<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1997
-------------
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
pursuant to the trust agreement dated October 1, 1993. Certain information and
footnote disclosures normally included in the annual financial statements have
been omitted pursuant to such rules and regulations, although Torch 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, 1996 financial statements and notes thereto
included in the Trust's latest annual report on Form 10-K. In the opinion of
Torch, all adjustments necessary to present fairly the assets, liabilities and
trust corpus of the Trust as of June 30, 1997 and December 31, 1996, the
distributable income and changes in trust corpus for the three-month and six-
month periods ended June 30, 1997 and 1996 have been included. All such
adjustments are of a normal recurring nature. 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, 1997 and for the three-month and six-
month periods ended June 30, 1997 and 1996 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 the Unitholders:
We have reviewed the accompanying statement of assets, liabilities and trust
corpus of the Torch Energy Royalty Trust as of June 30, 1997 and the related
statements of distributable income and changes in trust corpus for the three-
month and six-month periods ended June 30, 1997 and 1996. 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
were prepared on the 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, 1996, 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 18, 1997, 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, 1996 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
July 25, 1997
3
<PAGE>
TORCH ENERGY ROYALTY TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
(In thousands)
ASSETS
<TABLE>
<CAPTION>
June 30, 1997 December 31,1996
------------- ----------------
(Unaudited)
<S> <C> <C>
Cash................................................. $ 7 $ 3
Net profits interests in oil and gas properties
(Net of accumulated amortization of $65,778
and $59,077 at June 30, 1997 and December 31, 1996,
respectively)........................................ 114,822 121,523
-------- --------
$114,829 $121,526
======== ========
LIABILITIES AND TRUST CORPUS
Trust expense payable................................ $ 176 $ 164
Trust corpus......................................... 114,653 121,362
-------- --------
$114,829 $121,526
======== ========
</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 June 30, Six Months Ended June 30,
-------------------------------------------- ---------------------------------------
1997 1996 1997 1996
---------------- ------------------- --------------- --------------
<S> <C> <C> <C> <C>
Net profits income...................... $4,162 $4,411 $8,741 $9,158
Interest income......................... 7 7 9 14
------ ------ ------ ------
4,169 4,418 8,750 9,172
------ ------ ------ ------
General and
administrative expenses................ 175 192 339 342
------ ------ ------ ------
Distributable income.................... $3,994 $4,226 $8,411 $8,830
====== ====== ====== ======
Distributable income
per Unit (8,600,000 Units)............ $ .46 $ .49 $ .98 $ 1.03
====== ====== ====== ======
Distributions per Unit.................. $ .47 $ .49 $ .98 $ 1.03
====== ====== ====== ======
</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 June 30, Six Months Ended June 30,
-------------------------------------- -------------------------------------
1997 1996 1997 1996
---------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Trust corpus, beginning of period........ $117,841 $132,589 $121,362 $137,015
Amortization of net profits interests.... (3,183) (4,056) (6,701) (8,485)
Distributable income..................... 3,994 4,226 8,411 8,830
Distributions to Unitholders............. (3,999) (4,231) (8,419) (8,832)
-------- -------- -------- --------
Trust corpus, end of period.............. $114,653 $128,528 $114,653 $128,528
======== ======== ======== ========
</TABLE>
The accompanying notes to financial statements are
an integral part of these statements.
6
<PAGE>
TORCH ENERGY ROYALTY TRUST
1. Trust Organization and Nature of Operations
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. Pursuant to the Trust Agreement,
Torch provides accounting, bookkeeping, informational and other services related
to the Net Profits Interests.
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"). The Section 29 Credit available for 1996
and 1995 production from qualifying coal seam properties was approximately $1.03
and $1.01, 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
912.5 MMcf of gas, less
7
<PAGE>
TORCH ENERGY ROYALTY TRUST
property, production, severance and related taxes. Production for the three-
month periods ended March 31, 1997 and 1996 from the Underlying Properties in
the Robinson's Bend Field was approximately 19% (176 MMcf) and 12% (110 MMcf),
respectively, below the Volume Limitation. Production for the six-month periods
ended March 31, 1997 and 1996 from the Underlying Properties in the Robinson's
Bend Field was approximately 17% (314 MMcf) and 9% (166 MMcf), respectively,
below the Volume Limitation.
