<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 September 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"), in
accordance with 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 the rules and regulations of the
Securities and Exchange Commission, 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 September 30, 1997 and December 31, 1996, the
distributable income and changes in trust corpus for the three-month and nine-
month periods ended September 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 September 30, 1997 and for the three-month and
nine-month periods ended September 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>
TORCH ENERGY ROYALTY TRUST
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 September 30, 1997 and the
related statements of distributable income and changes in trust corpus for the
three-month and nine-month periods ended September 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
October 24, 1997
3
<PAGE>
TORCH ENERGY ROYALTY TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
(In thousands)
<TABLE>
<CAPTION>
September 30, 1997 December 31,1996
------------------ ----------------
(Unaudited)
ASSETS
<S> <C> <C>
Cash.............................................. $ 6 $ 3
Net profits interests in oil and gas properties
(Net of accumulated amortization of $68,727 and
$59,077 at September 30, 1997 and
December 31, 1996, respectively).................. 111,873 121,523
-------- --------
$111,879 $121,526
======== ========
LIABILITIES AND TRUST CORPUS
Trust expense payable............................. $ 175 $ 164
Trust corpus...................................... 111,704 121,362
-------- --------
$111,879 $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 September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net profits income.................................. $3,252 $4,334 $11,993 $13,492
Interest income..................................... 6 5 15 19
------ ------ ------- -------
3,258 4,339 12,008 13,511
------ ------ ------- -------
General and administrative expenses................. 171 150 510 492
------ ------ ------- -------
Distributable income................................ $3,087 $4,189 $11,498 $13,019
====== ====== ======= =======
Distributable income per Unit (8,600,000 Units)..... $ .36 $ .49 $ 1.34 $ 1.51
====== ====== ======= =======
Distributions per Unit.............................. $ .36 $ .48 $ 1.34 $ 1.51
====== ====== ======= =======
</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 September 30, Nine Months Ended September 30,
-------------------------------------- ---------------------------------------
1997 1996 1997 1996
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Trust corpus, beginning of period........... $114,653 $128,528 $121,362 $137,014
Amortization of net profits interests....... (2,949) (3,955) (9,650) (12,439)
Distributable income........................ 3,087 4,189 11,498 13,019
Distributions to Unitholders................ (3,087) (4,145) (11,506) (12,977)
-------- -------- -------- --------
Trust corpus, end of period................. $111,704 $124,617 $111,704 $124,617
======== ======== ======== ========
</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 Credits available
for 1996 and 1995 production from qualifying coal seam properties were
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 June 30, 1997 and 1996 from the Underlying Properties in
the Robinson's Bend Field was approximately 18% (166 MMcf) and 13% (116 MMcf),
respectively, below the Volume Limitation. Production for the nine-month
periods ended June 30, 1997 and 1996 from the Underlying Properties in the
Robinson's Bend Field was approximately 18% (480 MMcf) and 10% (282 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 after the formation of the Trust 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 June 30, 1997,
four infill wells in the Cotton Valley Fields have been drilled. Net Proceeds
for the three-month and nine-month periods ended September 30, 1997 and 1996
were not impacted by these infill wells as each of these well's gross proceeds
has not exceeded 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 nine-
month periods ended September 30, 1997 and 1996 are derived from oil and
gas production sold during the three-month and nine-month periods ended
June 30, 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 are limited to the sum
of future net cash flows attributable to the Trust's oil and gas reserves
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
8
<PAGE>
TORCH ENERGY ROYALTY TRUST
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 Quarterly Distribution Amount for each quarter
is payable to Unitholders of record on
9
<PAGE>
TORCH ENERGY ROYALTY TRUST
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 attributable to the quarter ended
June 30, 1997 production received a weighting of approximately 68%, and
commencing with September 1997 production, will decline to approximately 10%.
