MARINE PETROLEUM TRUST - Quarter Report: 2007 December (Form 10-Q)
Table of Contents
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 December 31, 2007
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. P.O. Box 830650, Dallas, Texas (Address of principal executive offices) |
75283-0650 (Zip Code) |
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, a non-accelerated filer or a smaller reporting company. See definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company þ
(Do not check if a smaller reporting Company)
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 February 13, 2008, we had 2,000,000 units of beneficial interest outstanding.
As of February 13, 2008, we had 2,000,000 units of beneficial interest outstanding.
MARINE PETROLEUM TRUST
INDEX
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| 1 | ||||||||
| 1 | ||||||||
| 2 | ||||||||
| 3 | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| 9 | ||||||||
| 9 | ||||||||
| 10 | ||||||||
| 10 | ||||||||
| Certification of the Corporate Trustee Pursuant Section 302 | ||||||||
| Certification of the Corporate Trustee Pursuant to Section 906 | ||||||||
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
MARINE PETROLEUM TRUST AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2007 and June 30, 2007
ASSETS
| December 31, | June 30, | |||||||
| 2007 | 2007 | |||||||
| (Unaudited) | (Audited) | |||||||
Current Assets: |
||||||||
Cash and cash equivalents |
$ | 1,488,477 | $ | 1,636,082 | ||||
Oil and gas royalties receivable |
859,596 | 1,186,503 | ||||||
Receivable from affiliate |
306,211 | 350,126 | ||||||
Total current assets |
$ | 2,654,284 | $ | 3,172,711 | ||||
Investment in affiliate |
573,747 | 646,963 | ||||||
Producing oil and gas properties |
7 | 7 | ||||||
| $ | 3,228,038 | $ | 3,819,681 | |||||
LIABILITIES AND TRUST EQUITY
Current Liabilities – Federal income taxes payable |
$ | 6,300 | $ | 7,600 | ||||
Trust Equity: |
||||||||
Corpus – authorized 2,000,000 units of
beneficial interest, issued 2,000,000 units at
nominal value |
8 | 8 | ||||||
Undistributed income |
3,221,730 | 3,812,073 | ||||||
Total trust equity |
3,221,738 | 3,812,081 | ||||||
| $ | 3,228,038 | $ | 3,819,681 | |||||
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
For the Three and Six Months Ended December 31, 2007 and 2006
(Unaudited)
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| December 31, | December 31, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
Income: |
||||||||||||||||
Oil and gas
royalties |
$ | 937,320 | $ | 1,088,364 | $ | 1,983,419 | $ | 2,284,772 | ||||||||
Equity in
earnings of affiliate |
278,930 | 269,194 | 604,636 | 455,280 | ||||||||||||
Interest
income |
||||||||||||||||
| 18,852 | 20,489 | 38,796 | 39,246 | |||||||||||||
| 1,235,102 | 1,378,047 | 2,626,851 | 2,779,298 | |||||||||||||
Expenses: |
||||||||||||||||
General and
administrative |
88,836 | 72,218 | 143,093 | 112,444 | ||||||||||||
Income before
Federal income
taxes |
1,146,266 | 1,305,829 | 2,483,758 | 2,666,854 | ||||||||||||
Federal income
taxes of
subsidiary |
2,000 | 3,600 | 8,700 | 7,400 | ||||||||||||
Net
income |
1,144,266 | 1,302,229 | 2,475,058 | 2,659,454 | ||||||||||||
Undistributed
income at beginning
of
period |
3,600,136 | 3,003,194 | 3,812,074 | 2,782,955 | ||||||||||||
| 4,744,402 | 4,305,423 | 6,287,132 | 5,442,409 | |||||||||||||
Distributions to
unitholders |
1,522,672 | 1,152,695 | 3,065,402 | 2,289,681 | ||||||||||||
Undistributed
income at end of
period |
$ | 3,221,730 | $ | 3,152,728 | $ | 3,221,730 | $ | 3,152,728 | ||||||||
Net income per
unit |
$ | 0.57 | $ | 0.65 | $ | 1.24 | $ | 1.33 | ||||||||
Distributions per
unit |
$ | 0.76 | $ | 0.58 | $ | 1.53 | $ | 1.14 | ||||||||
Units
outstanding |
2,000,000 | 2,000,000 | 2,000,000 | 2,000,000 | ||||||||||||
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 Six Months Ended December 31, 2007 and 2006
(Unaudited)
| Six Months Ended | ||||||||
| December 31, | ||||||||
| 2007 | 2006 | |||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 2,475,058 | $ | 2,659,454 | ||||
Adjustments to reconcile net income to net
cash provided by operating activities: |
||||||||
Equity in undistributed earnings of affiliate |
(604,637 | ) | (455,280 | ) | ||||
Distributions of earnings of affiliate |
677,853 | 249,504 | ||||||
Change in assets and liabilities: |
||||||||
Oil and gas royalties receivable |
326,907 | 78,887 | ||||||
Receivable from affiliate |
43,916 | (193,788 | ) | |||||
Income taxes payable |
(1,300 | ) | 1,400 | |||||
Net cash provided by operating activities |
2,917,797 | 2,340,177 | ||||||
Cash flows used in financing
activities—distributions to unitholders |
(3,065,402 | ) | (2,289,681 | ) | ||||
Net decrease in cash and cash equivalents |
(147,605 | ) | 50,496 | |||||
Cash and cash equivalents at beginning of period |
1,636,082 | 1,454,283 | ||||||
Cash and cash equivalents at end of period |
$ | 1,488,477 | $ | 1,504,779 | ||||
See accompanying notes to condensed consolidated financial statements.
