MARINE PETROLEUM TRUST - Quarter Report: 2006 March (Form 10-Q)
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
| þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2006
OR
| o | 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 000-08565
Marine Petroleum Trust
(Exact name of registrant as specified in its charter)
| Texas | 75-6008017 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
| Bank of America, N.A. | 75283-0650 | |
| P.O. Box 830650, Dallas, Texas | (Zip Code) | |
| (Address of principal executive offices) |
Registrant’s telephone number, including area code (800) 985-0794
None
(Former name, former address and former fiscal year
if changed since last report)
(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 þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated
filer” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act).
Yes o No þ
Indicate number of units of beneficial interest outstanding as of the latest practicable date:
As of May 12, 2006, we had 2,000,000 units of beneficial interest outstanding.
As of May 12, 2006, we had 2,000,000 units of beneficial interest outstanding.
Table of Contents
MARINE PETROLEUM TRUST
INDEX
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MARINE PETROLEUM TRUST AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2006 and June 30, 2005
(Unaudited)
March 31, 2006 and June 30, 2005
(Unaudited)
ASSETS
| March 31, | June 30, | |||||||
| 2006 | 2005 | |||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 1,406,491 | $ | 1,171,006 | ||||
Oil and gas royalties receivable |
465,675 | 970,334 | ||||||
Receivable from affiliate |
27,100 | 205,500 | ||||||
Interest receivable |
— | 1,426 | ||||||
Total current assets |
$ | 1,899,266 | $ | 2,348,266 | ||||
Investment in U.S. Treasury and agency bonds |
— | 200,000 | ||||||
Investment in affiliate |
347,390 | 530,349 | ||||||
Office equipment, at cost less accumulated depreciation |
1,263 | 2,400 | ||||||
Producing oil and gas properties |
7 | 7 | ||||||
| $ | 2,747,926 | $ | 3,081,022 | |||||
| LIABILITIES AND TRUST EQUITY |
||||||||
Current Liabilities — Federal income taxes payable |
$ | 3,000 | $ | 1,000 | ||||
Trust Equity: |
||||||||
Corpus — authorized 2,000,000 units of
beneficial interest,
issued 2,000,000 units at nominal value |
8 | 8 | ||||||
Undistributed income |
2,244,918 | 3,080,014 | ||||||
Total trust equity |
2,244,926 | 3,080,022 | ||||||
| $ | 2,247,926 | $ | 3,081,022 | |||||
See accompanying notes to condensed consolidated financial statements.
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MARINE PETROLEUM TRUST AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND UNDISTRIBUTED INCOME
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND UNDISTRIBUTED INCOME
For the Three Months and Nine Months Ended March 31, 2006 and 2005
(Unaudited)
(Unaudited)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| March 31, | March 31, | |||||||||||||||
| 2006 | 2005 | 2006 | 2005 | |||||||||||||
Income: |
||||||||||||||||
Oil and gas royalties |
$ | 1,009,414 | $ | 1,014,572 | $ | 2,536,112 | $ | 2,948,004 | ||||||||
Equity in earnings of affiliate |
36,081 | 210,104 | 346,121 | 465,808 | ||||||||||||
Interest income |
11742 | 8,200 | 38,140 | 18,396 | ||||||||||||
| 1,057,237 | 1,232,876 | 2,920,373 | 3,432,208 | |||||||||||||
Expenses: |
||||||||||||||||
General and administrative |
73,198 | 65,369 | 171,417 | 165,697 | ||||||||||||
Income before Federal income taxes |
984,039 | 1,167,507 | 2,748,956 | 3,266,511 | ||||||||||||
Federal income taxes of subsidiary |
1,800 | 950 | 5,000 | 950 | ||||||||||||
Net income |
982,239 | 1,166,557 | 2,743,956 | 3,265,561 | ||||||||||||
Undistributed income at beginning of year |
2,045,682 | 2,608,157 | 3,080,014 | 2,916,196 | ||||||||||||
| 3,027,921 | 3,774,714 | 5,823,970 | 6,181,757 | |||||||||||||
Distributions to unitholders |
783,002 | 1,083,495 | 3,570,052 | 3,490,538 | ||||||||||||
Undistributed income at end of year |
$ | 2,244,918 | $ | 2,691,219 | $ | 2,244,918 | $ | 2,691,219 | ||||||||
Net income per unit |
$ | 0.49 | $ | 058 | $ | 1.37 | $ | 1.63 | ||||||||
Distributions per unit |
$ | 0.39 | $ | 0.54 | $ | 1.79 | $ | 1.75 | ||||||||
See accompanying notes to condensed consolidated financial statements.
