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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
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 (I.R.S. Employer
of 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)
THREE MONTHS ENDED
MARCH 31
2000 1999
----------- -----------
Royalty Income .................................. $ 2,216,319 $ 2,361,453
Operating Expenses:
Taxes on production and property ........ 151,537 160,088
Operating cost charges .................. 122,168 123,769
----------- -----------
Total Operating Expenses ............. 273,705 283,857
----------- -----------
Net Proceeds to the Trust ....................... 1,942,614 2,077,596
General and Administrative Expenses ............. (181,944) (159,703)
Interest Income ................................. 2,005 1,489
Cash Proceeds on Sale of Net Profits Interests .. 0 189,286
----------- -----------
Distributable Income ................. $ 1,762,675 $ 2,108,668
=========== ===========
Distributable Income Per Unit
(5,900,000 units authorized and outstanding) . $ 0.2988 $ 0.3574
=========== ===========
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>
MARCH 31, 2000 DECEMBER 31, 1999
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
Assets:
Cash ......................................... $ 2,005 $ 1,522
Net Proceeds Receivable ...................... 1,942,614 2,162,576
Net Profits Interests in Gas Properties ...... 93,162,180 93,162,180
Accumulated Amortization ..................... (41,490,675) (40,074,377)
------------ ------------
Total Assets .............................. $ 53,616,124 $ 55,251,901
============ ============
Liabilities and Trust Corpus:
Trust General and Administrative Expenses
Payable ................................... $ 181,944 $ 95,041
Distributions Payable ........................ 1,762,675 2,069,057
Trust Corpus (5,900,000) Trust Units
authorized and outstanding) ............... 51,671,505 53,087,803
------------ ------------
Total Liabilities and Trust Corpus ........ $ 53,616,124 $ 55,251,901
============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
3
<PAGE>
EASTERN AMERICAN NATURAL GAS TRUST
STATEMENT OF CHANGES IN TRUST CORPUS
(UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 2000 MARCH 31, 1999
-------------- --------------
Trust Corpus, Beginning of Period ...... $ 53,087,803 $ 58,820,498
Distributable Income ................... 1,762,675 2,108,668
Distributions Payable to Unitholders ... (1,762,675) (2,108,668)
Amortization of Net Profits
Interests in Gas Properties ......... (1,416,298) (1,462,450)
------------ ------------
Trust Corpus, End of Period ............ $ 51,671,505 $ 57,358,048
============ ============
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 consisted
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, 1999.
5
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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 show
Distributable Income, defined as Trust income available for distribution to
Unitholders before application of those Unitholders' additional expenses, if
any, for depletion, interest expense, and income taxes. The Trust uses the
accrual basis to recognize revenue, with Royalty Income recognized 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 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 is impaired. The Trust will
determine if a writedown is necessary 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. The Trust will then provide
a writedown to the extent that the net capitalized costs exceed the discounted
future net revenues attributable to proved gas reserves of the Underlying
Properties. Any such writedown would not reduce distributable income, although
it 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 proved reserves to derive an amortization rate per
reserve unit. Such amortization does not reduce distributable income, rather it
is charged directly to 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.
6
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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 the cash
proceeds to Unitholders 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 1999 was based on an annual rate of
$496,656, and for 2000 this annual rate is $488,672. 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 was not increased as Development
Wells were 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, through December 31, 1999 (the
"Primary Term"), Eastern Marketing Corporation was obligated to purchase such
gas production at a purchase price per Mcf equal to the greater of the Index
Price, as defined below, and the Floor Price, as defined below. Beginning on
January 1, 2000, Eastern Marketing is obligated to purchase such gas production
at a purchase price per Mcf equal to the Index Price.
7
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The Index Price for any quarter subsequent to the Primary Term, which expired
December 31, 1999, is determined solely by reference to the Variable Price
component, as defined below. Prior to December 31, 1999, the Index Price for any
quarter was a weighted average price determined by reference to the Fixed Price
component, which was given a 66 2/3% weighting and a Variable Price component,
which was given a 33 1/3% weighting. The Fixed Price, which escalated 5% per
year during the Primary Term, was equal to $3.39 per Mcf for 1998 and $3.56 per
Mcf for 1999. The Variable Price for any quarter is equal to the Henry Hub
Average Spot Price (as defined) per MMBtu plus $0.30 per MMBtu, multiplied by
110% to effect a fixed adjustment for Btu content. The Henry Hub Average Spot
Price is defined as the price per MMBtu determined for any calendar quarter
equal to the price obtained with respect to each of the three months in such
quarter, in the manner specified below, and then taking the average of the
prices determined for each of such three months. The price determined for any
month of such quarter is equal to the average of (i) the final settlement price
per MMBtu for Henry Hub Gas Futures Contracts (as defined), as reported in THE
WALL STREET JOURNAL, for such contracts which expired in each of the five months
prior to such month, (ii) the final settlement price per MMBtu for Henry Hub Gas
Futures Contracts, as reported in THE WALL STREET JOURNAL, for such contracts
which expire during such month and (iii) the closing settlement price per MMBtu
of Henry Hub Gas Futures Contracts determined as of the contact settlement date
for such month, as reported in THE WALL STREET JOURNAL, for such contracts which
expire in each of the six months following such month. A Henry Hub Gas Futures
Contracts is defined as a gas futures contract for gas to be delivered to the
Henry Hub which is traded on the New York Mercantile Exchange.
