<PAGE>
UNITED STATES
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 1-12474
Torch Energy Royalty Trust
(Exact name of registrant as specified in its charter)
Delaware 74-6411424
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1100 North Market Street, Wilmington, Delaware 19890
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 302/651-8584
Not Applicable
Former name, former address and former fiscal year,
if changed since last report
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
-------- -------
<PAGE>
TORCH ENERGY ROYALTY TRUST
PART 1 - FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
INTRODUCTION
The financial statements included herein have been prepared by Torch Energy
Advisors Incorporated ("Torch"), pursuant to an administrative services
agreement between Torch and Torch Energy Royalty Trust (the "Trust"), pursuant
to the rules and regulations of the Securities and Exchange Commission.
Wilmington Trust Company serves as the trustee ("Trustee") of the Trust. Certain
information and footnote disclosures normally included in the annual financial
statements have been omitted pursuant to such rules and regulations, although
the Trustee believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these financial statements be
read in conjunction with the December 31, 1995 financial statements and notes
thereto included in the Trust's latest annual report on Form 10-K. In the
opinion of the Trustee, all adjustments necessary to present fairly the assets,
liabilities and trust corpus of the Trust as of June 30, 1996 and December 31,
1995, the distributable income and changes in trust corpus for the three-month
and six-month periods ended June 30, 1996 and 1995 have been included. The
distributable income for such interim periods is not necessarily indicative of
the distributable income for the full year.
The financial statements as of June 30, 1996 and for the three-month and six-
month periods ended June 30, 1996 and 1995 included herein have been reviewed by
Deloitte & Touche LLP, independent public accountants, as stated in their report
appearing herein.
2
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
Wilmington Trust Company
as Trustee of Torch Energy Royalty Trust:
We have reviewed the accompanying statement of assets, liabilities and trust
corpus of the Torch Energy Royalty Trust as of June 30, 1996, and the related
statements of distributable income and changes in trust corpus for the three-
month and six-month periods ended June 30, 1996 and 1995. These financial
statements are the responsibility of the Trustee.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and of making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
As described in Note 2 to the financial statements, these financial statements
have been prepared on a modified cash basis of accounting, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
Based on our review, we are not aware of any material modifications that should
be made to such financial statements for them to be in conformity with the basis
of accounting described in Note 2.
We have previously audited, in accordance with generally accepted auditing
standards, the statement of assets, liabilities and trust corpus of Torch Energy
Royalty Trust as of December 31, 1995, and the related statements of
distributable income and changes in trust corpus for the year then ended (not
presented herein); and in our report dated March 5, 1996, we expressed an
unqualified opinion on those financial statements. In our opinion, the
information set forth in the accompanying statement of assets, liabilities and
trust corpus as of December 31, 1995 is fairly stated, in all material respects,
in relation to the statement of assets, liabilities and trust corpus from which
it has been derived.
Houston, Texas
August 9, 1996
3
<PAGE>
TORCH ENERGY ROYALTY TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
June 30, 1996 December 31,1995
------------- ----------------
(Unaudited)
Cash............................................. $ 5 $ 9
Net profits interests in oil and gas properties
(Net of accumulated amortization of $51,915
and $43,430 at June 30, 1996 and
December 31, 1995, respectively)................ 128,685 137,170
------------ -----------
$ 128,690 $ 137,179
============ ===========
LIABILITIES AND TRUST CORPUS
Trust expense payable............................ $ 162 $ 165
Trust corpus..................................... 128,528 137,014
------------ -----------
$ 128,690 $ 137,179
============ ===========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
4
<PAGE>
TORCH ENERGY ROYALTY TRUST
STATEMENTS OF DISTRIBUTABLE INCOME
(In thousands, except per Unit amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
----------------- -----------------
1996 1995 1996 1995
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net profits income.......... $4,411 $5,668 $9,158 $11,867
