<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 September 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 September 30,
1996 and December 31, 1995, the distributable income and changes in trust corpus
for the three-month and nine-month periods ended September 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 September 30, 1996 and for the three-month and
nine-month periods ended September 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
and to the Unitholders:
We have reviewed the accompanying statement of assets, liabilities and trust
corpus of the Torch Energy Royalty Trust as of September 30, 1996 and the
related statements of distributable income and changes in trust corpus for the
three-month and nine-month periods ended September 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 condensed 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.
/s/ Deloitte & Touche LLP
- -------------------------
DELOITTE & TOUCHE LLP
Houston, Texas
October 21, 1996
3
<PAGE>
TORCH ENERGY ROYALTY TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
ASSETS
September 30, 1996 December 31,1995
------------------ ----------------
(Unaudited)
Cash............................................. $ 6 $ 9
Net profits interests in oil and gas properties
(Net of accumulated amortization of $55,870
and $43,430 at September 30, 1996 and
December 31, 1995, respectively)................ 124,730 137,170
-------- ----------------
$124,736 $137,179
======== ================
LIABILITIES AND TRUST CORPUS
Trust expense payable............................ $ 119 $ 165
Trust corpus..................................... 124,617 137,014
-------- ----------------
$124,736 $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 ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -----------------------
1996 1995 1996 1995
------------------------ -----------------------
<S> <C> <C> <C> <C>
Net profits income.................... $ 4,334 $ 5,613 $ 13,492 $ 17,480
Interest income....................... 5 9 19 28
--------- --------- --------- ---------
4,339 5,622 13,511 17,508
--------- --------- --------- ---------
General and administrative
expenses............................. 150 149 492 524
--------- --------- --------- ---------
Distributable income.................. $ 4,189 $ 5,473 $ 13,019 $ 16,984
========= ========= ========= =========
Distributable income per Unit
(8,600,000 Units).................... $ .49 $ .64 $ 1.51 $ 1.97
========= ========= ========= =========
Distributions per Unit................ $ .48 $ .63 $ 1.51 $ 1.97
========= ========= ========= =========
</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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
1996 1995 1996 1995
------------------------ ------------------------
<S> <C> <C> <C> <C>
Trust corpus, beginning of
period............................. $ 128,528 $ 147,573 $ 137,014 $ 157,373
Amortization of net profits
interest........................... (3,955) (4,647) (12,439) (14,425)
Distributable income................. 4,189 5,473 13,019 16,984
Distributions to Unitholders......... (4,145) (5,418) (12,977) (16,951)
---------- --------- ---------- ---------
Trust corpus, end of period.......... $ 124,617 $ 142,981 $ 124,617 $ 142,981
========== ========= ========== =========
</TABLE>
The accompanying notes to financial statements
are an integral part of these statements.
6
<PAGE>
TORCH ENERGY ROYALTY TRUST
Note 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
7
<PAGE>
TORCH ENERGY ROYALTY TRUST
Notes to Financial Statements
Limitation") equal to the gross proceeds from the sale of 730 MMcf of gas before
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
nine-month periods ended June 30, 1996 from the Underlying Properties in the
Robinson's Bend Field was approximately 12.7% (116,078 Mcf) and 10.3% (281,915
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
September 30, 1996 and 1995 are derived from oil and gas production sold
during the three-month periods ended June 30, 1996 and 1995, respectively.
Revenues recognized during the nine-month periods ended September 30, 1996
and 1995 are derived from oil and gas production sold during the nine-month
periods ended June 30, 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 Credit 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
Distributions are determined for each quarter and are based on 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
9
<PAGE>
TORCH ENERGY ROYALTY TRUST
Notes to Financial Statements
Interests, cash received by the 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% beginning in September 1997, 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.
