<PAGE> 1
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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 JUNE 30, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
------------- -------------
Commission File Number 1-11748
EASTERN AMERICAN NATURAL GAS TRUST
(Exact name of registrant as specified in its charter)
DELAWARE 36-7034603
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
BANK OF MONTREAL TRUST COMPANY
C/O HARRIS TRUST AND SAVINGS BANK
311 W. MONROE STREET, 12TH FLOOR
CHICAGO, ILLINOIS 60606
(Address of principal executive offices)
(Zip Code)
(312) 461-4662
(Registrant's telephone number, including area code)
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 [ ]
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
EASTERN AMERICAN NATURAL GAS TRUST
STATEMENTS OF DISTRIBUTABLE INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30 June 30
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Royalty Income $5,859,654 $5,408,101 $3,129,174 $2,698,871
Operating Expenses:
Taxes on production and property 402,011 365,843 213,467 182,523
Operating cost charges 225,563 218,534 112,167 109,267
---------------------------------------------------------------
Total Operating Expenses 627,574 584,377 325,634 291,790
----------------------------------------------------------------
Net Proceeds to the Trust 5,232,080 4,823,724 2,803,540 2,407,081
General and Administrative Expenses (249,646) (263,860) (93,229) (117,579)
Interest Income 3,318 3,295 2,246 1,158
---------------------------------------------------------------
Distributable Income $4,985,752 $4,563,159 $2,712,557 $2,290,660
========== =============================================
Distributable Income Per Unit (5,900,000
units authorized and outstanding):
Distributable Income Per Unit $0.8450 $0.7734 $0.4598 $0.3882
======================= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
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EASTERN AMERICAN NATURAL GAS TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------- -----------------
(Unaudited)
<S> <C> <C>
Assets:
Cash $2,246 $1,645
Net Proceeds Receivable 2,803,540 2,622,179
Net Profits Interests in Gas Properties 93,162,180 93,162,180
Accumulated Amortization (20,163,640) (17,308,080)
--------------------------------------------
Total Assets $75,804,326 $78,477,924
============================================
Liabilities and Trust Corpus:
Trust General and Administrative
Expenses Payable $93,229 $108,806
Distributions Payable 2,712,557 2,515,018
Trust Corpus (5,900,000 Trust Units authorized
and outstanding) 72,998,540 75,854,100
---------------------------------------------
Total Liabilities and Trust Corpus $75,804,326 $78,477,924
============================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
EASTERN AMERICAN NATURAL GAS TRUST
STATEMENTS OF CHANGES IN TRUST CORPUS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
June 30, 1996 June 30, 1995
---------------------------------------------
<S> <C> <C>
Trust Corpus, Beginning of Period $75,854,100 $81,848,633
Distributable Income 4,985,753 4,653,159
Distributions Declared to Unitholders (4,985,753) (4,653,159)
Amortization of Net Profits Interests
in Gas Properties (2,855,560) (3,029,387)
----------- -----------
Trust Corpus, End of Period $72,998,540 $78,819,246
==========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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EASTERN AMERICAN NATURAL GAS TRUST
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1. Organization of the Trust
The Eastern American Natural Gas Trust (the "Trust") was formed under the
Delaware Business Trust Act pursuant to a Trust Agreement (the "Trust
Agreement") among Eastern American Energy Corporation ("Eastern American"), as
grantor, Bank of Montreal Trust Company, as Trustee ("Trustee"), and Wilmington
Trust Company, as Delaware Trustee (the "Delaware Trustee"). The Trust was
formed to acquire and hold net profits interests (the "Net Profits Interests")
created from the working interests owned by Eastern American in 650 producing
gas wells and 65 proved development well locations in West Virginia and
Pennsylvania (the "Underlying Properties"). The Net Profits Interests consist
of a royalty interest in 322 wells and a term interest in the remaining wells
and locations. Prior to or on May 15, 2013, the Trustee is required to sell
the royalty interests and liquidate the Trust.
On March 15, 1993, 5,900,000 Depositary Units were issued in a public
offering at an initial public offering price of $20.50 per Depositary Unit.
Each Depositary Unit consists of beneficial ownership of one unit of beneficial
interest ("Trust Unit") in the Trust and a $20 face amount beneficial ownership
interest in a $1,000 face amount zero coupon United States Treasury Obligation
("Treasury Obligation") maturing on May 15, 2013.