Interest income............. 7 10 14 19
------ ------ ------ -------
4,418 5,678 9,172 11,886
------ ------ ------ -------
General and administrative
expenses.................. 192 200 342 375
------ ------ ------ -------
Distributable income........ $4,226 $5,478 $8,830 $11,511
====== ====== ====== =======
Distributable income per
Unit (8,600,000 Units).... $ .49 $ .64 $ 1.03 $ 1.34
====== ====== ====== =======
Distributions per Unit...... $ .49 $ .64 $ 1.03 $ 1.34
====== ====== ====== =======
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
5
<PAGE>
TORCH ENERGY ROYALTY TRUST
STATEMENTS OF CHANGES IN TRUST CORPUS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------- ----------------------
1996 1995 1996 1995
--------- -------- -------- ---------
<S> <C> <C> <C> <C>
Trust corpus, beginning
of period............... $ 132,589 $ 152,341 $ 137,015 $ 157,373
Amortization of net
profits interest........ (4,056) (4,733) (8,485) (9,778)
Distributable income...... 4,226 5,478 8,830 11,511
Distributions to
Unitholders............. (4,231) (5,513) (8,832) (11,533)
--------- --------- --------- ---------
Trust corpus, end of
period.................. $ 128,528 $ 147,573 $ 128,528 $ 147,573
========= ========= ========= =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
6
<PAGE>
TORCH ENERGY ROYALTY TRUST
Notes to Financial Statements
1. Trust Organization and Provisions
The Torch Energy Royalty Trust ("Trust") was formed effective October 1, 1993,
pursuant to a trust agreement ("Trust Agreement") among Wilmington Trust
Company, as trustee ("Trustee"), Torch Royalty Company ("TRC") and Velasco Gas
Company, Ltd. ("Velasco") as owners of certain oil and gas properties
("Underlying Properties") and Torch Energy Advisors Incorporated ("Torch") as
grantor. TRC and Velasco created net profits interests ("Net Profits
Interests") and conveyed such interests to Torch. Torch conveyed the Net
Profits Interests to the Trust in exchange for an aggregate of 8,600,000 units
of beneficial interest ("Units"). Such Units were sold to the public through
various underwriters beginning November 1993.
The Underlying Properties constitute working interests in the Chalkley Field in
Louisiana ("Chalkley Field"), the Robinson's Bend Field in the Black Warrior
Basin in Alabama ("Robinson's Bend Field"), fields that produce from the Cotton
Valley formations in Texas ("Cotton Valley Fields") and fields that produce from
the Austin Chalk formation in Texas ("Austin Chalk Fields"). Sales of coal seam
and tight sands gas attributable to the Net Profits Interests between November
23, 1993 and January 1, 2003 result in the unitholders ("Unitholders") receiving
quarterly allocations of tax credits under Section 29 of the Internal Revenue
Code of 1986 ("Section 29 Credits"). In 1995 and 1994, the Section 29 Credit
available for production from qualifying coal seam properties was approximately
$1.01 and $1.00, respectively, for each MMBtu of gas produced and sold. This
rate is adjusted annually for inflation. The Section 29 Credit available for
production from qualifying tight sands properties is approximately $0.52 for
each MMBtu of gas produced and sold, and such amount is not adjusted for
inflation.
The only assets of the Trust, other than cash and temporary investments being
held for the payment of expenses and liabilities and for distribution to
Unitholders, are the Net Profits Interests. The Net Profits Interests (other
than the Net Profits Interest covering the Robinson's Bend Field) entitle the
Trust to receive 95% of the Net Proceeds ("Net Proceeds") attributable to oil
and gas produced and sold from wells (other than infill wells) on the Underlying
Properties. Net Proceeds are generally defined as gross revenues received from
the sale of production attributable to the Underlying Properties during any
period less property, production, severance and similar taxes, and development,
operating, and certain other costs. In calculating Net Proceeds from the
Robinson's Bend Field, operating and development costs incurred prior to January
1, 2003 are not deducted. In addition, the amounts paid to the Trust from the
Robinson's Bend Field during any calendar quarter are subject to a volume
limitation ("Volume Limitation") equal to the gross proceeds from the sale of
730 MMcf of gas before
7
<PAGE>
TORCH ENERGY ROYALTY TRUST
Notes to Financial Statements
January 1, 1995 and the sale of 912.5 MMcf of gas thereafter, less property,
production, severance and related taxes. Production for the three-month and six-
month periods ended December 31, 1995 and March 31, 1996 from the Underlying
Properties in the Robinson's Bend Field was approximately 6.2% (56,149 Mcf) and
9.1% (165,837 Mcf), respectively, below the volume limitation. The Net Profits
Interests also entitle the Trust to 20% of any infill net proceeds if, in the
future, infill wells are drilled on the Underlying Properties.