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MARINE PETROLEUM TRUST AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended March 31, 2006 and 2005
(Unaudited)
For the Nine Months Ended March 31, 2006 and 2005
(Unaudited)
| Nine Months Ended | ||||||||
| March 31, | ||||||||
| 2006 | 2005 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 2,743,956 | $ | 3,265,561 | ||||
Adjustments to reconcile net income to net cash provided
by operating activities: |
||||||||
Depreciation |
1,137 | — | ||||||
Equity in undistributed earnings of affiliate |
182,959 | (113,587 | ) | |||||
Amortization of premium |
— | 4,606 | ||||||
Change in assets and liabilities: |
||||||||
Oil and gas royalties receivable |
504,659 | 562,675 | ||||||
Receivable from affiliate |
178,400 | (108,843 | ) | |||||
State and federal taxes refundable |
— | 578 | ||||||
Interest receivable |
1,426 | (2,167 | ) | |||||
Accounts payable |
2,000 | 950 | ||||||
Net cash provided by operating activities |
3,614,537 | 3,609,773 | ||||||
Cash flows from investing activities — proceeds from U.S. Agency
Bonds |
200,000 | 100,000 | ||||||
Cash flows from financing activities—distributions to unitholders |
(3,579,052 | ) | (3,490,538 | ) | ||||
Net increase in cash and cash equivalents |
235,485 | 219,235 | ||||||
Cash and cash equivalents at beginning of period |
1,171,006 | 1,202,855 | ||||||
Cash and cash equivalents at end of period |
$ | 1,406,491 | $ | 1,422,090 | ||||
See accompanying notes to condensed consolidated financial statements.
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MARINE PETROLEUM TRUST AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2006
(Unaudited)
March 31, 2006
(Unaudited)
Accounting Policies
The financial statements include the financial statements of Marine Petroleum Trust (the
“Trust”) and its wholly-owned subsidiary, Marine Petroleum Corporation (“MPC”). The financial
statements are condensed and should be read in conjunction with the Trust’s annual report on Form
10-K for the fiscal year ended June 30, 2005. The financial statements included herein are
unaudited, but in the opinion of management they include all adjustments necessary for a fair
presentation of the results of operations for the periods indicated. Operating results for the nine
months ended March 31, 2006 are not necessarily indicative of the results that may be expected for
the fiscal year ending June 30, 2006.
As an overriding royalty owner, actual production results are not known to us until reported
by the operator, which could be a period of 60-90 days later than the actual month of production.
To comply with accounting principles generally accepted in the United States of America, we must
estimate earned but unpaid royalties from this production. To estimate this amount, we utilize
historical information based on the latest production reports from the individual leases and
current average prices as reported for oil by Chevron Corporation and the well head price for
natural gas as reported by the Energy Information Agency, a division of the U.S. Department of
Energy for the period under report.
Distributable Income
The Trust’s Indenture provides that the trustee is to distribute all cash in the trust, less
an amount reserved for the payment of accrued liabilities and estimated future expenses, to
unitholders on the 28th day of March, June, September and December of each year. If the
28th falls on a Saturday, Sunday or legal holiday, the distribution is payable on the
immediately preceding business day.
As stated under “Accounting Policies” above, the financial statements in this Form 10-Q are
the condensed and consolidated account balances of the Trust and MPC. However, distributable
income is paid from the unconsolidated account balances of the Trust. Distributable income is
comprised of (i) royalties from offshore Texas leases owned directly by the Trust, (ii) 98% of the
overriding royalties received by MPC that are paid to the Trust on a quarterly basis, (iii) cash
distributions from the Trust’s equity interest in the Tidelands Royalty Trust B (“Tidelands”), a
separate publicly traded royalty trust, (iv) dividends paid by MPC, less (v) administrative
expenses incurred by the Trust.