10
<PAGE>
TORCH ENERGY ROYALTY TRUST
Notes to Financial Statements
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 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 September 30, 1996, TEMI has accumulated
Price Credits, net to the Trust, of $741,000, down from $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 September 30, 1996 and 1995 were
$5,714,000, and $7,261,000, respectively. Such gross revenues for the nine
months ended September 30, 1996 and 1995 were $17,722,000 and $22,536,000,
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 ($0.272 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. On October 1, 1996, Bahia was merged into TEMI. In future
periods, amounts that would have been previously payable to Bahia from TEMI,
will continue to be deducted by TEMI. 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. In the Austin Chalk Fields, TEMI deducts $0.38 per MMBtu
plus 17% of revenues in calculating the purchase price for production from the
Austin
11
<PAGE>
TORCH ENERGY ROYALTY TRUST
Notes to Financial Statements
Chalk Fields, as a fee to gather, treat and transport gas production. In the
Cotton Valley Fields, TEMI is entitled to deduct a transportation fee of $.045
per MMBtu, payable to a third party, from production attributable to certain
wells. During the three months ended September 30, 1996 and 1995, gathering,
treating and transportation fees charged by TEMI, attributable to production
during the three months ended June 30, 1996 and 1995 in the Robinson's Bend,
Austin Chalk and Cotton Valley Fields, totaled $552,000, and $544,000,
respectively. During the nine months ended September 30, 1996 and 1995, such
gathering, treating and transportation fees, attributable to production during
the nine months ended June 30, 1996 and 1995, totaled $1,575,000 and $1,685,000,
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 September 30, 1996 and 1995 were $91,000 and $89,000,
respectively per period. During the nine months ended September 30, 1996 and
1995, such administrative services fees were $274,000 and $267,000,
respectively.
On September 30, 1996, Torch Acquisition Company, a company formed by executive
management of Torch, acquired all of the outstanding shares of capital stock of
Torch from United Investors Management Company, a subsidiary of Torchmark
Corporation ("United"). Immediately prior to this transaction, Torch
distributed all of the outstanding capital stock of TRC to United. None of the
obligations of Torch or TRC to the Trust were changed as a result of such
transfers and Torch believes that such transfers will not adversely affect the
Trust or the Unitholders.
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
12
<PAGE>
TORCH ENERGY ROYALTY TRUST
Notes to Financial Statements
rate. The Trustee receives a transfer agency fee of $5.00 annually per account
(minimum of $15,000 annually), subject to change each December 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 September 30, 1996 and 1995 were $14,000 per period. Such
fees paid during the nine months ended September 30, 1996 and 1995 were $42,000
per period. The Trustee is also entitled to reimbursement for out-of-pocket
expenses.
13
<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 September 30, 1996 and
1995 is derived from actual oil and gas produced during the three months ended
June 30, 1996 and 1995, respectively. Oil and gas sales attributable to the
working interests burdened by the Underlying Properties for such periods are as
follows:
Three Months Ended September 30,
---------------------------------------
1996 1995
------------------ -------------------
Bbl Mcf Bbl Mcf
of Oil of Gas of Oil of Gas
------- --------- ------- ----------
Chalkley Field 13,599 1,360,914 22,913 1,844,773
Robinson's Bend Field --- 838,339 --- 937,855
Cotton Valley Fields 1,986 407,977 1,608 536,975
Austin Chalk Fields 24,887 187,299 26,502 268,650
------- --------- ------- ----------
40,472 2,794,529 51,023 3,588,253
======= ========= ======= ==========
Nine Months Ended September 30,
---------------------------------------
1996 1995
------------------ -------------------
Bbl Mcf Bbl Mcf
of Oil of Gas of Oil of Gas
------- --------- ------- ----------
Chalkley Field 49,128 4,388,941 72,342 5,755,330
Robinson's Bend Field --- 2,584,826 --- 2,880,431
Cotton Valley Fields 6,398 1,316,357 5,996 1,742,778
Austin Chalk Fields 60,923 538,890 87,602 928,868
------- --------- ------- ----------
116,449 8,829,014 165,940 11,307,407
======= ========= ======= ==========
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
For the three months ended September 30, 1996, net profits income was
$4,334,000, down 23% from net profits income of $5,613,000 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 September 30, 1996 was 2,794,529 Mcf, or 22% lower than gas production of
14
<PAGE>
TORCH ENERGY ROYALTY TRUST
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT.)