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MARINE PETROLEUM TRUST AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2007
(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 consolidated and should be read in conjunction with the Trust’s Annual
Report on Form 10-K for the fiscal year ended June 30, 2007. 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
three and six months ended December 31, 2007 are not necessarily indicative of the results that may
be expected for the fiscal year ending June 30, 2008.
As an overriding royalty owner, actual production results are not known to us until reported
by the operator, which could be up to 60-90 days after 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 day 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 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 royalties
received from offshore Louisiana leases owned 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.
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 11 new well completions
made during the six months ended December 31, 2007 on leases in which the Trust has an interest.
Public records also indicate that there were 11 wells in the process of being drilled and 6 permits
for wells to be drilled in the future.
Based on the latest public records reviewed by the Trust, there are approximately 250 wells
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.
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 December 31, 2007, undistributed income of the Trust and MPC amounted to
$2,326,731 and $894,999, respectively.
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Item 2. Trustee’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.
Bank of America, N.A. serves as corporate trustee. 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 (“Chevron”),
Elf Exploration, Inc. (“Elf”), 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 in an oil or gas lease. 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 59 leases covering
215,136 gross acres located in the Gulf of Mexico. The Trust’s overriding royalty interest applies
only to existing leases and does not apply to any new leases that Chevron or Elf may acquire. The
Trust also owns a 32.6% equity interest in Tidelands. Tidelands has an overriding royalty interest
in five leases covering 22,948 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.
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. These restrictions, along
with other factors, allow the Trust to be treated as a grantor trust. As a grantor trust, all
income and deductions, for state and federal tax purposes, generally flow through to each
individual unitholder. Note, however, that in May 2006, the State of Texas passed legislation to
implement a new franchise or “margin” tax. Although it is not entirely clear, currently, we expect
that the Trust will not be subject to the franchise tax because at least 90% of its income is from
passive sources. Please see “State Tax Considerations” on page 8 for a further discussion. MPC is
a taxable entity and pays state and federal taxes on its income, excluding the 98% net profits
interest reserved for the Trust and deducting statutory depletion.
Critical Accounting Policies and Estimates
As an overriding royalty owner, actual production results are not known to us until reported
by the operator, which could be up to 60-90 days after 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 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.
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We did not have any changes in our critical accounting policies or in our significant
accounting estimates during the six months ended December 31, 2007. Please see our Annual Report
on Form 10-K for the year ended June 30, 2007 for a detailed discussion of our critical accounting
policies.
General
The Trust realized 67% of its revenue from the sale of oil and 33% from the sale of natural
gas during the six months ended December 31, 2007. Revenue includes estimated royalties of oil and
natural gas produced even if payment for that production has not yet been received from producers.
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.
Important aspects of the Trust’s operations are conducted by third parties. The Trust’s
revenue is dependent on the operations of the working interest owners of the leases on which the
Trust has an overriding royalty interest. The 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 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 Trust’s distributions are processed and paid by Mellon Investor
Services LLC as the agent for the trustee of the Trust. 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. 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 oil and natural gas
production on the leases on which the Trust has an overriding royalty interest.
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 or before ten days prior to the record date provided in the Indenture.
Summary of Operating Results
Net income for the six months ended December 31, 2007 decreased approximately 6.9% to $1.24
per unit as compared to $1.33 per unit for the comparable period in 2006. For the six months ended
December 31, 2007, oil production decreased approximately 3,931 barrels and natural gas production
decreased approximately 69,598 thousand cubic feet (mcf) from the levels realized in the comparable
period in 2006. For the six months ended December 31, 2007, the average price realized for a
barrel of oil increased $18.56 over the price realized in the comparable period in 2006 and the
average price realized for an mcf of natural gas increased $0.75 over the price realized in the
comparable period in 2006.