2. Basis of Accounting
The financial statements of the Trust are prepared on a modified cash basis and
are not intended to present the financial position and results of operations in
conformity with generally accepted accounting principles ("GAAP"). Preparation
of the Trust's financial statements on such basis includes the following:
- - Revenues are recognized in the period in which amounts are received by the
Trust. Therefore, revenues recognized during the three-month periods ended
June 30, 1996 and 1995 are derived from oil and gas production sold during
the three-month periods ended March 31, 1996 and 1995, respectively.
Revenues recognized during the six month periods ended June 30, 1996 and
1995 are derived from oil and gas production sold during the six month
periods ended March 31, 1996 and 1995, respectively. General and
administrative expenses are recognized on an accrual basis.
- - Amortization of the Net Profits Interests is calculated on a unit-of-
production basis and charged directly to trust corpus.
- - Distributions to Unitholders are recorded when declared by the Trustee.
- - The net profits interests in oil and gas properties is limited to the sum
of future net cash flows attributable to the Trust's oil and gas reserves
at year end using current product prices plus the estimated future Section
29 credits for federal income tax purposes. If the net amount of net
profits interests in oil and gas properties exceeds this amount, an
impairment provision will be recorded and charged to the trust corpus.
The financial statements of the Trust differ from financial statements prepared
in accordance with GAAP because royalty income is not accrued in the period of
8
<PAGE>
TORCH ENERGY ROYALTY TRUST
Notes to Financial Statements
production and amortization of the Net Profits Interests is not charged against
operating results.
The Financial Accounting Standards Board has issued Statement No. 121 ("FAS
121") "Accounting for the Impairment for Long-Lived Assets and Long-Lived Assets
to be Disposed Of," which is effective beginning January 1, 1996. The statement
establishes methods for determining and measuring asset impairment and the
required timing of asset impairment evaluations. The impact of adopting FAS 121
did not have an effect on the Trust's results of operations or financial
position.
3. Federal Income Taxes
Tax counsel has advised the Trust that, under current tax law, the Trust is
classified as a grantor trust for Federal income tax purposes and not an
association taxable as a corporation. However, the opinion of tax counsel is
not binding on the Internal Revenue Service. As a grantor trust, the Trust is
not subject to Federal income tax.
Because the Trust is treated as a grantor trust for Federal income tax purposes
and a Unitholder is treated as directly owning an interest in the Net Profits
Interests, each Unitholder is taxed directly on such Unitholder's pro rata share
of income attributable to the Net Profits Interests consistent with the
Unitholder's method of accounting and without regard to the taxable year or
accounting method employed by the Trust. Amounts payable with respect to the
Net Profits Interests are paid to the Trust on the quarterly record date
established for quarterly distributions in respect to each calendar quarter
during the term of the Trust, and the income, deductions and income tax credits
relating to Section 29 Credits resulting from such payments are allocated to the
Unitholders of record on such date.
4. Distributions and Income Computations
The Trustee determines for each quarter the amount of cash available for
distribution to Unitholders. Such amount (the "Quarterly Distribution Amount")
is equal to the excess, if any, of the cash received by the Trust, on the last
day of the second month following the previous calendar quarter (or the next
business day thereafter) ending prior to the dissolution of the Trust, from the
Net Profits Interests then held by the Trust plus, with certain exceptions, any
other cash receipts of the Trust during such quarter, subject to adjustments for
changes made by the Trustee during such quarter in any cash reserves established
for the payment of contingent or future obligations of the Trust. Based on the
payment procedures relating to the Net Profits Interests, cash received by the
9
<PAGE>
TORCH ENERGY ROYALTY TRUST
Notes to Financial Statements
Trustee on the last day of the second month of a particular quarter from the Net
Profits Interests generally represents proceeds from the sale of oil and gas
produced from the Underlying Properties during the preceding calendar quarter.
The Quarterly Distribution Amount for each quarter is payable to Unitholders of
record on the last day of the second month of the calendar quarter unless such
day is not a business day in which case the record date is the next business day
thereafter. The Trustee distributes the Quarterly Distribution Amount within
approximately 10 days after the record date to each person who was a Unitholder
of record on the associated record date.