The Net Profits Interests also entitle the Trust to 20% of the aggregate gross
proceeds received from the sale of production from Infill Wells (as defined
below) less operating and development costs and taxes ("Infill Net Proceeds").
Infill Wells mean any wells drilled on the Underlying Properties to formations
in which the Trust has an interest, other than wells drilled to replace damaged
or destroyed wells. As of March 31, 1997, production had commenced for two
infill wells in the Cotton Valley Fields. Net Proceeds for the three-month and
six-month periods ended June 30, 1997 (generated by production during the three
and six months ended March 31, 1997) was not impacted by these infill wells as
the wells' gross proceeds did not exceed costs and expenses.
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 and six-month
periods ended June 30, 1997 and 1996 are derived from oil and gas
production sold during the three-month and six-month periods ended March
31, 1997 and 1996, 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
8
<PAGE>
TORCH ENERGY ROYALTY TRUST
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 net profits income is not accrued in the period
of production and amortization of the Net Profits Interests is not charged
against operating results.
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 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 Trust 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
9
<PAGE>
TORCH ENERGY ROYALTY TRUST
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 Quarterly Distribution Amount is distributed 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"), a subsidiary 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, 1997, on an Mcfe basis), the Specified
Prices currently receive a weighting of approximately 60% 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 $1.84 per MMBtu in 1997 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 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, 1997, TEMI had accumulated Price
Credits of $72,000, net to the Trust's interest. In addition, if the Index
Price for gas exceeds $2.10 per MMBtu, TEMI
10
<PAGE>
TORCH ENERGY ROYALTY TRUST
is entitled to deduct 50% of such excess ("Price Differential") from the
purchase price. Distributions received by Unitholders during the six months
ended June 30, 1997 were reduced by $325,000 for the Price Differential
adjustment. No price differential adjustment was deducted from distributions
received by Unitholders during the six months ended June 30, 1996.
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, 1997 and 1996 were $5,456,000 and $5,758,000,
respectively. Such gross revenues for the six months ended June 30, 1997 and
1996 were $11,388,000 and $12,009,000, 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. For the Robinson's Bend Field, TEMI is entitled
to deduct a gathering, treating and transportation fee of $0.26 per MMBtu
adjusted for inflation ($0.274, $0.272 and $0.265 per MMBtu for 1997, 1996 and
1995 production, respectively), plus fuel usage equal to 5% of revenues, payable
to Bahia Gas Gathering, Ltd. ("Bahia"), a former affiliate of Torch, pursuant to
a gas gathering agreement. On October 1, 1996, Bahia was merged into TEMI.
Amounts that would have been previously payable to Bahia from TEMI will continue
to be deducted by TEMI. Additionally, a fee of $0.05 per MMBtu, representing a
gathering fee payable to a non-affiliate of Torch, is deducted in calculating
the purchase price for production from certain 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. TEMI is entitled to deduct a
transportation fee of $.045 per MMBtu, payable to a third party, from
production attributable to certain wells in the Cotton Valley Fields. During
the three months ended June 30, 1997 and 1996, gathering, treating
11
<PAGE>
TORCH ENERGY ROYALTY TRUST
and transportation fees charged by TEMI, attributable to production during the
three months ended March 31, 1997 and 1996 in the Robinson's Bend, Austin Chalk
and Cotton Valley Fields, totaled $507,000 and $512,000, respectively. During
the six months ended June 30, 1997 and 1996, such fees, attributable to
production during the six months ended March 31, 1997 and 1996, totaled
$1,051,000 and $1,023,000, 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, informational and other
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 during the three months ended June 30, 1997
and 1996 were $92,000 and $94,000 per period, respectively. During the six
months ended June 30, 1997 and 1996, such fees were $184,000 and $183,000,
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 ( " United " ), a subsidiary of
Torchmark Corporation. 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 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 during the three months ended June 30, 1997 and 1996 were $14,000 per
period. Such fees during the six months
12
<PAGE>
TORCH ENERGY ROYALTY TRUST
ended June 30, 1997 and 1996 were $28,000 per period. The Trustee is also
entitled to reimbursement for out-of-pocket expenses.