Distributions to unitholders amounted to $1.53 per unit for the six months ended December 31,
2007, an increase of approximately 34% from the $1.14 distribution for the comparable period in
2006.
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 | ||||||||||||
December 31, 2006 |
7,975 | 108,885 | $ | 0.65 | $ | 0.58 | ||||||||||
March 31, 2007 |
13,089 | 62,392 | $ | 0.81 | $ | 0.61 | ||||||||||
June 30, 2007 |
8,869 | 66,526 | $ | 0.83 | $ | 0.70 | ||||||||||
September 30, 2007 |
8,552 | 64,648 | $ | 0.67 | $ | 0.77 | ||||||||||
December 31, 2007 |
7,819 | 29,162 | $ | 0.57 | $ | 0.76 | ||||||||||
| (1) | Excludes the Trust’s equity interest in Tidelands. |
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Results of Operations—Three Months Ended December 31, 2007 and 2006
Net income decreased 12.1% to $1,144,266 for the three months ended December 31, 2007, from
$1,302,229 realized for the comparable three months in 2006.
Oil and gas production (barrels of oil equivalent) in the three months ended December 31, 2007
declined 51% over the volumes realized in the quarter ended December 31, 2006, reflecting a 2%
decrease in the production of oil and a 73% decrease in the production of natural gas.
Revenue from oil royalties, excluding the Trust’s equity interest in Tidelands, for the three
months ended December 31, 2007 increased 46% to approximately $676,000 from approximately $462,000 realized for
the comparable three months in 2006. There was a 2% decrease in production and a 49% increase in
the price realized.
Revenue from natural gas royalties, excluding the Trust’s equity interest in Tidelands,
decreased 58% to approximately $261,000 from approximately $626,000 for the comparable three months
in 2006. There was a 73% decrease in production and a 56% increase in the price realized.
Income from the Trust’s equity in Tidelands increased approximately 4% for the three months
ended December 31, 2007 as compared to the comparable three months of 2006 primarily due to increased oil
and natural gas prices offset by a decline in production of both oil and gas.
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 December 31, 2007, and those realized
in the comparable three months in 2006, excluding the Trust’s equity interest in Tidelands.
| Three Months Ended December 31, | ||||||||||||
| 2007 | 2006 | % Change | ||||||||||
Oil |
||||||||||||
Barrels sold |
7,819 | 7,975 | (2.0 | )% | ||||||||
Average price |
$ | 86.50 | $ | 57.94 | 49.3 | % | ||||||
Natural Gas |
||||||||||||
Mcf sold |
29,162 | 108,885 | (73.2 | )% | ||||||||
Average price |
$ | 8.95 | $ | 5.75 | 55.7 | % | ||||||
Results of Operations—Six Months Ended December 31, 2007 and 2006
Net income decreased 6.9% to $2,475,058 for the six months ended December 31, 2007, from
$2,659,454 realized for the comparable six months in 2006.
Oil and gas production (barrels of oil equivalent) in the six months ended December 31, 2007
declined 33% over the volumes realized in the six months ended December 31, 2006, reflecting a 19%
decrease in the production of oil and a 43% decrease in the production of natural gas.
Revenue from oil royalties, excluding the Trust’s equity interest in Tidelands, for the six
months ended December 31, 2007 increased 4% to approximately $1,338,000, from approximately
$1,282,000 realized for the comparable six months in 2006. There was a 19% decrease in production
and a 29% increase in the price realized.
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Revenue from natural gas royalties, excluding the Trust’s equity interest in Tidelands,
decreased 36% to approximately $645,000 from approximately $1,002,000 for the comparable six months
in 2006. There was a 43% decrease in production and a 12% increase in the price realized.
Income from the Trust’s equity in Tidelands increased approximately 33% for the six months
ended December 31, 2007 as compared to the comparable six months of 2006.
The following table presents the quantities of oil and natural gas sold and the average price
realized from current operations for the six months ended December 31, 2007, and those realized in
the comparable six months in 2006, excluding the Trust’s equity interest in Tidelands.
| Six Months Ended December 31, | ||||||||||||
| 2007 | 2006 | % Change | ||||||||||
Oil |
||||||||||||
Barrels sold |
16,371 | 20,302 | (19.4 | %) | ||||||||
Average price |
$ | 81.73 | $ | 63.17 | 29.4 | % | ||||||
Natural Gas |
||||||||||||
Mcf sold |
93,810 | 163,408 | (42.6 | )% | ||||||||
Average price |
$ | 6.88 | $ | 6.13 | 12.2 | % | ||||||
State Tax Considerations
In May 2006, the State of Texas enacted legislation, as amended in June 2007, to implement a
new franchise or “margin” tax. Under the new legislation, a 1% tax (in certain cases not
applicable here, the tax rate is 0.5%) will be imposed on each taxable entity’s taxable margin.
