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| BPT > SEC Filings for BPT > Form 10-K on 2-Mar-2009 | All Recent SEC Filings |
2-Mar-2009
Annual Report
Liquidity and Capital Resources
The Trust is a passive entity. The Trustee's activities are limited to
collecting and distributing the revenues from the Royalty Interest and paying
liabilities and expenses of the Trust. Generally, the Trust has no source of
liquidity and no capital resources other than the revenue attributable to the
Royalty Interest that it receives from time to time. See the discussion under
"THE ROYALTY INTEREST" in Item 1 for a description of the calculation of the Per
Barrel Royalty, and the discussion under "THE PRUDHOE BAY UNIT AND FIELD -
Reserve Estimates" and "INDEPENDENT OIL AND GAS CONSULTANTS' REPORT" in Item 1
for information concerning the estimated future net revenues of the Trust.
However, the Trust Agreement gives the Trustee power to borrow, establish a cash
reserve, or dispose of all or part of the Trust property under limited
circumstances. See the discussion under "THE TRUST - Sales of Royalty Interest;
Borrowings and Reserves" in Item 1.
Since 1999, the Trustee has maintained a $1,000,000 cash reserve to provide
liquidity to the Trust during any future periods in which the Trust does not
receive a distribution. The Trustee will draw funds from the cash reserve
account during any quarter in which the quarterly distribution received by the
Trust
does not exceed the liabilities and expenses of the Trust, and will replenish
the reserve from future quarterly distributions, if any. The Trustee anticipates
that it will keep this cash reserve program in place until termination of the
Trust.
Amounts set aside for the cash reserve are invested by the Trustee in U.S.
government or agency securities secured by the full faith and credit of the
United States. Interest income received by the Trust from the investment of the
reserve fund is added to the distributions received from BP Alaska and paid to
the Unit holders on each Quarterly Record Date.
Annual decreases in Trust corpus and total assets are the result of
amortization of the Royalty Interest. See Notes 2 and 3 of Notes to Financial
Statements in Item 8.
Results of Operations
Relatively modest changes in oil prices significantly affect the Trust's
revenues and results of operations. Crude oil prices are subject to significant
changes in response to fluctuations in the domestic and world supply and demand
and other market conditions as well as the world political situation as it
affects OPEC and other producing countries. The effect of changing economic
conditions on the demand and supply for energy throughout the world and future
prices of oil cannot be accurately projected.
Royalty revenues are generally received on the Quarterly Record Date
(generally the fifteenth day of the month) following the end of the calendar
quarter in which the related Royalty Production occurred. The Trustee, to the
extent possible, pays all expenses of the Trust for each quarter on the
Quarterly Record Date on which the revenues for the quarter are received. For
the statement of cash earnings and distributions, revenues and Trust expenses
are recorded on a cash basis and, as a result, distributions to Unit holders in
each calendar year ending December 31 are attributable to BP Alaska's operations
during the twelve-month period ended on the preceding September 30.
When BP Alaska's average net production of oil and condensate per quarter
from the BP Working Interests exceeds 90,000 barrels a day, the principal
factors affecting the Trust's revenues and distributions to Unit holders are
changes in WTI Prices, scheduled annual increases in Chargeable Costs, changes
in the Consumer Price Index and changes in Production Taxes. However, it is
likely that the Trust's revenues in future periods also will be affected by
increases and decreases in production from the BP Working Interests. BP Alaska's
net production of oil and condensate from proved reserves in the BP Working
Interests was less than 90,000 barrels per day on an annual basis during 2007
and 2008. The Trustee has been advised that BP Alaska expects that average net
production from the BP Working Interests will be less than 90,000 barrels a day
on an annual basis in 2009 and future years.
BP Alaska estimates Royalty Production from the BP Working Interests for
purposes of calculating quarterly royalty payments to the Trust because complete
actual field production data for the preceding calendar quarter generally is not
available by the Quarterly Record Date. To the extent that average net
production from the BP Working Interests is below 90,000 barrels per day,
calculation by BP Alaska of actual Royalty Production data may result in
revisions of prior Royalty Production estimates. Revisions by BP Alaska of its
Royalty Production calculations may result in quarterly royalty payments by BP
Alaska which reflect adjustments for overpayments or underpayments of royalties
with respect to prior quarters. Such adjustments, if material, may adversely
affect certain Unit holders who buy or sell Units between the Quarterly Record
Dates for the Quarterly Distributions affected. See Note 8 of Notes to Financial
Statements in Item 8. Because the annual statement of cash earnings and
distributions of the Trust is prepared on a modified cash basis, royalty
revenues for the calendar year do not include the amounts of underpayments or
overpayments affecting payments received during the fourth quarter of the year.
During the years 2007 and 2008 and the period of 2009 up to the date of this
report, WTI Prices have been above the level necessary for the Trust to receive
a Per Barrel Royalty. Whether the Trust will be entitled to future distributions
during the remainder of 2009 will depend on WTI Prices prevailing during the
remainder of the year.
2008 compared to 2007
WTI Prices continued to rise rapidly during the fourth quarter of 2007 and
throughout the first half of 2008, reaching a high of over $145 per barrel early
in July 2008 before receding to an average of approximately $104 per barrel
during September 2008. As a result of the increases in WTI Prices, average WTI
Prices for the twelve months ended September 30, 2008 were 67% higher than
during the preceding twelve-month period. Royalty revenues and cash earnings
rose 42% and 43%, respectively, during the twelve months ended December 31, 2008
compared to the twelve months ended December 31, 2007, but the higher tax rates
imposed by the 2007 Alaska oil and gas tax legislation (see "THE ROYALTY
INTEREST - Production Taxes" in Item 1), imposed a significant burden on Per
Barrel Royalties. Production taxes charged against the average Per Barrel
Royalty were approximately 264% higher with respect to the twelve months ended
September 30, 2008 than during the twelve months ended September 30, 2007. Trust
administrative expenses rose 6.5%, principally due to legal fees and expenses
related litigation and other issues arising from the 2006 shutdown of the
Prudhoe Bay field. See Note 7 of Notes to Financial Statements in Item 8.
2007 compared to 2006
WTI Prices receded during the fourth quarter of 2006 and first quarter of
2007 from the highs reached during the second and third quarters of 2006. As a
consequence, in spite of average WTI Prices having risen to a high of $75.29
during the third quarter of 2007, average WTI Prices for the twelve months ended
September 30, 2007 were 2.2% lower than during the preceding twelve-month
period. Royalty revenues and cash earnings fell 4.1% and 4.4%, respectively,
partly as a result of the overall decline in WTI Prices, but were affected to a
greater degree by the higher tax rates imposed by the 2006 Alaska oil and gas
tax legislation, which entered into the calculation of the Per Barrel Royalty
commencing in the third quarter of 2006, as well as by a scheduled increase in
Chargeable Costs from $12.50 to $12.75 per barrel beginning in the first quarter
of 2007. Production taxes charged against the average Per Barrel Royalty were
approximately 17% higher with respect to the twelve months ended September 30,
2007 than during the twelve months ended September 30, 2006. Cash earnings were
affected by an increase of approximately 60% in Trust administrative expenses,
principally due to legal fees and expenses incurred.
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