(iii) a reduction in the amount of oil, natural gas and natural gas liquids that is economic to produce from the underlying properties. Results of Trust Operations
Results of the Trust for the Year Ended December 31, 2008 The Trust was formed on October 18, 2007. The conveyance of the NPI, however, did not occur until April 30, 2008. As a result, the Trust did not recognize any income or make any distributions during 2007 or during the first quarter of 2008. The NPI was conveyed effective for production from the underlying properties starting from January 1, 2008. Therefore, the Trust's first quarterly distribution paid on May 30, 2008 consisted of an amount in cash paid by Whiting equal to the amount that would have been paid to the Trust had the conveyance been in place since the January 1, 2008 effective date. The following is a summary of income from net profits interest received by the Trust:

                                Trust Results
                                                         Year Ended
                                                        December 31,
                                                            2008
         Sales Volumes:
         Oil from underlying properties (Bbls)                639,723  (a)
         Natural gas from underlying properties (Mcf)       2,831,531  (b)

         Total production (MBOE)                            1,111,645
         Average Sales Prices:
         Oil (per Bbl)                                  $      102.04
         Natural gas (per Mcf)                          $        8.94
         Costs (per BOE):
         Lease operating expenses                       $       17.38
         Production taxes                               $        5.71
         Commodity derivative contract settlements      $        0.16
         Revenues:
         Oil sales                                      $  65,276,239  (a)
         Natural gas sales                                 25,322,136  (b)

         Total Revenues                                 $  90,598,375

         Costs:
         Lease operating expenses                       $  19,318,722
         Production taxes                                   6,346,455
         Commodity derivative contract settlements            175,949

         Total Costs                                    $  25,841,126

         Net proceeds                                   $  64,757,249

         Net profits percentage                                    90 %

         Income from net profits interest               $  58,281,524

(a) Because of the one-month interval between the time crude oil volumes are produced and the receipt of oil sales proceeds by Whiting, oil volumes and sales for the twelve months ended December 31, 2008 (consisting of Whiting's May 2008, August 2008 and November 2008
NPI distributions to the Trust) generally represent crude oil production from January through September of 2008.

(b) Because of the two-month interval between the time natural gas volumes are produced and the receipt of gas sales proceeds by Whiting, natural gas volumes and sales for the twelve months ended December 31, 2008 (consisting of Whiting's May 2008, August 2008 and November 2008
NPI distributions to the Trust) generally represent gas production from January through August of 2008.

Income from Net Profits Interest. Income from net profits interest is recorded on a cash basis when NPI proceeds are received by the Trust from Whiting. NPI net proceeds that Whiting remits to the Trust are based on the oil and gas production Whiting has received payment for within one month following the end of the most recent fiscal quarter. Whiting receives payment for its crude oil sales generally within 30 days following the month in which it is produced, and Whiting receives payment for its natural gas sales generally within 60 days following the month in which it is produced. Accordingly, income from net profits interest for the twelve months ended December 31, 2008 (consisting of Whiting's May 2008, August 2008 and November 2008 NPI remittances to the Trust) generally represents crude oil sales for January through September of 2008 and natural gas sales for January through August of 2008.
Income from net profits interest is generally affected by three major factors as highlighted in the table above:
• oil and gas sales volumes,

• oil and gas sales prices, and

• costs deducted in the calculation of income from net profits interest.