The Net Profits Interests are passive in nature, and neither the Trustee
nor the Delaware Trustee has management control or authority over, nor any
responsibility relating to, the operation of the properties subject to the Net
Profits Interests. The Trust Agreement provides, among other things, that: the
Trust shall not engage in any business or commercial activity or acquire any
asset other than the Net Profits Interests initially conveyed to the Trust; the
Trustee may establish a reserve for 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 Unitholders; and the Trustee will make quarterly cash distributions to
Unitholders from funds of the Trust.
NOTE 2. Basis of Presentation
The information furnished is based upon certain estimates of production for
the periods presented and is therefore subject to adjustment in future periods
to reflect actual production for the periods presented. The information
furnished reflects all adjustments which are, in the opinion of the Trustee,
necessary for a fair presentation of the results for the interim periods
presented. The accompanying financial statements are unaudited interim
financial statements, and should be read in conjunction with the audited
financial statements and notes thereto included in the Trust's Annual Report on
Form 10-K for the year ended December 31, 1995.
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EASTERN AMERICAN NATURAL GAS TRUST
NOTES TO UNAUDITED FINANCIAL STATEMENTS - (CONTINUED)
NOTE 3. Trust Accounting Policies
The Trust serves as a pass-through entity, with items of depletion,
interest income and expense, and income tax attributes being based upon the
status and elections of Unitholders. Thus, the Statements of Distributable
Income shows Distributable Income, defined as Trust income available for
distribution to Unitholders before application of those Unitholders' additional
expenses, if any, for depletion, interest income and expense, and income taxes.
The Trust uses the accrual basis to recognize revenue, with Royalty Income
recorded as income as reserves are extracted from properties and sold.
Expenses are also presented on an accrual basis. Actual cash receipts will
vary from the accrual of revenues and expenses due to, among other reasons, the
payment provisions of the gas purchase contract between the Trust and Eastern
Marketing Corporation (a subsidiary of Eastern American), which requires
payment with respect to gas production for a calendar quarter to be made to the
Trust on or before the tenth day of the third month following such quarter.
Net Profits Interests in Gas Properties are periodically assessed to
determine whether their net capitalized cost has been impaired. The Trust will
provide a write-down to its investment in the Net Profits Interests in Gas
Properties to the extent that total capitalized costs, less accumulated
amortization, exceed undiscounted future net revenues attributable to proved
gas reserves of the Underlying Properties. Any such write-down would not
reduce Distributable Income, but would reduce Trust Corpus.
Amortization of the Net Profits Interests in Gas Properties is calculated
on a units-of-production basis, whereby the Trust's cost basis in the
properties is divided by total Trust reserves to derive an amortization rate
per reserve unit. Such amortization does not reduce distributable income, but
does reduce Trust Corpus.
NOTE 4. Income Taxes
The Trust is a grantor trust and is not required to pay federal or state
income taxes. Accordingly, no provision for federal or state income taxes has
been made. All income is taxed to the Unitholders of the Trust.
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Trust does not conduct any operations or activities. The Trust's
purpose is, in general, to hold the Net Profits Interests, to distribute to
Unitholders cash which the Trust receives in respect of the Net Profits
Interests (net of Trust expenses), and to perform certain administrative
functions in respect of the Net Profits Interests and the Depositary Units.
Accordingly, the Trust derives substantially all of its income and cash flows
from the Net Profits Interests. The Trust has no source of liquidity or
capital resources other than the cash flows from the Net Profits Interests.
The Net Profits Interests were created pursuant to conveyances (the
"Conveyances") from Eastern American to the Trust. In connection therewith,
Eastern American assigned its rights under a gas purchase contract (the "Gas
Purchase Contract") which obligates Eastern Marketing Corporation, a subsidiary
of Eastern American, to purchase all of the natural gas produced from the
Underlying Properties which is attributable to the Net Profits Interests.
The Conveyances and the Gas Purchase Contract entitle the Trust to receive
an amount of cash for each calendar quarter equal to the Net Proceeds for such
quarter. "Net Proceeds" for any calendar quarter generally means an amount of
cash equal to (a) 90% of a volume of gas equal to (i) the volume of gas
produced during such quarter attributable to the Underlying Properties less
(ii) a volume of gas equal to Chargeable Costs for such quarter, multiplied by
(b) the applicable price for such quarter under the Gas Purchase Contract.