Based on information that the Trust has received from some operators and from reports of the
Minerals Management Service, 21 wells (7% of total wells) on leases that the Trust receives
royalties from were located on 14 platforms that were destroyed by hurricane Katrina. The areas
most severely impacted were South Timbalier, Grand Isle and West Delta. Due to loss of pipeline
facilities production from wells that were not lost in the hurricane have been shut in since
September and in some cases will not be producing until the second half of calendar 2006.
Operators report that the recovery will be slow due to the limited number of service suppliers
and drilling rigs. The operators have to get on a waiting list for dive boats, supply boats, well
work over rigs and drilling rigs.
Based on estimates from the operators that the Trust has been able to contact, income and
distributions for the first half of 2006 are expected to be significantly reduced from levels
realized prior to the hurricanes.
The Trust relies on public records for information regarding drilling operations. The public
records available up to the date of this report indicate that there were seven wells completed
during the nine months ended March 31, 2006 on leases in which the Trust has an interest. Public
records also indicate that there were eight wells in the process of being drilled and five permits
for wells to be drilled in the future.
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Based on the latest public records reviewed by the Trust, there are approximately 270 wells
(after eliminating the 21 wells lost due to the hurricanes) subject to the Trust’s overriding
royalty interest that are listed as active oil or natural gas wells on the records of the Minerals
Management Service.
The Trust owns a 32.6% equity interest in Tidelands Royalty Trust “B” (Tidelands), a separate
Texas trust that was also impacted by the hurricane activity in the Gulf of Mexico during late
2005. For more information on the impact of the hurricanes on the properties subject to Tidelands’
interests, please see the Form 8-K filed by Tidelands on January 21, 2006 and the Form 10-K filed
by Tidelands for the year ended December 31, 2005 as well as Tidelands’ future public filings.
The Trust cannot project either net income or distributable net income in the future.
However, unitholders should expect to receive a reduction in cash distributions during 2006.
Undistributed Income
A contract between the Trust and MPC provides that 98% of the overriding royalties received by
MPC are paid to the Trust each quarter. MPC retains the remaining 2% of the overriding royalties
along with other items of income and expense until such time as MPC’s Board of Directors declares a
dividend out of the retained earnings. Beginning in the first quarter of 2004 the Board of
Directors of MPC has declared quarterly dividends equal to 2% of overriding royalties collected
each quarter. On March 31, 2006, undistributed income of the Trust and MPC amounted to $1,351,447
and $893,471, respectively.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Condition — Liquidity and Capital Resources
The Trust is a royalty trust that was created in 1956 under the laws of the State of Texas.
The Trust is not permitted to engage in any business activity because it was organized for the sole
purpose of providing an efficient, orderly, and practical means for the administration and
liquidation of rights to payments from certain oil and natural gas leases in the Gulf of Mexico,
pursuant to license agreements and amendments between the Trust’s predecessors and Gulf Oil
Corporation (“Gulf”). As a result of various transactions that have occurred since 1956, the Gulf
interests now are held by Chevron Corporation, Elf Exploration, Inc., and their assignees.
The Trust’s rights are generally referred to as overriding royalty interests in the oil and
natural gas industry. An overriding royalty interest is created by an assignment by the owner of a
working interest. The ownership rights associated with an overriding royalty interest terminate
when the underlying lease terminates. All production and marketing functions are conducted by the
working interest owners of the leases. Revenues from the overriding royalties are paid to the
Trust either (i) on the basis of the selling price of oil, natural gas and other minerals produced,
saved or sold, or (ii) at the value at the wellhead as determined by industry standards, when the
selling price does not reflect the value at the wellhead.
The Trust holds an overriding royalty interest equal to three-fourths of 1% of the value at
the well of any oil, natural gas, or other minerals produced and sold from 60 leases covering
220,136 gross acres located in the Gulf of Mexico. The Trust’s overriding royalty interest applies
only to existing leases and does not apply to new leases. The Trust also owns a 32.6% equity
interest in Tidelands. Tidelands has an overriding royalty interest in six leases covering 25,448
gross acres located in the Gulf of Mexico. As a result of this ownership, the Trust receives
periodic distributions from Tidelands.