Accordingly, the Index Price payable to the Trust for production on and after
January 1, 2000 may be higher or lower than the price paid to the Trust during
the Primary Term, based on natural gas futures prices during the relevant
calculation period. The price payable to the Trust will have a direct impact,
positively or negatively, on the quarterly distributions payable by the Trust to
it's unit holders.
Eastern American had a disagreement with the Trust over Eastern American's
obligation to drill certain Development Wells that were closely offset by third
parties. The Trust agreed that in lieu of drilling these closely offset
Development Wells that Eastern American could provide the Trust, on an annual
basis commencing on April 1, 1997, and over the remaining life of the Trust, a
volume of gas which is equal to the projected volumes of the wells as if they
had been drilled. These volumes have been estimated by Ryder Scott Company,
independent petroleum engineers. During the quarter ended March 31, 2000, an
additional volume of 7,820 Mcf was delivered to the Trust, as compared to 9,935
Mcf for the quarter ended March 31, 1999. These additional volumes fulfill
Eastern American's obligation to provide volumes for Development Wells that had
been closely offset by third parties.
Eastern American has fulfilled its obligation with respect to the drilling
of the Development Wells. Since the inception of the Trust, Eastern has drilled
a total of 59 Development Wells which are online and producing. (See the Trust's
Form 10-K for the fiscal year ended December 31, 1999 for a more complete
description of the Development Wells.)
8
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 2000 AND
THREE MONTHS ENDED MARCH 31, 1999
The Trust's distributable income was $1,762,675 for the three months ended
March 31, 2000 as compared to $2,108,668 for the three months ended March 31,
1999. This decrease was due in part, to a decrease in Cash Proceeds on Sale of
Net Profits Interest together with a decline in production of gas attributable
to the Net Profits Interests for the three months ended March 31, 2000 (708
Mmcf) as compared to the three months ended March 31, 1999 (745 Mmcf). This
decline in production is partially attributable to the natural declines in
production and the required plugging and abandonment of certain wells in
previous periods. The decrease was also due to a decrease in the price payable
to the Trust under the Gas Purchase Contract as discussed below ($3.134 per Mcf
for the three months ended March 31, 2000; $3.168 per Mcf for the three months
ended March 31, 1999). The distributable income includes no Cash Proceeds on
Sale of Net Profits Interest for the quarter ended March 31, 2000, as compared
to $189,286 of Cash Proceeds on Sales of Net Profits Interest included in the
quarter ended March 31, 1999.
The price payable to the Trust for gas production attributable to the Net
Profits Interests was $3.134 per Mcf for the three months ended March 31, 2000
and $3.168 per Mcf for the three months ended March 31, 1999. The price per Mcf
was lower for the three months ended March 31, 2000 than for the corresponding
three month period ending March 31, 1999 due to the expiration of the Fixed
Price component (no Fixed Price component for the three months ended March 31,
2000; $3.56 per Mcf for the three months ended March 31, 1999). This decrease in
price was offset by an increase in the Variable Price component established by
the average spot market price for gas delivered at the Henry Hub near Henry,
Louisiana ($2.549 per Dth for the three months ended March 31, 2000; $1.870 per
Dth for the three months ended March 31, 1999).
9
<PAGE>
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.
ITEM 5. Other Information.
For the calendar quarter ended March 31, 2000, 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 $443.70 and $396.70 respectively. On March 31, 2000 the closing price of
the Treasury Obligations, as quoted on such market, was $443.70.
ITEM 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter
ended March 31, 2000.
10
<PAGE>
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/ ROBERT FOLTZ
Name: Robert Foltz
Title: Vice President
Date: May 12, 2000
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.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 2005
<SECURITIES> 0
<RECEIVABLES> 1,942,614
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,944,619
<PP&E> 93,162,180
<DEPRECIATION> 41,490,675
<TOTAL-ASSETS> 53,616,124
<CURRENT-LIABILITIES> 1,944,619
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 51,671,505
<TOTAL-LIABILITY-AND-EQUITY> 53,616,124
<SALES> 2,216,319
<TOTAL-REVENUES> 2,216,319
<CGS> 0
<TOTAL-COSTS> 273,705
<OTHER-EXPENSES> 181,944
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2005)
<INCOME-PRETAX> 1,762,675
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,762,675
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,762,675
<EPS-BASIC> 0.299
<EPS-DILUTED> 0.299
</TABLE>