5. Related Party Transactions
Marketing Arrangements
TRC and Velasco, as owners of the Underlying Properties subject to and burdened
by the Net Profits Interests, contracted to sell the oil and gas production from
such properties to Torch Energy Marketing, Inc. ("TEMI"), an affiliate of Torch,
under a purchase contract ("Purchase Contract"). Under the Purchase Contract,
TEMI is obligated to purchase all net production attributable to the Underlying
Properties for an index price for oil and gas ("Index Price"), less certain
gathering, treating and transportation charges, which are calculated monthly.
The Index Price equals 97% of the average spot market prices of oil and gas
("Average Market Prices") at the four locations where TEMI sells production,
which, prior to September 1, 2000, is adjusted to reflect the terms of a hedge
contract ("Hedge Contract") to which TEMI is a party. Under the Hedge Contract,
TEMI receives prices specified in the Hedge Contract ("Specified Prices") for
quantities of oil and gas specified therein ("Specified Quantities"). While the
Index Price calculation reflects the terms of the Hedge Contract, the Trust's
net profits income is not impacted by payments or receipts made by or received
by TEMI in connection with its participation in the Hedge Contract. In
calculating the Index Price for gas (which represents approximately 97% of the
estimated reserves as of January 1, 1996, on an Mcfe basis), the Specified
Prices currently receive a weighting of approximately one-half and decline to
less than 10%, and the Average Market Prices receive the balance of the
weighting. The Specified Prices for gas increase each year from $1.79 per MMBtu
in 1994 to $1.89 per MMBtu in 2000 and are adjusted to reflect the difference
between the settlement prices for oil and gas in the futures markets and the
Average Market Prices.
The Purchase Contract also provides that the minimum price paid by TEMI for gas
production is $1.70 per MMBtu ("Minimum Price"). When TEMI pays a purchase
price based on the Minimum Price, it receives price credits ("Price Credits")
equal to the
10
<PAGE>
TORCH ENERGY ROYALTY TRUST
Notes to Financial Statements
difference between the Index Price and the Minimum Price that it is
entitled to deduct in determining the purchase price when the Index Price for
gas exceeds the Minimum Price. As of June 30, 1996, TEMI has accumulated Price
Credits of $1,288,000, down from $2,380,000 at March 31, 1996 and $2,628,000 at
December 31, 1995. In addition, if the Index Price for gas exceeds $2.10 per
MMBtu ("Sharing Price"), TEMI is entitled to deduct 50% of such excess ("Price
Differential") from the purchase price. Beginning January 1, 2001, TEMI has an
annual option to discontinue the Minimum Price commitment. However, if TEMI
discontinues the Minimum Price commitment, it will no longer be entitled to
deduct the Price Differential in calculating the purchase price and will forfeit
all accrued Price Credits. TEMI has purchased put option contracts granting
TEMI the right to sell estimated gas production in excess of the Specified
Quantities at a price intended to limit TEMI's losses in the event the Index
Price falls below the Minimum Price. Gross revenues (before deductions for
applicable gathering, treating and transportation charges) from TEMI included in
net profits income for the three months ended June 30, 1996 and 1995 were
$5,758,000, and $7,364,000, respectively. Such gross revenues for the six months
ended June 30, 1996 and 1995 were $12,009,000 and $15,275,000, respectively.
Gathering, Treating and Transportation Arrangements
The Purchase Contract entitles TEMI to deduct certain gas gathering, treating
and transportation costs in calculating the purchase price for gas in the
Robinson's Bend, Austin Chalk and Cotton Valley Fields. The amounts that may be
deducted in calculating the purchase price for such gas are set forth in the
Purchase Contract and are not affected by the actual costs incurred by TEMI to
gather, treat and transport gas. In the Robinson's Bend Field, TEMI is entitled
to deduct a gathering, treating and transportation fee of $0.26 per MMBtu
adjusted for inflation ($.272 per MMBtu, $0.265 per MMBTU, and $0.261 per MMBtu
for 1996, 1995 and 1994 production, respectively), plus fuel usage equal to 5%
of revenues, payable to Bahia Gas Gathering, Ltd. ("Bahia") pursuant to a gas
gathering agreement. Bahia is an affiliate of Torch. Additionally, a fee of
$.05 per MMBtu, representing a gathering fee payable to a non-affiliate of
Torch, is deducted in calculating the purchase price for production from 72 of
the 470 wells in the Robinson's Bend Field. TEMI also deducts $0.38 per MMBtu
plus 17% of revenues in calculating the purchase price for production from the
Austin Chalk Fields, as a fee to gather, treat and transport gas production.