Due to the limited purpose of the Trust as stated in the Trust’s Indenture, there is no
requirement for capital. The Trust’s only obligation is to distribute to unitholders the net
income actually collected. As an administrator of oil and natural gas royalty properties, the
Trust collects royalties monthly, pays administration expenses, and disburses all net royalties
collected to its unitholders each quarter. Because all of the Trust’s revenues are invested in
liquid funds pending distribution, the Trust does not experience any liquidity problems.
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The Trust’s Indenture (and MPC’s charter and by-laws) expressly prohibits the operation of any
kind of trade or business. The Trust’s oil and natural gas properties are depleting assets and are
not being replaced due to the prohibition against these investments. Because of these
restrictions, the Trust does not require short term or long term capital. These restrictions,
along with other factors, allow the Trust to be treated as a grantor trust. Thus, all income and
deductions, for tax purposes, should flow through to each individual unitholder. The Trust is not
a taxable entity.
Critical Accounting Policies
As an overriding royalty owner, actual production results are not known to us until reported
by the operator, which could be a period of 60-90 days later than the actual month of production.
To comply with accounting principles generally accepted in the United States of America, we must
estimate earned but unpaid royalties from this production. To estimate this amount, we utilize
historical information based on the latest production reports from the individual leases and
current average prices as reported for oil by Chevron USA and the well head price for natural gas
as reported by the Energy Information Agency, a division of the U.S. Department of Energy for the
period under report.
We did not have any changes in our critical accounting policies or in our significant
accounting estimates during the nine months ended March 31, 2006. Please see our annual report on
Form 10-K for the year ended June 30, 2005 for a detailed discussion of our critical accounting
policies.
General
The Trust realized 49% of its revenue from the sale of oil and 51% from the sale of natural
gas during the nine months ended March 31, 2006. Revenue includes estimated royalties of oil and
natural gas produced but not received from producers.
Distributions fluctuate from quarter to quarter due to changes in oil and natural gas prices
and production quantities. Net income is determined by the revenue from oil and natural gas
produced and sold during the accounting period. Distributions, however, are determined by the cash
available to the Trust on the determination date.
Current operations and hurricane damage. The Trust previously reported that 14 platforms
containing 21 wells were lost as a result of hurricane Katrina. Although most of the platforms and
wells on the Trust’s royalty properties were not damaged, they were off production because of
damage to the pipelines that were connected to the leases. As a result of these damaged pipelines,
operators were not able to make delivery of any oil or natural gas. Wells in the South Timbalier
Block 131, West Delta Block 117 and 41 and Ship Shoal Block 169 fields remained shut in during the
current quarter. The Trust does not have any information as to when production will commence on
these fields.
Since the Trust’s overriding royalty interest is free and clear of all operating costs, it is
not charged with the expense of rebuilding and repairing the facilities on the royalty properties
that were lost due to the hurricanes.
Seven wells have been successfully completed since September 2005 and there are eight wells in
various stages of drilling and completion. In addition, there are five permits for new wells on
the Trust’s royalty properties but no operations have commenced.
Operators report that the recovery will be slow due to the limited number of service suppliers
and drilling rigs. The operators have to get on a waiting list for dive boats, supply boats, well
work over rigs and drilling rigs.
Based on estimates from the operators that the Trust has been able to contact, income and
distributions for the first half of 2006 are expected to be significantly reduced from levels
realized prior to the hurricanes.
The Trust relies on public records for information regarding drilling operations. The public
records available up to the date of this report indicate that there were seven wells completed
during the nine months ended
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March 31, 2006 on leases in which the Trust has an interest. Public records also indicate
that there were eight wells in the process of being drilled and five permits for wells to be
drilled in the future.
Based on the latest public records reviewed by the Trust, there are approximately 270 wells
(after eliminating the 21 wells lost due to the hurricanes) subject to the Trust’s overriding
royalty interest that are listed as active oil or natural gas wells on the records of the Minerals
Management Service.
The Trust owns a 32.6% equity interest in Tidelands Royalty Trust “B” (Tidelands), a separate
Texas trust that was also impacted by the recent hurricane activity in the Gulf of Mexico. For
more information on the impact of the recent hurricanes on the properties subject to Tidelands’
interests, please see the Form 8-K filed by Tidelands on January 21, 2006 and the Form 10-K filed
by Tidelands for the year ended December 31, 2005 as well as Tidelands’ future public filings.