For the twelve months ended December 31, 2008, the Trust recognized income from net profits interest of $58,281,524. As publicly reported, SemCrude, LP and its affiliates (collectively, "SemCrude") filed bankruptcy Chapter 11 petitions on July 22, 2008 in Delaware Bankruptcy Court. SemCrude purchased certain crude oil produced from a portion of the underlying properties subject to the NPI held by the Trust and failed to pay for such purchases during the month of June 2008 and the first 22 days of July 2008, which had the effect of reducing income from net profits by approximately $270,000 for the twelve months ended December 31, 2008. Also included in the income from net profits interest is a deduction of $158,354 (90% of $175,949) for commodity derivative contracts settled from April 1, 2008 through September 30, 2008.
Distributable Income. For the twelve months ended December 31, 2008, the Trust's distributable income was $56,980,307 and was based on income from net profits interest of $58,281,524 less general and administrative expenses of $793,443, cash withheld for future Trust expenses of $131,574 and Montana state income tax withholdings of $376,200.
Results of Underlying Property Operations Because the Trust had not engaged in any activities prior to 2008 other than organizational activities, the Trust is providing financial information with respect to the underlying properties for each of the three years in the period ended December 31, 2008 so that investors can review comparative results of operations for the years ended December 31, 2008 and 2007, as well as comparative results for the years ended December 31, 2007 and 2006. The underlying properties' results of operations for the year ended December 31, 2008 are presented on a cash basis of accounting in the table below and in the "Comparison of Results of the Underlying Properties for the Year Ended December 31, 2008 and 2007", and this cash basis presentation is consistent with the Trust's 2008 financial statements, which have been prepared on a modified cash basis. The 2008 cash basis results generally consist of crude oil sales earned from December 2007 through November 2008 but received during 2008, and natural gas sales earned from November 2007 through October 2008 but received in 2008. The results of operations for the underlying properties for the two years ended December 31, 2007 and 2006, however, are presented below on the accrual basis of accounting, which is consistent with the underlying properties' statements of historical revenues and direct operating expenses for 2007 and 2006 that were also prepared on the accrual basis before the effects of the NPI conveyance. Although the basis of accounting is not consistent between all years, the Trustee believes that the presentation below allows for a reasonable basis of comparison.

The table below sets forth revenues and direct operating expenses, as well as operating data, relating to the underlying properties for each of the three years in the period ended December 31, 2008. Results for 2008 include the effects of hedging activities subsequent to the April 30, 2008 conveyance. Information for the years ended December 31, 2007 and 2006 is derived from the underlying properties' audited statements of historical revenues and direct operating expenses included in "Financial Statements and Supplementary Data" of this Form 10-K. There were no hedges or other derivative activity attributable to the underlying properties during the years ended December 31, 2007 and 2006. The table also provides average sales prices, per BOE data, and capital expenditures relating to the underlying properties for each period.

                                   Underlying Properties Results
                                                                  Year Ended December 31,
                                                         2008(1)            2007             2006
                                                                   (dollars in thousands)
Revenues:
Oil sales                                               $   82,208        $  59,428        $  53,232
Natural gas sales                                           34,514           28,224           31,398

Total revenues                                          $  116,722        $  87,652        $  84,630

Direct operating expenses:
Lease operating                                         $   27,383        $  23,733        $  21,913
Production taxes                                             8,100            6,262            6,006
Gain on settlement of commodity hedges                      (3,719 )              -                -

Total direct operating expenses                         $   31,764        $  29,995        $  27,919

Excess of revenues over direct operating expenses       $   84,958        $  57,657        $  56,711

Operating data:
Oil (MBbls)                                                    884              956              946
Natural gas sales (MMcf)                                     4,228            4,441            5,057

Total production (MBOE)                                      1,589            1,696            1,789
Average Sales Price:
Oil (per Bbl)                                           $    92.97        $   62.17        $   56.24
Effect of oil hedges (per Bbl)                                3.86                -                -

Oil net of hedging (per Bbl)                            $    96.83        $   62.17        $   56.24


Natural gas (per Mcf)                                   $     8.16        $    6.36        $    6.21
Effect of natural gas hedges (per Mcf)                        0.07                -                -

Natural gas net of hedging                              $     8.23        $    6.36        $    6.21

Per BOE data:
Lease operating expenses                                $    17.23        $   13.99        $   12.25
Production taxes                                        $     5.10        $    3.69        $    3.36
Drilling and development capital expenditures (in
thousands) (2)                                          $    5,381        $   8,269        $  10,036

(1) The results of operations for 2008 are presented on a cash basis of accounting and differ from the historical results for 2007 and 2006, which are on an accrual basis.

(2) The Trust cannot provide any assurance that future capital expenditures will be consistent with historical levels. For example, there are no capital expenditures planned on the underlying properties in Whiting's 2009 capital budget.

