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 MARCH 31, 1996
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 May 14, 1996 -- 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)
THREE MONTHS ENDED
MARCH 31,
----------------------
1996 1995
---------- ----------
Royalty Income
ODC Royalty..................... $ 966 $ 1,337
Willard Royalty................. 502 386
Net Profits Royalty............. 1,245 929
---------- ----------
Total Royalties...................... 2,713 2,652
Administrative Fee to Santa Fe....... (53) (52)
Advance from Santa Fe Energy
Resources, Inc. ................... 100 90
Repayment of Advance from Santa Fe
Energy Resources, Inc. ............ (25) (80)
Cash Withheld for Trust Expenses..... (177) (90)
---------- ----------
Distributable Cash................... $ 2,558 $ 2,520
========== ==========
Distributable Cash per Trust Unit (in
dollars)........................... 0.40609 0.40000
========== ==========
Trust Units Outstanding
(thousands).......................... 6,300 6,300
========== ==========
STATEMENT OF ASSETS, LIABILITIES AND TRUST CORPUS
(DOLLARS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
ASSETS
Current Assets
Cash............................... $ 21 $ 4
----------- ------------
Investment in Royalty Interests, at
cost............................... 87,276 87,276
Less: Accumulated Amortization....... (32,023) (29,601)
----------- ------------
55,253 57,675
----------- ------------
$ 55,274 $ 57,679
=========== ============
LIABILITIES AND TRUST CORPUS
Advance from Santa Fe Energy
Resources, Inc..................... $ 100 $ 25
Trust Corpus (6,300,000 Trust Units
issued and outstanding)............ 55,174 57,654
----------- ------------
$ 55,274 $ 57,679
=========== ============
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
SANTA FE ENERGY TRUST
STATEMENT OF CHANGES IN TRUST CORPUS (UNAUDITED)
(IN THOUSANDS OF DOLLARS)
Balance at December 31, 1995......... $ 57,654
Cash Proceeds...................... 2,660
Cash Distributions................. (2,558)
Trust Expenses..................... (160)
Amortization of Royalty
Interests....................... (2,422)
---------
Balance at March 31, 1996............ $ 55,174
=========
Balance at December 31, 1994......... $ 67,392
Cash Proceeds...................... 2,600
Cash Distributions................. (2,520)
Trust Expenses..................... (99)
Amortization of Royalty
Interests....................... (2,560)
---------
Balance at March 31, 1995............ $ 64,813
=========
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:
o 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;
o 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;
o 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;
o 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;
o 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;
o 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 of any
cash
4
SANTA FE ENERGY TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
basis exploration and development expenditures and amounts reserved for any
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 1995 net cash proceeds (before deducting Trust expenses) exceeded
cash distributions by $256,000, a portion of which was used to repay advances
received from Santa Fe in 1994. In order to pay current Trust expenses, during
1995 Santa Fe advanced the Trust $190,000, of which $25,000 was due to Santa Fe
at December 31, 1995. During the first quarter of 1996 net cash proceeds (before
deducting Trust expenses) exceeded cash distributions by $102,000, a portion of
which was used to repay advances received from Santa Fe. In order to pay current
Trust expenses, during the first quarter of 1996 Santa Fe advanced the Trust
$100,000, which was due to Santa Fe at March 31, 1996.
(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 (two-thirds
of such amount for the period ended December 31, 1992). 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 payable to the
Trust in subsequent quarters may be
5
SANTA FE ENERGY TRUST
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)
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. As of March 31, 1996 the Trust had received Support Payments
totalling $2,074,000.
(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 AMOUNT (IN DOLLARS)
-------- ------ --------------
1995
First quarter(a)................ 2,600 2,520 0.40000
Second quarter.................. 2,606 2,520 0.40000
Third quarter(b)................ 2,535 2,520 0.40000
Fourth quarter(c)............... 2,595 2,520 0.40000
-------- ------ --------------
10,336 10,080 1.60000
======== ====== ==============
1996
First quarter................... 2,660 2,558 0.40609
- ------------
(a) Includes a Support Payment of $677,000, or $0.10740 per Trust Unit.
(b) Includes a Support Payment of $301,000, or $0.04776 per Trust Unit.