The Trust cannot project either net income or distributable net income in the future.
However, unitholders should expect to receive a reduction in cash distributions during 2006.
Summary Review of Operating Results
Net income for the nine months ended March 31, 2006 decreased approximately 16% to $1.37 per
unit as compared to $1.63 per unit for the comparable period in 2005. Oil production for the nine
months ended March 31, 2006 decreased approximately 14,000 barrels and natural gas production
decreased approximately 63,000 mcf from the levels realized in the comparable period in 2005. For
the nine months ended March 31, 2006, the average price realized for a barrel of oil increased
$12.83 over the price realized in the comparable period in 2005 and the average price realized for
a thousand cubic feet (mcf) of natural gas increased $2.39 over the price realized in the
comparable period in 2005.
Distributions to unitholders amounted to $1.79 per unit for the nine months ended March 31,
2006, an increase of approximately 2% from the $1.75 distribution for the comparable period in
2005.
The following table presents the net production quantities of oil and natural gas and net
income and distributions per unit for the last five quarters.
| Production (1) | ||||||||||||||||
| Natural | Net | Cash | ||||||||||||||
| Quarter | Oil (bbls) | Gas (mcf) | Income | Distribution | ||||||||||||
March 31, 2005 |
9,633 | 67,482 | .58 | .54 | ||||||||||||
June 30, 2005 |
13,362 | 101,290 | .74 | .54 | ||||||||||||
September 30, 2005 |
7,787 | 52,298 | .52 | .61 | ||||||||||||
December 31, 2005 |
6,363 | 32,537 | .36 | .79 | ||||||||||||
March 31, 2006 |
7,482 | 61,295 | .49 | .39 | ||||||||||||
| (1) | Excludes the Trust’s equity interest in Tidelands. |
The Trust’s revenues are derived from the oil and natural gas production activities of
unrelated parties. The Trust’s revenues and distributions fluctuate from period to period based
upon factors beyond the Trust’s control, including, without limitation, the number of productive
wells drilled and maintained on leases subject to the Trust’s interest, the level of production
over time from such wells and the prices at which the oil and natural gas from such wells are sold.
The Trust believes that it will continue to have enough revenues to allow distributions to be made
to unitholders for the foreseeable future, although no assurance can be made regarding the amount
of any future distributions. The foregoing sentence is a forward-looking statement. For more
information, see “—Forward-Looking Statements.” Actual results may differ from expected results
because of reductions in the price or demand for oil and natural gas, which might then lead to
decreased production; reductions in production due to the depletion of existing wells or
disruptions in service, which may be caused by storm damage to production facilities, blowouts
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or other production accidents, or geological changes such as cratering of productive
formations; and the expiration or release of leases subject to the Trust’s interests.
Important aspects of the Trust’s operations are conducted by third parties. Oil and natural
gas companies that lease tracts subject to the Trust’s interests are responsible for the production
and sale of oil and natural gas and the calculation of royalty payments to the Trust. The Trust’s
distributions are processed and paid by Mellon Investor Services LLC as the agent for the trustee
of the Trust.
Results of Operations—Three Months Ended March 31, 2006 and 2005
Net income decreased 16% to approximately $982,000 for the three months ended March 31, 2006,
from approximately $1,167,000 realized for the comparable three months in 2005.
Operations in the Gulf of Mexico during the current quarter were severely affected by two
hurricanes. Katrina made landfall near New Orleans on August 29, 2005 and Rita made landfall near
Port Arthur on September 24, 2005. Because of these storms, a number of fields have been shut in
for most of the current quarter.
The Trust’s revenue is dependent on the operations of the working interest owners of the
leases burdened with the Trust’s overriding royalty interest. The only obligation of the working
interest owners to the Trust is to make monthly overriding royalty payments of the Trust’s interest
in the oil and natural gas sold. The volume of oil and gas produced and its selling price are
primary factors in the calculation of overriding royalty payments. Production is affected by the
declining capability of the producing wells, the number of new wells drilled, the number of
existing wells re-worked and placed back in production. The Trust has experienced a steady decline
in the volume of oil and natural gas produced from the wells subject to the Trust’s overriding
royalty interest. In the current three month period oil production decreased 22% and natural gas
production declined 9% from the levels realized in the comparable three months a year ago.
