES AND PRICES
Oil Volumes (Bbls)
Wasson ODC Royalty--------------- 51,800 41,600 210,046 91,600 51,800
Wasson Willard Royalty----------- 35,100 35,500 105,700 94,357 35,100
Net Profits Royalties------------ 85,613 92,332 255,009 221,293 90,246
Gas Volumes (Mcf)
Net Profits Royalties------------ 774,139 752,541 2,235,406 2,144,813 742,159
Oil Average Prices ($/Bbl)
Wasson ODC Royalty--------------- 16.13 17.39 14.09 17.53 16.82
Wasson Willard Royalty----------- 16.13 17.35 14.35 17.56 16.85
Net Profits Royalties------------ 12.93 16.74 12.93 17.67 14.99
Gas Average Prices ($/Mcf)
Net Profits Royalties------------ 1.84 1.98 1.89 1.93 1.76
CASH PROCEEDS AND DISTRIBUTABLE CASH
Wasson ODC Royalty
Sales---------------------------- 835 724 2,957 1,607 871
Operating Expenses--------------- (207) (126) (448) (322) (249)
---------- ---------- ----------- ----------- -------------
628 598 2,509 1,285 622
---------- ---------- ----------- ----------- -------------
Wasson Willard Royalty
Sales---------------------------- 566 616 1,516 1,657 592
Operating Expenses--------------- (40) (88) (202) (236) (20)
---------- ---------- ----------- ----------- -------------
526 528 1,314 1,421 572
---------- ---------- ----------- ----------- -------------
Net Profits Royalties
Sales---------------------------- 2,530 3,037 7,529 8,051 2,661
Operating Expenses--------------- (764) (765) (2,393) (2,108) (973)
Capital Expenditures------------- (198) (57) (782) (223) (218)
---------- ---------- ----------- ----------- -------------
1,568 2,215 4,354 5,720 1,470
---------- ---------- ----------- ----------- -------------
Total Royalties-------------------- 2,722 3,341 8,177 8,426 2,664
Administrative Fee to Santa Fe----- (52) (50) (154) (133) (52)
Trust Formation Costs-------------- -- (98) (108) (173) --
---------- ---------- ----------- ----------- -------------
Payment Received------------------- 2,670 3,193 7,915 8,120 2,612
Cash Advance From Santa Fe--------- 90 25 396 25 75
Repayment of Cash Advance from
Santa Fe------------------------- (150) -- (361) -- (90)
Cash Withheld for Trust
Expenses------------------------- (90) (100) (390) (150) (77)
---------- ---------- ----------- ----------- -------------
Distributable Cash----------------- 2,520 3,118 7,560 7,995 2,520
========== ========== =========== =========== =============
Distributable Cash Per Trust Unit
(in dollars)--------------------- 0.40000 0.49485 1.20000 1.26898 0.40000
========== ========== =========== =========== =============
(a) In the fourth quarter of 1994 the Trust will receive a payment of $2,612,000
and on November 30, 1994 will make a cash distribution of $2,520,000, or
$0.40 per Trust Unit, to unitholders of record on November 14, 1994.
</TABLE>
8
Royalty income is recorded by the Trust when received, generally during the
quarter following the end of the quarter in which revenues are received and
costs and expenses are paid by Santa Fe. Cash proceeds from the Royalty
Properties may fluctuate from quarter to quarter due to the timing of receipts
and payments of revenues and expenses as well as changes in prices and
production volumes.
Cash proceeds from the Wasson ODC Royalty for the first nine months of 1994
include Support Payments of $362,000, or $0.0575 per Trust Unit, made in the
first quarter of 1994 and $506,000, or $0.08027 per Trust Unit, made in the
second quarter of 1994. Oil volumes for the Wasson ODC Royalty for the first
nine months of 1994 include 64,846 barrels attributable to the Support Payments.
Operating expenses for the Net Profits Royalties averaged $3.82 per barrel of
oil equivalent ("BOE") in the first nine months of 1994 compared to $3.64 per
BOE in the first nine months of 1993. Capital expenditures with respect to the
Net Profits Royalties increased from $313,000 in the full year 1993 to $782,000
in the first nine months of 1994. Capital expenditures for the third quarter of
1994 include a reserve of approximately $131,000 for costs incurred but not paid
and similar reserves may be established in future quarters. Capital expenditures
for the fourth quarter of 1994 totalled $349,000 ($218,000 net of the $131,000
reserve established in the third quarter) and are expected to be approximately
$950,000 in the first half of 1995.
The Support Payments in the first and second quarters of 1994 resulted
primarily from lower realized oil prices and increased capital expenditures. As
a result of the increased level of drilling activities and depending on other
factors such as sales volumes and prices and the level of operating costs,
Support Payments may be required in subsequent quarters to allow the Trust to
make distributions of $0.40 per quarter.
In addition to costs and expenses related to the Royalty Properties, in the
first nine months of 1994 the Trust paid an administrative fee to Santa Fe of
$154,000 ($133,000 in the first nine months of 1993) and the Trustee withheld
$390,000 for the payment of Trust administrative expenses ($150,000 in the first
nine months of 1993). The increase in Trust administrative expenses in 1994
reflects the payment in 1994 of $87,000 in nonrecurring listing application fees
to the New York Stock Exchange ("NYSE"), a $16,000 annual fee to the NYSE and
$32,000 for the printing of Trust Unit certificates, as well as, increased fees
for tax, accounting, printing and other administrative services. In addition, in
the first nine months of 1994 and 1993 the Trust repaid Santa Fe $108,000 and
$173,000, respectively, for certain Trust formation costs. Trust administrative
expenses for the full year 1994 are expected to total approximately $669,000,
including approximately $205,000 in administrative fees paid to Santa Fe.
In the fourth quarter of 1994 the Trust will receive a payment of $2,612,000
and on November 30, 1994 will make a cash distribution of $2,520,000, or $0.40
per Trust Unit, to unitholders of record on November 14, 1994. The payment to be
received in the fourth quarter does not include a Support Payment.
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.
SANTA FE ENERGY TRUST
By TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, TRUSTEE
By RICHARD L. MELTON
RICHARD L. MELTON
EXECUTIVE VICE PRESIDENT
& TRUST OFFICER
Date: November 10, 1994
The Registrant, Santa Fe Energy Trust, has no principal executive officer,
principal financial officer, controller or principal accounting officer, board
of directors or persons performing similar functions. Accordingly, no additional
signatures are available and none have been provided.
10
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE TRUST'S FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 51
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 51
<PP&E> 87,276
<DEPRECIATION> (17,501)
<TOTAL-ASSETS> 69,826
<CURRENT-LIABILITIES> 90
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 69,736
<TOTAL-LIABILITY-AND-EQUITY> 69,826
<SALES> 0
<TOTAL-REVENUES> 8,573
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,013
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,560
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