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, 1997 and 1996 is
derived from actual oil and gas produced during the three months ended March 31,
1997 and 1996, respectively. Net profits income for the six months ended June
30, 1997 and 1996 is derived from actual oil and gas produced during the six
months ended March 31, 1997 and 1996. 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 March 31,
------------------------------------
1997 1996
----------------- -----------------
Bbls Mcf Bbls Mcf
of Oil of Gas of Oil of Gas
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Chalkley Field 10,342 1,110,041 16,057 1,409,405
Robinson's Bend Field --- 775,412 --- 845,065
Cotton Valley Fields 1,617 343,586 2,056 469,550
Austin Chalk Fields 14,654 159,235 17,874 166,493
------ --------- ------ ---------
26,613 2,388,274 35,987 2,890,513
====== ========= ====== =========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------
1997 1996
----------------- -----------------
Bbls Mcf Bbls Mcf
of Oil of Gas of Oil of Gas
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Chalkley Field 23,260 2,310,019 35,529 3,028,027
Robinson's Bend Field --- 1,590,008 --- 1,746,487
Cotton Valley Fields 3,457 742,384 4,412 908,380
Austin Chalk Fields 35,258 349,539 36,036 351,591
------ --------- ------ ---------
61,975 4,991,950 75,977 6,034,485
====== ========= ====== =========
</TABLE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
- -----------------------------------------------------------------------------
For the three months ended June 30, 1997, net profits income was $4,162,000,
down 6% from net profits income of $4,411,000 for the same period in 1996. Such
decrease
13
<PAGE>
TORCH ENERGY ROYALTY TRUST
is primarily due to normal declines in oil and gas production attributable to
the Underlying Properties.
Gas production attributable to the Underlying Properties for the three months
ended March 31, 1997 was 2,388,274 Mcf, or 17% lower than gas production of
2,890,513 Mcf for the same period in 1996. Oil production attributable to the
Underlying Properties for the three months ended March 31, 1997 was 26,613 Bbls,
as compared to 35,987 Bbls for the same period in 1996. 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, 1997
was $2.00 per MMBtu for gas and $17.30 per Bbl for oil as compared to $1.70 per
MMBtu for gas and $17.02 per Bbl for oil during the same period in 1996. 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, 1997, TEMI had accrued Price Credits of $72,000, net to the Trust's
interest. No Price Credits were deducted in calculating the purchase price
related to production for the three months ended March 31, 1997. Additionally,
if the Index Price for gas exceeds $2.10 per MMBtu, TEMI is entitled to deduct
50% of such excess from the purchase price. The distribution received by
unitholders during the quarter ended June 30, 1996 was reduced by $91,000 for
such price differential adjustment.
General and administrative expenses amounted to $175,000 for the three months
ended June 30, 1997 as compared to $192,000 during the three months ended June
30, 1996. These expenses primarily relate to administrative services provided
by Torch and the Trustee.
The foregoing resulted in distributable income of $3,994,000, or $.46 per Unit,
for the three months ended June 30, 1997 as compared to $4,226,000, or $.49 per
Unit, for the same period in 1996. On June 10, 1997, the Trust made a
distribution to Unitholders of record on June 2, 1997. The Section 29 Credits
relating to these distributions, generated from production during the three
months ended March 31, 1997 and 1996, were approximately $.10 and $.11 per Unit,
respectively.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
- -------------------------------------------------------------------------
For the six months ended June 30, 1997, net profits income was $8,741,000, down
5% from net profits income of $9,158,000 for the same period in 1996. Such
decrease is primarily due to normal declines in oil and gas production
attributable to the Underlying Properties.
14
<PAGE>
TORCH ENERGY ROYALTY TRUST
Gas production attributable to the Underlying Properties for the six months
ended March 31, 1997 was 4,991,950 Mcf, or 17% lower than gas production of
6,034,485 Mcf for the same period in 1996. Oil production attributable to the
Underlying Properties for the six months ended March 31, 1997 was 61,975 Bbls,
as compared to 75,977 Bbls for the same period in 1996. Such decreases in
production are mainly due to normal production declines.