Production from existing wells is anticipated to decrease in the future due to normal well
depletion. The Trust has no input with the operators regarding future drilling operations which
could impact the Trust’s future oil and natural gas production.
Revenue from oil royalties, excluding the Trust’s equity interest in Tidelands, for the three
months ended March 31, 2006 decreased 15% to approximately $418,000, from approximately $490,000
realized for the comparable three months in 2005. There was a 22% decrease in production and a 10%
increase in the price realized.
Revenue from natural gas royalties, excluding the Trust’s equity interest in Tidelands,
increased 13% to approximately $593,000 from approximately $525,000 for the comparable three months
in 2005. There was a 9% decrease in production and a 24% increase in the price realized.
Income from the Trust’s equity in Tidelands decreased approximately 83% for the three months
ended March 31, 2006 as compared to the comparable three months of 2005. The wells on West Cameron
Block 165 were shut-in during the current quarter due to hurricane damage to the pipeline
transporting the natural gas from this field.
The following table presents the quantities of oil and natural gas sold and the average price
realized from current operations for the three months ended March 31, 2006, and those realized in
the comparable three months in 2005, excluding the Trust’s equity interest in Tidelands.
| Three Months Ended March 31, | ||||||||
| 2006 | 2005 | |||||||
OIL |
||||||||
Barrels sold |
7,482 | 9,633 | ||||||
Average price |
$ | 55.87 | $ | 50.85 | ||||
NATURAL GAS |
||||||||
Mcf sold |
61,295 | 67,482 | ||||||
Average price |
$ | 9.67 | $ | 7.78 | ||||
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Results of Operations—Nine Months Ended March 31, 2006 and 2005
Net income decreased 16% to approximately $2,744,000 for the nine months ended March 31, 2006,
from approximately $3,266,000 realized for the comparable nine months in 2005.
Operations in the Gulf of Mexico during the current nine months were severely affected by two
hurricanes. Katrina made landfall near New Orleans on August 29, 2005 and Rita made landfall near
Port Arthur on September 24, 2005. Production from a large number of wells on leases in the South
Timbalier, Grand Isle and West Delta Area was shut-in during the current quarter due to either
loss of the platforms or loss of the pipeline facilities delivering the oil and natural gas. It is
expected that this condition will continue into the third and fourth quarters of the current fiscal
year.
The Trust’s revenue is dependent on the operations of the working interest owners of the
leases burdened with the Trust’s overriding royalty interest. The only obligation of the working
interest owners to the Trust is to make monthly overriding royalty payments of the Trust’s interest
in the oil and natural gas sold. The volume of oil and gas produced and its selling price are
primary factors in the calculation of overriding royalty payments. Production is affected by the
declining capability of the producing wells, the number of new wells drilled, the number of
existing wells re-worked and placed back in production. The Trust has experienced a steady decline
in the volume of oil and natural gas produced from the wells subject to the Trust’s overriding
royalty interest. In the current nine month period oil production decreased 40% and natural gas
production declined 30% from the levels realized in the comparable nine month period ended March
31, 2005. Production from existing wells is anticipated to decrease in the future due to normal
well depletion. The Trust has no input with the operators regarding future drilling operations
which could impact the Trust’s future oil and natural gas production.
Revenue from oil royalties, excluding the Trust’s equity interest in Tidelands, for the nine
months ended March 31, 2006 decreased 22% to approximately $1,251,000, from approximately
$1,610,000 realized for the comparable nine months in 2005. There was a 40% decrease in production
and a 29% increase in the price realized.
Revenue from natural gas royalties, excluding the Trust’s equity interest in Tidelands,
decreased 4% to approximately $1,287,000 from approximately $1,338,000 for the comparable nine
months in 2005. There was a 30% decrease in production and a 37% increase in the price realized.
Income from the Trust’s equity in Tidelands decreased approximately 26% for the nine months
ended March 31, 2006, as compared to the comparable nine months of 2005. During the first quarter
of this fiscal year we experienced an increase in income from Tidelands and it was primarily due
to the commencement of production from a new well on West Cameron Block 165. The results of the
second and third quarters of the current fiscal year were impacted by the damages caused by
hurricane Rita resulting in the wells being shut in for the last two quarters.