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 September 30, 1997, TEMI had no
accumulated Price Credits. In addition, if the Index Price for gas exceeds
$2.10 per MMBtu, TEMI is entitled to deduct 50% of
10
<PAGE>
TORCH ENERGY ROYALTY TRUST
such excess ("Price Differential") in calculating the purchase price. The Price
Differential adjustment did not impact the distribution received by Unitholders
during the third quarter of 1997. Distributions received by Unitholders during
the nine months ended September 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 nine months ended September
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 September 30, 1997 and 1996 were $4,421,000 and $5,714,000,
respectively. Such gross revenues for the nine months ended September 30, 1997
and 1996 were $15,810,000 and $17,722,000, 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 $0.045 per MMBtu, payable to a
third party, from production attributable to certain wells in the Cotton Valley
11
<PAGE>
TORCH ENERGY ROYALTY TRUST
Fields. During the three months ended September 30, 1997 and 1996, gathering,
treating and transportation fees charged by TEMI, attributable to production
during the three months ended June 30, 1997 and 1996 in the Robinson's Bend,
Austin Chalk and Cotton Valley Fields, totaled $427,000 and $552,000,
respectively. During the nine months ended September 30, 1997 and 1996, such
fees, attributable to production during the nine months ended June 30, 1997 and
1996, totaled $1,478,000 and $1,575,000, 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 September 30, 1997 and 1996 were $92,000 and $91,000 per period,
respectively. During the nine months ended September 30, 1997 and 1996, such
fees were $276,000 and $274,000, 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
12
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TORCH ENERGY ROYALTY TRUST
September 30, 1997 and 1996 were $14,000 per period. Such fees during the nine
months ended September 30, 1997 and 1996 were $42,000 per period. The Trustee
is also entitled to reimbursement for out-of-pocket expenses.
Item 2. 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, 1997 and
1996 is derived from actual oil and gas produced during the three months ended
June 30, 1997 and 1996, respectively. Net profits income for the nine months
ended September 30, 1997 and 1996 is derived from actual oil and gas produced
during the nine months ended June 30, 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 September 30,
------------------------------------
1997 1996
---------------- -----------------
Bbls Mcf Bbls Mcf
of Oil of Gas of Oil of Gas
------ --------- ------ ---------
<S> <C> <C> <C> <C>
Chalkley Field 9,031 983,547 13,599 1,360,914
Robinson's Bend Field --- 785,991 --- 838,339
Cotton Valley Fields 1,506 317,919 1,986 407,977
Austin Chalk Fields 12,287 135,682 24,887 187,299
------ --------- ------ ---------
22,824 2,223,139 40,472 2,794,529
====== ========= ====== =========
Nine Months Ended September 30,
------------------------------------
1997 1996
----------------- -----------------
Bbls Mcf Bbls Mcf
of Oil of Gas of Oil of Gas
------ --------- ------ ---------
Chalkley Field 32,291 3,293,566 49,128 4,388,941
Robinson's Bend Field --- 2,375,999 --- 2,584,826
Cotton Valley Fields 4,963 1,060,303 6,398 1,316,357
Austin Chalk Fields 47,545 485,221 60,923 538,890
------ --------- ------ ---------
84,799 7,215,089 116,449 8,829,014
====== ========= ======= =========
</TABLE>
13
<PAGE>
TORCH ENERGY ROYALTY TRUST
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1996
For the three months ended September 30, 1997, net profits income was
$3,252,000, down 25% from net profits income of $4,334,000 for the same period
in 1996. Such decrease is primarily due to normal declines in oil and gas
production attributable to the Underlying Properties.
Gas production attributable to the Underlying Properties for the three months
ended June 30, 1997 was 2,223,139 Mcf, or 20% lower than gas production of
2,794,529 Mcf for the same period in 1996. Oil production attributable to the
Underlying Properties for the three months ended June 30, 1997 was 22,824 Bbls,
as compared to 40,472 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 September 30,
1997 was $1.76 per MMBtu for gas and $16.21 per Bbl for oil as compared to
$1.70 per MMBtu for gas and $17.68 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. Price Credits in the amount of $72,000 and $556,000, net to the Trust,
were deducted in calculating the purchase price related to distributions
received by Unitholders during the three months ended September 30, 1997 and
1996, respectively. As of September 30, 1997, TEMI had no remaining Price
Credits to recoup. Additionally, if the Index Price for gas exceeds $2.10 per
MMBtu, TEMI is entitled to deduct 50% of such excess in calculating the
purchase price. The distributions received by unitholders during the quarter
ended September 30, 1997 and 1996 were not impacted by such price differential
adjustment.
General and administrative expenses amounted to $171,000 for the three months
ended September 30, 1997 as compared to $150,000 during the three months ended
September 30, 1996. These expenses primarily relate to administrative services
provided by Torch and the Trustee.
The foregoing resulted in distributable income of $3,087,000, or $.36 per Unit,
for the three months ended September 30, 1997, as compared to $4,189,000, or
$.49 per Unit, for the same period in 1996. On September 12, 1997, the Trust
made a distribution to Unitholders of record on September 2, 1997. The Section
29 Credits relating to these distributions, generated from production during
the three months ended June 30, 1997 and 1996, were approximately $.10 and $.11
per Unit, respectively.