The average price paid to the Trust during the six months ended March 31, 1997
was $1.97 per MMBtu for gas and $17.80 per Bbl for oil as compared to $1.70 per
MMBtu for gas and $16.32 per Bbl for oil during the same period in 1996. 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, 1997, TEMI had accrued Price Credits of $72,000, net to the Trust's
interest. Price Credits in the amount of $330,000, net to the Trust, were
deducted in calculating the purchase price related to production for the six
months ended March 31, 1997. Additionally, if the Index Price for gas exceeds
$2.10 per MMBtu, TEMI is entitled to deduct 50% of such excess from the purchase
price. Distributions received by unitholders during the six months ended June
30, 1997 were reduced by $325,000 for such price differential adjustment. No
price differential adjustment was deducted from distributions received by
Unitholders during the six months ended June 30, 1996.
General and administrative expenses amounted to $339,000 for the six months
ended June 30, 1997 as compared to $342,000 during the six months ended June 30,
1996. These expenses primarily relate to administrative services provided by
Torch and the Trustee.
The foregoing resulted in distributable income of $8,411,000, or $.98 per Unit,
for the six months ended June 30, 1997 as compared to $8,830,000, or $1.03 per
Unit, for the same period in 1996. During the six months ended June 30, 1997,
the Trust made distributions to Unitholders of $8,419,000, or $.98 per Unit, as
compared to $8,832,000, or $1.03 per Unit, for the same period in 1996. The
Section 29 Credits relating to the distributions during the six months ended
June 30, 1997 and 1996 were $.20 and $.23 per Unit, respectively.
Net profits income (in thousands) received by the Trust during the three and six
month periods ended June 30, 1997 and 1996, derived from production sold during
the three and six months ended March 31, 1997 and 1996, respectively, was
computed as shown in the following tables:
15
<PAGE>
TORCH ENERGY ROYALTY TRUST
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1997
--------------------------------
CHALKLEY,
COTTON VALLEY
AND ROBINSON'S
AUSTIN CHALK BEND
FIELDS FIELD TOTAL
-------------- ---------- -------
<S> <C> <C> <C>
Oil and gas revenues............ $3,702 $1,247
------ ------
Direct operating expenses:
Lease operating expenses and
property tax................ 324 ---
Severance tax................. 151 89
------ ------
475 89
------ ------
Net proceeds before capital
expenditures................... 3,227 1,158
Capital expenditures............ 65 ---
------ ------
Net proceeds.................... 3,162 1,158
Net profits percentage.......... 95% N/A
------ ------
Net profits income.............. $3,004 $1,158 $4,162
====== ====== ======
</TABLE>
16
<PAGE>
TORCH ENERGY ROYALTY TRUST
<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>
17
<PAGE>
TORCH ENERGY ROYALTY TRUST
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
-----------------------------------------
CHALKLEY,
COTTON VALLEY
AND ROBINSON'S
AUSTIN CHALK BEND
FIELDS FIELD TOTAL
-------------- ---------- ---------
<S> <C> <C> <C>
Oil and gas revenues.................. $7,822 $2,514
------ ------
Direct operating expenses:
Lease operating expenses and
property tax...................... 897 ---
Severance tax....................... 346 152
------ ------
1,243 152
------ ------
Net proceeds before capital
expenditures......................... 6,579 2,362
Capital expenditures.................. (136) ---
------ ------
Net proceeds.......................... 6,715 2,362
Net profits percentage................ 95% N/A
------ ------
Net profits income.................... $6,379 $2,362 $8,741
====== ====== ======
</TABLE>
18
<PAGE>
TORCH ENERGY ROYALTY TRUST
<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>
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
- ------- --------------------------------
Exhibit 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: July 31, 1997
(The Trust has no employees, directors or executive officers.)
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 114,822
<DEPRECIATION> 0
<TOTAL-ASSETS> 114,829
<CURRENT-LIABILITIES> 176
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 114,653
<TOTAL-LIABILITY-AND-EQUITY> 114,829
<SALES> 0
<TOTAL-REVENUES> 8,750
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 339
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,411
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,411
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