"Chargeable Costs" is that volume of gas which equates in value, determined by
reference to the relevant sales price under the Gas Purchase Contract or the
Conveyances, as applicable, to the sum of the Operating Cost Charge, Capital
Costs and Taxes. The "Operating Cost Charge" for 1995 was based on an annual
rate of $438,416, and for 1996 this annual rate is $456,391. In subsequent
years, the Operating Cost Charge will escalate, based on increases in the index
of average weekly earnings of Crude Petroleum and Gas Production Workers
(published by the United States Department of Labor, Bureau of Labor
Statistics), but not more than 5% per year. The Operating Cost Charge will not
be increased as Development Wells are completed but will be reduced for each
well that is sold (free of the Net Profits Interests) or plugged and abandoned.
"Capital Costs" means Eastern American's working interest share of capital
costs for operations on the Underlying Properties, but only for items having a
useful life of at least three years, and not including any capital costs
incurred in drilling the Development Wells. "Taxes" means ad valorem taxes,
production and severance taxes, and other taxes imposed on the Trust's interest
in the Underlying Properties, or production therefrom.
Pursuant to the Gas Purchase Contract, Eastern Marketing Corporation will
be obligated to purchase such gas production, on a quarterly basis, at a
purchase price per Mcf, subject to certain adjustments, equal to the greater of
the Index Price and the Floor Price for gas produced during the seven-year
period ending December 31, 1999 (the "Primary Term") and at a purchase price
per Mcf equal to the Index Price thereafter. The Floor Price was $2.35 per
Mcf for 1995 and shall be $2.36 per Mcf for 1996, $2.57 per Mcf for 1997, $2.84
per Mcf for 1998 and $3.09 per Mcf of 1999, in each case subject to adjustment
under certain circumstances. The Index Price for any quarter during the
Primary Term will be a weighted average price determined by reference to the
fixed price ("Fixed
7
<PAGE> 8
Price") component, which will be given a 66 2/3% weight, and a variable price
("Variable Price") component, which will be given a 33 1/3% weight. Following
the Primary Term, the Index Price will be determined solely by reference to the
Variable Price. The Fixed Price was equal to $2.93 per Mcf for the 1995
calendar year, and escalates at 5% for each year thereafter. The fixed price
for the 1996 calendar year is $3.08 per Mcf. The Variable Price is equal to
the Henry Hub Average Spot Price (as defined) plus $.30 per MMBtu, multiplied
by 110% to effect a fixed adjustment for Btu content. The Henry Hub Average
Spot Price for any quarter is a price per MMBtu based on a 12-month average
settlement price of the gas futures contracts for gas delivered to the Henry
Hub (Henry, Louisiana).
Pursuant to the Conveyances Eastern American is obligated to drill the 65
Development Wells and bear the costs of drilling and completing the same. As
of December 31, 1995, Eastern American had drilled 33 Development Wells and is
obligated to drill 26 additional Development Wells in 1996 and 6 in 1997.
During this calendar year through June 30, 1996 Eastern American has drilled
16 of the required 26 Development Wells.
In reviewing some of the wells in which the Trust owns a Net Profits
Interest, Eastern American identified seven (7) wells which were no longer
commercially productive. Pursuant to the Conveyance Eastern American has the
right to abandon any well or working interest included in the Underlying
Properties, if, in its opinion, such well or property ceases to produce or is
not capable of producing in commercial paying quantities. The costs of
plugging and abandonment is generally a deduction in the Net Proceeds
calculation, but because Eastern American has identified an individual who has
agreed to pay such costs, the Trust is not expected to be required to bear any
of such costs.
Comparison of Results of Operations for Three Months Ended June 30, 1996 and
Three Months Ended June 30, 1995
The Trust's distributable income was $2,712,557 for the three months
ended June 30, 1996 as compared to $2,290,660 for the three months ended June
30, 1995. This increase was due to an increase in the price payable to the
Trust under the Gas Purchase Contract ($3.052 per Mcf for the three months
ended June 30, 1996; $2.680 per Mcf for the three months ended June 30, 1995)
and to a slight increase in production of gas attributable to the Net Profits
Interests for the three months ended June 30, 1996 (1,026 MMcf) as compared to
the three months ended June 30, 1995 (1,007 MMcf).