During the third quarter of 1994, the Purchase Contract was amended whereby TEMI
is entitled to deduct, effective August 1, 1994, a transportation fee of $.045
per MMBtu, payable to a third party, from production attributable to certain
wells in the Cotton Valley Fields whose production was transferred to a pipeline
with lower system pressure. During the three
11
<PAGE>
TORCH ENERGY ROYALTY TRUST
Notes to Financial Statements
months ended June 30, 1996 and 1995, gathering, treating and transportation fees
charged by TEMI, attributable to production during the three months ended March
31, 1996 and 1995 in the Robinson's Bend, Austin Chalk and Cotton Valley Fields,
totaled $512,000, and $561,000, respectively. During the six months ended June
30, 1996 and 1995, such gathering, treating and transportation fees,
attributable to production during the six months ended June 30, 1996 and 1995,
totaled $1,023,000 and $1,141,000, respectively. No amounts for gathering,
treating or transportation are deducted in calculating the purchase price from
the Chalkley Field.
Administrative Services Agreement
Pursuant to the Trust Agreement, Torch and the Trust entered into an
administrative services agreement effective October 1, 1993. The Trust is
obligated, throughout the term of the Trust, to pay to Torch each quarter an
administrative services fee for accounting, bookkeeping and informational
services relating to the Net Profits Interests. The administrative services fee
is $87,500 per calendar quarter commencing October 1, 1993. The amount of the
administrative services fee is adjusted annually based upon the change in the
Producer's Price Index as published by the Department of Labor, Bureau of Labor
Statistics. Administrative services fees paid by the Trust to Torch during the
three months ended June 30, 1996 and 1995 were $94,000 and $89,000, respectively
per period. During the six months ended June 30, 1996 and 1995, such
administrative services fees were $183,000 and $178,000, respectively.
Compensation of the Trustee and Transfer Agent
The Trust Agreement provides that the Trustee be compensated for its
administrative services, out of the Trust assets, in an annual amount of
$41,000, plus an hourly charge for services in excess of a combined total of 250
hours annually at its standard rate. The Trustee receives a transfer agency fee
of $5.00 annually per account (minimum of $15,000 annually), subject to change
each December, beginning December 1994, based upon the change in the Producer's
Price Index as published by the Department of Labor, Bureau of Labor Statistics,
plus $1.00 for each certificate issued. Total administrative and transfer agent
fees paid by the Trust to the Trustee during the three months ended June 30,
1996 and 1995 were $14,000 per period. Such fees paid during the six months
ended June 30, 1996 and 1995 were $28,000 per period. The Trustee is also
entitled to reimbursement for out-of-pocket expenses.
12
<PAGE>
TORCH ENERGY ROYALTY TRUST
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Because a modified cash basis of accounting is utilized by the Trust, net
profits income of the Trust for the three months ended June 30, 1996 and 1995 is
derived from actual oil and gas produced during the three months ended March 31,
1996 and 1995, respectively. Oil and gas sales attributable to the working
interests burdened by the Underlying Properties for such periods are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
-------------------------------------
1996 1995
----------------- ------------------
Bbl Mcf Bbl Mcf
of Oil of Gas of Oil of Gas
------ --------- ------- ---------
<S> <C> <C> <C> <C>
Chalkley Field 16,057 1,409,405 23,931 1,863,063
Robinson's Bend Field --- 845,065 --- 960,526
Cotton Valley Fields 2,056 469,550 1,409 537,330
Austin Chalk Fields 17,874 166,493 27,869 286,712
------ --------- ------- ---------
35,987 2,890,513 53,209 3,647,631
====== ========= ======= =========
Six Months Ended June 30,
----------------- ------------------
1996 1995
----------------- ------------------
Bbl Mcf Bbl Mcf
of Oil of Gas of Oil of Gas
------ --------- ------- ---------
Chalkley Field 35,529 3,028,027 49,429 3,910,557
Robinson's Bend Field --- 1,746,487 --- 1,942,576
Cotton Valley Fields 4,412 908,380 4,388 1,205,803
Austin Chalk Fields 36,036 351,591 61,100 660,218
------ --------- ------- ---------
75,977 6,034,485 114,917 7,719,154
====== ========= ======= =========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
For the three months ended June 30, 1996, net profits income was $4,411,000,
down 22% from net profits income of $5,668,000 for the same period in 1995.