(c) Includes a Support Payment of $228,000, or $0.03629 per Trust Unit.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL; LIQUIDITY AND CAPITAL RESOURCES
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 Trust is a passive entity with the Trustee's
primary responsibility being the collection and distribution of proceeds from
the Royalty Interests and the payment of Trust liabilities and expenses (see
Note 1 to the financial statements of the Trust). The Royalty Interests consist
of two term royalty interests in two production units (the Wasson ODC Unit and
the Wasson Willard Unit) in the Wasson field in west Texas (the "Wasson
Royalties") and a net profits royalty interest (the "Net Profits Royalties") in
certain royalty and working interest properties in a diversified portfolio of
properties located predominantly in Texas, Louisiana and Oklahoma (the "Net
Profits Properties"). Under the terms of the Trust Agreement, the Trustee cannot
engage in any other business or commercial activity or acquire any asset other
than the Royalty Interests initially conveyed to the Trust. Therefore, the
Royalty Interests are the sole source of funds for the Trust from which to pay
expenses and liabilities and make distributions to the holders of the Trust
Units. The Trust will be liquidated on or before February 15, 2008 (the
"Liquidation Date").
The Wasson Royalties are fixed percentage royalty interests in specified
levels of quarterly maximum production from the underlying properties in each
year during the term of the respective royalty. The Wasson ODC Royalty and the
Wasson Willard Royalty terminate on December 31, 2007 and December 31, 2003,
respectively. The Net Profits Royalties are life-of-property interests which
will be sold by the Trust prior to the Liquidation Date. The Net Profits
Royalties entitle the Trust to receive 90% of the net proceeds (after deducting,
among other things, the costs of production and marketing and capital
expenditures) from the sale of production from the Net Profits Properties. The
Net Profits Properties are generally mature producing oil and gas properties and
the production and reserves attributable to such properties are expected to
decline substantially over the life of the Trust. The Net Profits Royalties are
expected to have a relatively small liquidation value at 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 Support Payments are received, 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 Support Payments, net of any amounts
recouped, is limited to $20.0 million on a revolving basis. Through the end of
the first quarter of 1996, Support Payments received by the Trust totalled
$2,074,000.
Santa Fe is entitled to recoup Support Payments in quarters in which the
Trust distributions would exceed $0.45 per Trust Unit. The total amount
available for distribution in the second quarter of 1996 is $2,952,000, or
$0.46850 per Trust Unit. Accordingly, Santa Fe will recoup $117,000, or $0.01850
per Trust Unit, and $2,835,000, or $0.45000 per Trust Unit, will be distributed
to unitholders. Depending on factors such as sales prices and volumes and the
level of operating costs and capital expenditures, Support Payments may be
required in subsequent quarters to allow the Trust to make distributions of
$0.40 per Trust Unit per quarter.
Trust expenses include accounting, engineering, legal and other
professional fees, Trustee fees, an administrative fee paid to Santa Fe and
other out-of-pocket expenses. From time to time Santa Fe may, at its
7
sole discretion and without any obligation to do so, advance funds to the Trust
for the timely payment of such expenses and receive reimbursement therefore in
later periods. In addition, the Trustee is authorized to borrow funds required
to pay liabilities of the Trust, provided that such borrowings are repaid in
full prior to making further distributions to the holders of the Trust Units.
Currently there are no such borrowings outstanding or contemplated other than
the above-described advances which Santa Fe has made or may continue to make.
The Trust's results of operations are dependent upon the sales prices and
quantities of oil and gas produced from the Royalty Properties, the costs of
producing such resources and the amount of capital expenditures made with
respect to such properties. 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. In addition, amounts for future exploration and
development costs may be reserved from time to time.
Since, on an equivalent basis, the 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 content) crude oils.
The sales prices of crude oil, which declined in the fourth quarter of 1995,
showed improvement in 1996 (see Results of Operations).
Natural gas prices fluctuate due to weather conditions, the level of
natural gas in storage, the relative balance between supply and demand and other
economic factors. The Trust's average price for natural gas, which was $1.43 per
Mcf in the first quarter of 1996, increased to $1.79 per Mcf in the second
quarter of 1996 (see Results of Operations).
RESULTS OF OPERATIONS
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 costs and expenses as well as changes in prices and
production volumes. The following table reflects pertinent information with
respect to the cash proceeds from the Royalty Properties and the net
distributable cash of the Trust. The information presented with respect to the
second quarter of 1996 reflects revenues received and costs and expenses paid by
Santa Fe in the first quarter of 1996. On May 31, 1996 the Trust will make a
cash distribution of $2,835,000, or $0.45000 per Trust Unit, to unitholders of
record on May 15, 1996.