Taxable margin is generally defined as a taxable entity’s total revenues less certain costs and
expenses, as provided in the new legislation. The tax generally will be imposed on revenues
generated beginning in 2007 and reported in tax returns due on or after January 1, 2008. Most
entities that provide owners with limited liability protection, including trusts, are considered to
be taxable entities for purposes of the new tax. The statute provides certain limited exemptions
from the tax, including exclusions for certain grantor trusts and exclusions for certain “passive
entities” that satisfy specified statutory requirements as described below.
Under the new legislation, grantor trusts (such as the Trust) are exempt from the state
franchise tax if: (a) all of the grantors and beneficiaries are natural persons or charitable
organizations described in Section 501(c)(3) of the Internal Revenue Code; and (b) the trust is not
a business trust (within the meaning of U.S. Treasury Regulation section 301.7701-4(b)). At this
time, the Trust is not able to rely on this exemption for grantor trusts because it cannot verify
that all of the beneficiaries are natural persons or charitable organizations described in Section
501(c)(3).
The new legislation also provides an exemption from Texas state franchise tax for certain
“passive entities,” including trusts, that meet the following requirements: (a) the trust cannot
be a business trust within the meaning of U.S. Treasury Regulation section 301.7701-4(b); (b) at
least 90% of the trust’s income for the taxable year must be derived from passive sources (e.g.,
royalties, bonuses, delay rental income from mineral properties, dividends, interest, gains from
the sale of securities); and (c) no more than 10% of the trust’s income for the taxable year can be
derived from an active trade or business (e.g., rent, certain income received by a non-operator
under a joint operating agreement pursuant to which the operator is the member of an affiliated
group that includes such non-operator). An entity will determine on an annual basis whether it
meets the requirements to be treated as a “passive entity” for Texas state franchise tax purposes.
Although it is not free from doubt, it appears that for the Trust’s tax year ending in 2007,
the Trust meets the requirements to be treated as a passive, non-taxable entity for Texas state
franchise tax purposes because at least 90% of the Trust’s income could be considered to be from
passive sources. Currently, there is no clear guidance from the Texas legislature or the Texas
Comptroller of Public Accounts regarding the treatment of the distributions to the Trust from
Tidelands and whether such distributions would be considered passive. For the Trust’s tax year
ending in 2007, 24% of the Trust’s income was from distributions from its equity interest in the
oil and gas royalties
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of Tidelands. If, on the other hand, such distributions were treated as active income, the
Trust would not be considered a passive entity for Texas state franchise tax purposes for the tax
year ending in 2007 because more than 10% of the Trust’s income would be from an active trade or
business. The Trust currently anticipates that it will seek additional guidance from the Texas
Comptroller of Public Accounts with respect to this matter.
If the Trust does not qualify as a “passive entity,” as a taxable entity, the franchise tax
will be imposed on the amount of the Trust’s taxable margin that is apportioned to Texas.
Currently, the Texas Comptroller of Public Accounts has not issued guidance with respect to
calculating the franchise tax for grantor trusts (such as the Trust) that do not file a federal tax
return. As a result, at this time, it is difficult to estimate the amount of franchise tax that
would be due in the event the Trust is classified as a taxable entity for Texas state franchise tax
purposes.
Individuals and certain qualified organizations are not subject to the franchise tax.
Accordingly, no franchise tax will be due with respect to any distributions from the Trust received
by individual unitholders or other organizations meeting certain statutory exemption requirements
(e.g., a charitable organization described in Section 501(c)(3) of the Internal Revenue Code that
has applied for and received exemption from the Texas franchise tax). However, each unitholder is
urged to consult his own tax advisor regarding the requirements for filing its tax returns.
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 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. Actual results may differ
from expected results because of: reductions in 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 or other production accidents, or geological changes such as cratering of productive
formations; and the expiration or release of leases subject to our interests. Additional risks are
set forth in our Annual Report on Form 10-K for the year ended June 30, 2007. 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
We did not experience any significant changes in market risk during the period covered by this
report. Our market risk is described in more detail in “Item 7A: Quantitative and Qualitative
Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended June 30, 2007.
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
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 Securities and Exchange Commission’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 1A. Risk Factors
There have been no material changes to the risk factors set forth in our Annual Report on Form
10-K for the year ended June 30, 2007.
Item 6. Exhibits
The following exhibits are included herein:
| 31.1 | Certification of the Corporate Trustee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 32.1 | 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 | ||||||
February 14, 2008
|
By: | /s/ Ron E. Hooper | ||||
| Ron E. Hooper | ||||||
| Senior Vice President | ||||||
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