Such decrease is primarily due to normal production declines attributable to the
Underlying Properties.
Gas production attributable to the Underlying Properties for the three months
ended June 30, 1996 was 2,890,513 Mcf, or 21% lower than gas production of
3,647,631 Mcf for the same period in 1995. Oil production attributable to the
Underlying Properties for the three months ended June 30, 1996 was 35,987 Bbls,
as compared to 53,209 Bbls
13
<PAGE>
TORCH ENERGY ROYALTY TRUST
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT.)
for the same period in 1995. Such decreases in production are mainly due to
normal production declines.
The average price paid to the Trust during the three months ended June 30, 1996
was $1.70 per MMbtu for gas and $17.02 per Bbl for oil as compared to $1.70 per
MMBtu for gas $15.99 per Bbl for oil during the same period in 1995. When TEMI
pays a purchase price for gas based on the Minimum Price of $1.70 per MMBtu,
TEMI receives Price Credits which it is entitled to deduct in determining the
purchase price when the Index Price for gas exceeds the Minimum Price. As of
June 30, 1996, TEMI was entitled to accrued Price Credits of $1,288,000, which
TEMI may be entitled to deduct in calculating the purchase price in the future.
Price Credits in the amount of $1,092,000 were deducted in calculating the
purchase price related to production for the three months ended March 31, 1996.
General and administrative expenses amounted to $192,000 for the three months
ended June 30, 1996 as compared to $200,000 during the three months ended June
30, 1995. These expenses primarily relate to administrative services provided
by Torch and the Trustee.
The foregoing resulted in distributable income of $4,226,000, or $.49 per Unit,
for the three months ended June 30, 1996 as compared to $5,478,000 or $.64 per
Unit, for the same period in 1995. On June 10, 1996, the Trust made a
distribution to Unitholders of record on May 31, 1996 of $.492 per Unit. The
Section 29 Credits relating to this distribution, generated from production
during the three months ended March 31, 1996 were approximately $.111 per Unit.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995.
For the six months ended June 30, 1996, net profits income was $9,158,000, down
23% from net profits income of $11,867,000 for the same period in 1995. Such
decrease is primarily due to a decline in oil and gas production attributable to
the Underlying Properties.
Gas production attributable to the Underlying Properties for the six months
ended June 30, 1996 was 6,034,485 Mcf, or 22% lower than gas production of
7,719,154 Mcf for the same period in 1995. Oil production attributable to the
Underlying Properties for the six months ended June 30, 1996 was 75,977 Bbls, as
compared to 114,917 Bbls for the same period in 1995. Such decreases in
production are mainly due to normal production declines.
14
<PAGE>
TORCH ENERGY ROYALTY TRUST
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT.)
The average price paid to the Trust during the six months ended June 30, 1996
was $1.70 per MMbtu for gas and $16.32 per Bbl for oil as compared to $1.70 per
MMBtu for gas $15.74 per Bbl for oil during the same period in 1995. When TEMI
pays a purchase price for gas based on the Minimum Price of $1.70 per MMBtu,
TEMI receives Price Credits which it is entitled to deduct in determining the
purchase price when the Index Price for gas exceeds the Minimum Price. As of
June 30, 1996, TEMI was entitled to accrued Price Credits of $1,288,000, which
TEMI may be entitled to deduct in calculating the purchase price in the future.
Price Credits in the amount of $1,397,000 were deducted in calculating the
purchase price related to production for the six months ended March 31, 1996.
General and administrative expenses amounted to $342,000 for the six months
ended June 30, 1996 as compared to $375,000 during the six months ended June 30,
1995. These expenses primarily relate to administrative services provided by
Torch and the Trustee.
The foregoing resulted in distributable income of $8,830,000, or $1.03 per Unit,
for the six months ended June 30, 1996 as compared to $11,511,000 or $1.34 per
Unit, for the same period in 1995.
15
<PAGE>
TORCH ENERGY ROYALTY TRUST
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT.)