8
THREE MONTHS ENDED
MARCH 31, SECOND
-------------------- QUARTER
1996 1995 1996
--------- --------- ---------
VOLUMES AND PRICES
Oil Volumes (Bbls)
Wasson ODC Royalty.............. 63,800 51,800 64,600
Wasson Willard Royalty.......... 33,800 35,100 32,400
Net Profits Royalties........... 76,808 73,824 79,732
Support Payments................ -- 42,879 --
Gas Volumes (Mcf)
Net Profits Royalties........... 709,290 698,032 674,372
Oil Average Prices ($/Bbl)
Wasson ODC Royalty.............. 16.93 15.78 18.67
Wasson Willard Royalty.......... 16.93 15.77 18.67
Net Profits Royalties........... 15.08 14.62 15.71
Support Payments................ -- 15.78 --
Gas Average Prices ($/Mcf)
Net Profits Royalties........... 1.43 1.53 1.79
CASH PROCEEDS AND DISTRIBUTABLE CASH
(thousands of
dollars, except as noted)
Wasson ODC Royalty
Sales........................... 1,080 817 1,206
Operating Expenses.............. (114) (157) (125)
--------- --------- ---------
966 660 1,081
--------- --------- ---------
Wasson Willard Royalty
Sales........................... 572 554 605
Operating Expenses.............. (70) (168) (53)
--------- --------- ---------
502 386 552
--------- --------- ---------
Net Profits Royalties
Sales........................... 2,175 2,172 2,456
Operating Expenses.............. (767) (729) (902)
Capital Expenditures............ (163) (514) (81)
--------- --------- ---------
1,245 929 1,473
--------- --------- ---------
Support Payments (Recoupments)..... -- 677 (117)
--------- --------- ---------
Total Royalties.................... 2,713 2,652 2,989
Administrative Fee to Santa Fe..... (53) (52) (54)
--------- --------- ---------
Payment Received................... 2,660 2,600 2,935
Cash Advance From Santa Fe......... 100 90 100
Repayment of Cash Advance from
Santa Fe........................ (25) (80) (100)
Cash Withheld for Trust Expenses... (177) (90) (100)
--------- --------- ---------
Distributable Cash................. 2,558 2,520 2,835
========= ========= =========
Distributable Cash Per Trust Unit
(in dollars).................... 0.40609 0.40000 0.45000
========= ========= =========
9
Oil prices improved in the first quarter of 1996, averaging $16.93 per
barrel for the Wasson Royalties and $15.08 per barrel for the Net Profits
Royalties compared to $15.78 per barrel and $14.62 per barrel, respectively, in
the first quarter of 1995. Oil prices in the second quarter of 1996 average
$18.67 per barrel for the Wasson Royalties and $15.71 per barrel for the Net
Profits Royalties.
Natural gas prices declined in the first quarter of 1996 averaging $1.43
per Mcf compared to $1.53 per Mcf in the first quarter of 1995. Natural gas
sales prices increased to an average of $1.79 per Mcf in the second quarter of
1996.
Cash proceeds in the first quarter of 1995 included a Support Payment of
$677,000, primarily resulting from low natural gas prices and a continuation of
drilling expenditures. In the second quarter of 1996 Santa Fe will recoup
Support Payments totalling $117,000, or $.001850 per Trust Unit (see -- General;
Liquidity and Capital Resources).
Proceeds from the Net Profits Royalties are net of capital expenditures
with respect to the exploration and development of the Net Profits Properties.
Capital expenditures for the first quarter of 1996 totalled $163,000 and are
expected to total approximately $1,000,000 for the year 1996. Operating expenses
for the Net Profits Royalties averaged $3.94 per barrel of oil equivalent
("BOE") in the first quarter of 1996 compared to $3.84 per BOE in the first
quarter of 1995. Operating expenses per BOE averaged $4.69 in the second quarter
of 1996 primarily due to higher property taxes.
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.
SANTA FE ENERGY TRUST
By TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, TRUSTEE
By MICHAEL J. ULRICH
Michael J. Ulrich
SENIOR VICE PRESIDENT & TRUST
OFFICER
Date: May 14, 1996
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.
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 21
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 21
<PP&E> 87,276
<DEPRECIATION> 32,023
<TOTAL-ASSETS> 55,274
<CURRENT-LIABILITIES> 100
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 55,174
<TOTAL-LIABILITY-AND-EQUITY> 55,274
<SALES> 0
<TOTAL-REVENUES> 2,813
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 255
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,558
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