3,588,253 Mcf for the same period in 1995. Oil production attributable to the
Underlying Properties for the three months ended September 30, 1996 was 40,472
Bbls, as compared to 51,023 Bbls 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 September 30,
1996 was $1.70 per MMbtu for gas and $17.68 per Bbl for oil as compared to $1.70
per MMBtu for gas and $16.44 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 September 30, 1996, TEMI was entitled to accrued Price Credits of $741,000,
net to the Trust, which TEMI may be entitled to deduct in calculating the
purchase price in the future. Price Credits in the amount of $556,000 were
deducted in calculating the purchase price related to production for the three
months ended June 30, 1996.
General and administrative expenses amounted to $150,000 for the three months
ended September 30, 1996 as compared to $149,000 during the three months ended
September 30, 1995. These expenses primarily relate to administrative services
provided by Torch and the Trustee.
The foregoing resulted in distributable income of $4,189,000, or $.49 per Unit,
for the three months ended September 30, 1996 as compared to $5,473,000, or $.64
per Unit, for the same period in 1995. On September 10, 1996, the Trust made a
distribution to Unitholders of record on September 3, 1996 of $4,145,200, or
$.482 per Unit, as compared to $5,418,000, or $.63 per unit, for the same period
in 1995. The Section 29 Credits relating to the 1996 and 1995 distributions,
generated from production during the three months ended June 30, 1996 and June
30, 1995, were approximately $.11 and $.12 per Unit, respectively.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1995.
For the nine months ended September 30, 1996, net profits income was
$13,492,000, down 23% from net profits income of $17,480,000 for the same period
in 1995. Such decrease is primarily due to a decline in oil and gas production
attributable to the Underlying Properties.
15
<PAGE>
TORCH ENERGY ROYALTY TRUST
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT.)
Gas production attributable to the Underlying Properties for the nine months
ended September 30, 1996 was 8,829,014 Mcf, or 22% lower than gas production of
11,307,407 Mcf for the same period in 1995. Oil production attributable to the
Underlying Properties for the nine months ended September 30, 1996 was 116,449
Bbls, as compared to 165,940 Bbls 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 nine months ended September 30,
1996 was $1.70 per MMBtu for gas and $17.00 per Bbl for oil as compared to $1.70
per MMBtu for gas and $15.95 per Bbl for oil during the same period in 1995.
When TEMI pays a purchase price of 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 September 30, 1996, TEMI was entitled to accrued Price Credits of $741,000,
net to the Trust, which TEMI may be entitled to deduct in calculating the
purchase price in the future. Price Credits in the amount of $1,882,000 were
deducted in calculating the purchase price related to production for the nine
months ended June 30, 1996.
General and administrative expenses amounted to $492,000 for the nine months
ended September 30, 1996 as compared to $524,000 during the nine months ended
September 30, 1995. Theses expenses primarily relate to administrative services
provided by Torch and the Trustee.
The foregoing resulted in distributable income of $13,019,000, or $1.51 per
Unit, for the nine months ended September 30, 1996 as compared to $16,984,000,
or $1.97 per Unit, for the same period in 1995. During the nine months ended
September 30, 1996, the Trust made distributions to Unitholders of $12,977,000,
or $1.51 per Unit, as compared to $16,951,000, or 1.97 per Unit, for the same
period in 1995. The Section 29 Credits relating to the distributions during the
nine months ended September 30, 1996 and 1995 were $.34 and $.37 per Unit,
respectively.