Net profits income received by the Trust during the three months ended June 30,
1996 and 1995, derived from production sold during the three months ended March
31, 1996 and 1995, respectively, was computed as shown in the following tables:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1996
--------------------------------
CHALKLEY,
COTTON VALLEY
AND ROBINSON'S
AUSTIN CHALK BEND
FIELDS FIELD TOTAL
------------- ---------- ---------
<S> <C> <C> <C>
Oil and gas revenues............ $ 4,142 $ 1,104
----------- ----------
Direct operating expenses:
Lease operating expenses and
property tax................. 344 ---
Severance tax................. 155 109
----------- ----------
499 109
----------- ----------
Net proceeds before capital
expenditures.................. 3,643 995
Capital expenditures............ 47 ---
----------- ----------
Net proceeds.................... 3,596 995
Net profits percentage.......... 95% N/A
----------- ----------
Net profits income.............. $ 3,416 $ 995 $ 4,411
=========== ========== =========
</TABLE>
16
<PAGE>
TORCH ENERGY ROYALTY TRUST
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT.)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1995
----------------------------------
CHALKLEY,
COTTON VALLEY
AND ROBINSON'S
AUSTIN CHALK BEND
FIELDS FIELD TOTAL
------------ ---------- -----
<S> <C> <C> <C>
Oil and gas revenues...................... $ 5,473 $ 1,330
------------ ----------
Direct operating expenses:
Lease operating expenses and
property tax........................... 563 ---
Severance tax........................... 216 59
------------ ----------
779 59
------------ ----------
Net proceeds before capital
expenditures............................. 4,694 1,271
Capital expenditures...................... 66 ---
------------ ----------
Net proceeds.............................. 4,628 1,271
Net profits percentage.................... 95% N/A
------------ ----------
Net profits income........................ $ 4,397 $ 1,271 $ 5,668
============ ========== =======
</TABLE>
17
<PAGE>
TORCH ENERGY ROYALTY TRUST
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT.)
Net profits income received by the Trust during the six months ended June 30,
1996 and 1995, derived from production sold during the six months ended March
31, 1996 and 1995, respectively, was computed as shown in the following tables:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
------------------------------------
CHALKLEY,
COTTON VALLEY
AND ROBINSON'S
AUSTIN CHALK BEND
FIELDS FIELD TOTAL
------------ ---------- --------
<S> <C> <C> <C>
Oil and gas revenues...................... $ 8,655 $ 2,331
Direct operating expenses:
Lease operating expenses and
property tax.......................... 864 ---
Severance tax........................... 338 180
------------ ----------
1,202 180
------------ ----------
Net proceeds before capital
expenditures............................. 7,453 2,151
Capital expenditures...................... 77 ---
------------ ----------
Net proceeds.............................. 7,376 2,151
Net profits percentage.................... 95% N/A
------------ ----------
Net profits income........................ $ 7,007 $ 2,151 $ 9,158
============ ========== ========
</TABLE>
18
<PAGE>
TORCH ENERGY ROYALTY TRUST
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT.)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1995
---------------------------------------
CHALKLEY,
COTTON VALLEY
AND ROBINSON'S
AUSTIN CHALK BEND
FIELDS FIELD TOTAL
-------------- ---------- ---------
<S> <C> <C> <C>
Oil and gas revenues................. $ 11,738 $ 2,395
-------------- ----------
Direct operating expenses:
Lease operating expenses and
property tax..................... 1,135 ---
Severance tax...................... 458 109
-------------- ----------
1,593 109
-------------- ----------
Net proceeds before capital
expenditures........................ 10,145 2,286
Capital expenditures................. 60 ---
-------------- ----------
Net proceeds......................... 10,085 2,286
Net profits percentage............... 95% N/A
-------------- ----------
Net profits income................... $ 9,581 $ 2,286 $ 11,867
============== ========== =========
</TABLE>
19
<PAGE>
TORCH ENERGY ROYALTY TRUST
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 UNITHOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
27 FINANCIAL DATA SCHEDULE
20
<PAGE>
TORCH ENERGY ROYALTY TRUST
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.
TORCH ENERGY ROYALTY TRUST
By: Wilmington Trust Company,
Trustee
By: /s/ Bruce L. Bisson
------------------------------
Vice President
Date: August 6, 1996
(The Trust has no directors or executive officers.)
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 5
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 128,690
<CURRENT-LIABILITIES> 162
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 128,690
<SALES> 0
<TOTAL-REVENUES> 4,418
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 192
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,226
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,226
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