The following table presents the quantities of oil and natural gas sold and the average price
realized from current operations for the nine months ended March 31, 2006, and those realized in
the comparable nine months in 2005, excluding the Trust’s equity interest in Tidelands.
| Nine Months Ended March 31, | ||||||||
| 2006 | 2005 | |||||||
OIL |
||||||||
Barrels sold. |
21,632 | 35,770 | ||||||
Average price |
$ | 57.83 | $ | 45.00 | ||||
NATURAL GAS |
||||||||
Mcf sold |
146,130 | 208,661 | ||||||
Average price |
$ | 8.80 | $ | 6.41 | ||||
Forward-Looking Statements
The statements discussed in this quarterly report on Form 10-Q regarding our future financial
performance and results, and other statements that are not historical facts, are forward-looking
statements as defined in Section
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27A of the Securities Act of 1933. We use the words “may,” “expect,” “anticipate,” “estimate,”
“believe,” “continue,” “intend,” “plan,” “budget,” or other similar words to identify
forward-looking statements. You should read statements that contain these words carefully because
they discuss future expectations, contain projections of our financial condition, and/or state
other “forward-looking” information. Events may occur in the future that we are unable to
accurately predict, or over which we have no control. If one or more of these uncertainties
materialize, or if underlying assumptions prove incorrect, actual outcomes may vary materially from
those forward-looking statements included in this Form 10-Q.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As described elsewhere herein, the Trust’s only function is to collect overriding royalties
from leases operated by others and distribute those royalties to its unitholders after paying the
cost of collection and administration. The Trust’s income is highly dependent on the prices
realized from the sale of oil and natural gas. Oil and natural gas prices have historically
experienced significant volatility. The Trust does not attempt to manage its commodity price risk
through the use of fixed price contracts or financial derivatives.
Due to the short span of time between receipts and disbursements, cash held by the Trust is
held in a non-interest bearing trust account.
Oil and natural gas royalties received by MPC prior to payment of the 98% net profits interest
are held in money market accounts that invest in U.S. Treasury securities and are considered not at
risk.
The retained earnings of MPC are held in either money market accounts or U.S. Treasury or
agency securities to be held to maturity. Funds held in money market accounts and U.S. Treasury
securities that mature in less than one year are considered not at risk.
Item 4. Controls and Procedures
Bank of America, N.A., as Trustee of the Trust, is responsible for establishing and
maintaining the Trust’s disclosure controls and procedures. These controls and procedures were
designed to ensure that material information relating to the Trust and its subsidiary is
communicated to the Trustee. As of the end of the period covered by this report, the Trustee, with
the participation of the Trust’s principal accounting officer, evaluated the effectiveness of the
design and operation of the Trust’s disclosure controls and procedures pursuant to Exchange Act
Rules 13a-15 and 15d-15. Based upon that evaluation, the Trustee concluded that the Trust’s
disclosure controls and procedures are effective to ensure that information required to be
disclosed by the Trust in the reports that it files or submits under the Exchange Act (i) is
recorded, processed, summarized and reported within the time periods specified in the SEC’s rules
and forms and (ii) is accumulated and communicated to the Trustee to allow timely decisions
regarding required disclosure. There has not been any change in the Trust’s internal control over
financial reporting during the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Trust’s internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 6. Exhibits
The following exhibits are included herein:
| 31.1 | Certification of the Principal Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of the Corporate Trustee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1 | Certification of the Principal Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of the Corporate Trustee pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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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.
| MARINE PETROLEUM TRUST | ||||
| Bank of America, N.A., Trustee | ||||
May 12, 2006
|
By: | /s/ RON E. HOOPER | ||
| Ron E. Hooper | ||||
| Senior Vice President | ||||
May 12, 2006
|
By: | /s/ R. RAY BELL | ||
| R. Ray Bell | ||||
| Principal Accounting Officer | ||||
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Marine Petroleum Trust
c/o Bank of America, N.A.
P.O. Box 830650
Dallas, Texas 75283-0650
c/o Bank of America, N.A.
P.O. Box 830650
Dallas, Texas 75283-0650