16
<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 September
30, 1996 and 1995, derived from production sold during the three months ended
June 30, 1996 and 1995, respectively, was computed as shown in the following
tables:
THREE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------
(In thousands)
CHALKLEY,
COTTON VALLEY
AND ROBINSON'S
AUSTIN CHALK BEND
FIELDS FIELD TOTAL
------------------ ----------- -------
Oil and gas revenues $ 4,037 $ 1,125
------------- -----------
Direct operating expenses:
Lease operating expenses and
property tax................. 414 ---
Severance tax................. 141 85
------------- -----------
555 85
------------- -----------
Net proceeds before capital
expenditures................... 3,482 1,040
Capital expenditures............ 15 ---
------------- -----------
Net proceeds.................... 3,467 1,040
Net profits percentage.......... 95% N/A
------------- -----------
Net profits income.............. $ 3,294 $ 1,040 $ 4,334
============= =========== ========
17
<PAGE>
TORCH ENERGY ROYALTY TRUST
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT.)
THREE MONTHS ENDED SEPTEMBER 30, 1995
-------------------------------------
(In thousands)
CHALKLEY,
COTTON VALLEY
AND ROBINSON'S
AUSTIN CHALK BEND
FIELDS FIELD TOTAL
------------------ ----------- -------
Oil and gas revenues............ $ 5,420 $ 1,298
--------------- -----------
Direct operating expenses:
Lease operating expenses and
property tax................. 452 ---
Severance tax................. 243 70
--------------- -----------
695 70
--------------- -----------
Net proceeds before capital
expenditures................... 4,725 1,228
Capital expenditures............ 109 ---
--------------- -----------
Net proceeds.................... 4,616 1,228
Net profits percentage.......... 95% N/A
--------------- -----------
Net profits income.............. $ 4,385 $ 1,228 $ 5,613
=============== =========== ========
18
<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 nine months ended September
30, 1996 and 1995, derived from production sold during the nine months ended
June 30, 1996 and 1995, respectively, was computed as shown in the following
tables:
THREE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------
(In thousands)
CHALKLEY,
COTTON VALLEY
AND ROBINSON'S
AUSTIN CHALK BEND
FIELDS FIELD TOTAL
------------------ ----------- -------
Oil and gas revenues............ $ 12,692 $ 3,456
--------------- -----------
Direct operating expenses:
Lease operating expenses and
property tax................ 1,278 ---
Severance tax................. 479 265
--------------- -----------
1,757 265
--------------- -----------
Net proceeds before capital
expenditures................... 10,935 3,191
Capital expenditures............ 92 ---
--------------- -----------
Net proceeds.................... 10,843 3,191
Net profits percentage.......... 95% N/A
--------------- -----------
Net profits income.............. $ 10,301 $ 3,191 $ 13,492
=============== =========== =========
19
<PAGE>
TORCH ENERGY ROYALTY TRUST
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONT.)
NINE MONTHS ENDED SEPTEMBER 30, 1995
-------------------------------------
(In thousands)
CHALKLEY,
COTTON VALLEY
AND ROBINSON'S
AUSTIN CHALK BEND
FIELDS FIELD TOTAL
------------------ ----------- -------
Oil and gas revenues............ $ 17,158 $ 3,693
--------------- -----------
Direct operating expenses:
Lease operating expenses and
property tax................ 1,587 ---
Severance tax................. 701 179
--------------- -----------
2,288 179
--------------- -----------
Net proceeds before capital
expenditures................... 14,870 3,514
Capital expenditures............ 169 ---
--------------- -----------
Net proceeds.................... 14,701 3,514
Net profits percentage.......... 95% N/A
--------------- -----------
Net profits income.............. $ 13,966 $ 3,514 $ 17,480
=============== =========== ========
20
<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 UNITHOLDERS
- ------- ----------------------------------------------
None.
ITEM 5. OTHER INFORMATION
- ------- -----------------
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
None.
21
<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.
TORCH ENERGY ROYALTY TRUST
By: Wilmington Trust Company,
Trustee
By: /s/ Bruce L. Bisson
------------------------------
Bruce L. Bisson
Vice President
Date: October 22, 1996
(The Trust has no directors or executive officers.)
22
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
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<RECEIVABLES> 0
<ALLOWANCES> 0
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0
0
<COMMON> 0
<OTHER-SE> 0
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