14
<PAGE>
TORCH ENERGY ROYALTY TRUST
Nine Months Ended September 30, 1997 Compared to Nine Months Ended
September 30, 1996
For the nine months ended September 30, 1997, net profits income was
$11,993,000, down 11% from net profits income of $13,492,000 for the same
period in 1996. Such decrease is primarily due to normal declines in oil and
gas production attributable to the Underlying Properties.
Gas production attributable to the Underlying Properties for the nine months
ended June 30, 1997 was 7,215,089 Mcf, or 18% lower than gas production of
8,829,014 Mcf for the same period in 1996. Oil production attributable to the
Underlying Properties for the nine months ended June 30, 1997 was 84,799 Bbls,
as compared to 116,449 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 nine months ended September 30,
1997 was $1.91 per MMBtu for gas and $17.37 per Bbl for oil as compared to
$1.70 per MMBtu for gas and $17.00 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. Price Credits in the amount of $402,000 and $1,954,000, net to the
Trust, were deducted in calculating the purchase price related to distributions
received by Unitholders during the nine months ended September 30, 1997 and
1996, respectively. As of September 30, 1997, TEMI had no remaining Price
Credits to recoup. 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 nine months ended September
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 nine months ended September 30, 1996.
General and administrative expenses amounted to $510,000 for the nine months
ended September 30, 1997 as compared to $492,000 during the nine months ended
September 30, 1996. These expenses primarily relate to administrative services
provided by Torch and the Trustee.
The foregoing resulted in distributable income of $11,498,000, or $1.34 per
Unit, for the nine months ended September 30, 1997, as compared to $13,019,000,
or $1.51 per Unit, for the same period in 1996. During the nine months ended
September 30, 1997, the Trust made distributions to Unitholders of
$11,506,000, or $1.34 per Unit, as compared to $12,977,000, or $1.51 per Unit,
for the same period in 1996. The Section
15
<PAGE>
TORCH ENERGY ROYALTY TRUST
29 Credits relating to the distributions during the nine months ended September
30, 1997 and 1996 were $.30 and $.34 per Unit, respectively.
Net profits income (in thousands) received by the Trust during the three and
nine month periods ended September 30, 1997 and 1996, derived from production
sold during the three and nine months ended June 30, 1997 and 1996,
respectively, was computed as shown in the following tables:
THREE MONTHS ENDED SEPTEMBER 30, 1997
-------------------------------------
CHALKLEY,
COTTON VALLEY
AND ROBINSON'S
AUSTIN CHALK BEND
FIELDS FIELD TOTAL
------------- ---------- -----
Oil and gas revenues............. $2,901 $1,094
------ ------
Direct operating expenses:
Lease operating expenses and
property tax................ 391 ---
Severance tax................. 123 88
------ ------
514 88
------ ------
Net proceeds before capital
expenditures................... 2,387 1,006
Capital expenditures............ 23 ---
------ ------
Net proceeds.................... 2,364 1,006
Net profits percentage.......... 95% N/A
------ ------
Net profits income.............. $2,246 $1,006 $3,252
====== ====== ======
16
<PAGE>
TORCH ENERGY ROYALTY TRUST
THREE MONTHS ENDED SEPTEMBER 30, 1996
-------------------------------------
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
NINE MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------
CHALKLEY,
COTTON VALLEY
AND ROBINSON'S
AUSTIN CHALK BEND
FIELDS FIELD TOTAL
------------- ---------- -----
Oil and gas revenues............ $10,724 $3,608
------- ------
Direct operating expenses:
Lease operating expenses and
property tax................ 1,287 ---
Severance tax................. 470 241
------- ------
1,757 241
------- ------
Net proceeds before capital
expenditures................... 8,967 3,367
Capital expenditures............ (113) ---
------- ------
Net proceeds.................... 9,080 3,367
Net profits percentage.......... 95% N/A
------- ------
Net profits income.............. $ 8,626 $3,367 $11,993
======= ====== =======
18
<PAGE>
TORCH ENERGY ROYALTY TRUST
NINE MONTHS ENDED SEPTEMBER 30, 1996
------------------------------------
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
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: October 31, 1997
(The Trust has no employees, directors or executive officers.)
21
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
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<SECURITIES> 0
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<ALLOWANCES> 0
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<PP&E> 111,873
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0
0
<COMMON> 0
<OTHER-SE> 111,704
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