The price payable to the Trust for gas production attributable to the
Net Profits Interests was $3.052 per Mcf for the three months ended June 30,
1996 and $2.680 per Mcf for the three months ended June 30, 1995. The price
per Mcf was higher for the three months ended June 30, 1996 than for the
corresponding three month period ending June 30, 1995 due to a higher Fixed
Price component ($3.08 per Mcf for the three months ended June 30, 1996; $2.93
per Mcf for the three months ended June 30, 1995) and a higher Variable Price
component of the Index Price under the Gas Purchase Contract ($3.006 per Mcf
for the three months ended June 30, 1996; $2.182 per Mcf for the three months
ended June 30, 1995). Such higher Variable Price is directly attributable to
an increase in the average futures spot market prices for gas delivered at the
Henry Hub near Henry, Louisiana for the three months ended June 30, 1996
($2.433 per Mcf) as compared to the prior period ($1.684 per Mcf).
8
<PAGE> 9
Comparison of Results of Operations for Six Months Ended June 30, 1996 and Six
Months Ended June 30, 1995
The Trust's distributable income was $4,985,752 for the six months
ended June 30, 1996 as compared to $4,563,159 for the six months ended June 30,
1995. This increase was due to an increase in the price payable to the Trust
under the Gas Purchase Contract ($2.987 per Mcf for the six months ended June
30, 1996; $2.655 per Mcf for the six months ended June 30, 1995) and was
partially offset by a decrease in production of gas attributable to the Net
Profits Interests for the six months ended June 30, 1996 (1,959 MMcf) as
compared to the six months ended June 30, 1995 (2,037 MMcf). The production
decreases were attributable to normal production declines associated with the
Underlying Properties.
The price payable to the Trust for gas production attributable to the
Net Profits Interests was $2.987 per Mcf for the six months ended June 30, 1996
and $2.655 per Mcf for the six months ended June 30, 1995. The price per Mcf
was higher for the six months ended June 30, 1996 than for the corresponding
six month period ending June 30, 1995 due to a higher Fixed Price component
($3.08 per Mcf for the six months ended June 30, 1996; $2.93 per Mcf for the
six months ended June 30, 1995) and a higher Variable Price component of the
Index Price under the Gas Purchase Contract ($2.810 per Mcf for the six months
ended June 30, 1996; $2.107 per Mcf for the six months ended June 30, 1995).
Such higher Variable Price is directly attributable to an increase in the
average futures spot market prices for gas delivered at the Henry Hub near
Henry, Louisiana for the six months ended June 30, 1996 ($2.255 per Mcf) as
compared to the prior period ($1.615 per Mcf).
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
None.
ITEM 3. Defaults Upon Senior Securities.
None.
ITEM 4. Submission of Matters to a Vote of Security Holders.
None.
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ITEM 5. Other Information.
For the calendar quarter ended June 30, 1996, the high and low closing
prices of the Treasury Obligations (which have $1,000 face principal amount),
as quoted in the over-the-counter market for United States Treasury
obligations, were $309.65 and $286.72 respectively. On June 28, 1996 the
closing price of the Treasury Obligations, as quoted on such market, was
$304.92.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
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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.
EASTERN AMERICAN NATURAL GAS TRUST
By: Bank of Montreal Trust Company, Trustee
/s/ E. Kay Liederman
--------------------------------------------
Name: E. Kay Liederman
Title: Vice President
Date: August 12, 1996
The Registrant, Eastern American Natural Gas Trust, has no principal
executive officer, principal financial officer, board of directors or persons
performing similar functions. Accordingly no additional signatures are
available and none have been provided.
11
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INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM EASTERN
AMERICAN NATURAL GAS TRUST'S REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,246
<SECURITIES> 0
<RECEIVABLES> 2,803,540
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,803,540
<PP&E> 93,162,180
<DEPRECIATION> 20,163,640
<TOTAL-ASSETS> 75,804,326
<CURRENT-LIABILITIES> 2,805,786
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 72,998,540
<TOTAL-LIABILITY-AND-EQUITY> 75,804,326
<SALES> 5,859,654
<TOTAL-REVENUES> 5,859,654
<CGS> 0
<TOTAL-COSTS> 627,574
<OTHER-EXPENSES> 249,646
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,985,752
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,985,752
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,985,752
<EPS-PRIMARY> 0.845
<EPS-DILUTED> 0.845
</TABLE>