Comparison of Results of the Underlying Properties for the Year Ended December 31, 2008 and 2007
Revenues. Oil and natural gas revenues increased $29.1 million or 33% from 2007 to 2008. Sales are a function of average sales prices and volumes sold. The average price realized for oil before the effects of hedging increased 50% from 2007 to 2008, and the average price realized for natural gas before the effects of hedging increased 28% between periods. Offsetting this increase, oil sales volumes decreased 8% or 72 MBbls between periods due to normal field production decline. Gas sales volumes also decreased 6% or 278 MMcf between periods due to normal field decline, offset by production from new wells drilled during 2008 of 65 MMcf. The rate of decline in gas production volumes from 2007 to 2008 was approximately half of the rate of decline from 2006 to 2007. Based upon the reserve report at December 31, 2008, however, oil and gas production attributable to the underlying properties is expected to decline at a year over year rate of approximately 14.4% between 2009 and 2021.
Lease Operating Expenses. Lease operating expenses increased $3.7 million or 15% from 2007 to 2008, which was caused by higher energy costs and inflation in the cost of oil field goods and services. Energy costs increased 12% between periods, and costs of oil field goods and services increased 11% due to higher demand in the industry experienced during the first three quarters. Lease operating expenses per BOE increased from $13.99 during 2007 to $17.23 during 2008. The 23% increase on a BOE basis was caused by lower production volumes combined with the increased costs of energy and oil and field goods and services.
Production Taxes. Production taxes are generally calculated as a percentage of oil and gas revenues. All credits and exemptions allowed in the various taxing jurisdictions are fully utilized. Production taxes for 2008 and 2007 were 6.9% and 7.1%, respectively, of oil and gas sales.
Gain on Settlement of Commodity Hedges. Whiting entered into certain costless collar hedge contracts in which the rights to any future hedge payments made or received were conveyed to the Trust on April 30, 2008. Cash settlements relating to the conveyed hedges resulted in a gain of $3.7 million during the year ended December 31, 2008, which had the effect of increasing the average price of oil and natural gas net of hedging during 2008 by $3.86 per Bbl and $0.07 per Mcf, respectively. There were no hedges in effect on the underlying properties during 2007.
Excess of Revenues Over Direct Operating Expenses. Excess of revenues over direct operating expenses increased $27.3 million from 2007 to 2008. The reasons for this increase included a 56% increase in oil prices net of hedging and a 29% increase in gas prices net of hedging between periods. The increased pricing was partially offset by a 6% decrease in equivalent volumes sold and higher lease operating expense and production taxes.
Comparison of Results of the Underlying Properties for the Year Ended December 31, 2007 and 2006
Revenues. Oil and natural gas sales revenue increased $3.0 million from 2006 to 2007. Sales are a function of average sales prices and volumes sold. The average price realized for oil increased 11% from 2006 to 2007, and the average price realized for natural gas increased 2% between periods. Likewise, oil sales volumes increased 1% between periods. The acquisition of Howard Energy in August of 2006 added 41 MBbls of incremental oil production in 2007. This increase in oil production was partially offset by a decrease in 2007 oil volumes of 31 MBbls due to normal field production decline. Gas sales volumes decreased 12% or 616 MMcf between periods. Workover projects that were performed on two wells in the Permian basin had the effect of lowering the daily production rates from these wells and resulted in production declines totaling 257 MMcf from 2006 to 2007. In addition, two non-operated wells in the Gulf Coast region experienced higher than average declines in 2007. Production on the first well decreased 100 MMcf, or 34%, from 2006 to 2007, as the well produced from a strong water-drive

reservoir resulting in increased water production and reduced gas production. This well is expected to continue at a similar decline rate of about 34% per year. A production decline of 65 MMcf from 2006 to 2007 on the second Gulf Coast well was due to production curtailments initiated by the operator at the field's gas processing plant and related trunk pipeline. The remaining decrease in gas production volumes of 194 MMcf related to normal field production decline. The production decline rates for the Permian basin wells and latter Gulf Coast gas well are expected to range from 22% to 30% going forward.
Lease Operating Expenses. Lease operating expenses increased $1.8 million from 2006 to 2007. The acquisition of Howard Energy in August of 2006 and new wells drilled added $1.4 million of incremental lease operating expense in 2007. Lease operating expense per BOE increased from $12.25 during 2006 to $13.99 during 2007. The increase of 14% on a BOE basis was caused by higher energy costs and inflation in the cost of oil field goods and services. Energy costs increased 22% between periods, and costs of oil field goods and services increased 13% due to higher demand in the industry.
Production Taxes. Production taxes are generally calculated as a percentage of oil and gas sales revenue. All credits and exemptions allowed in the various taxing jurisdictions are fully utilized. Production taxes for 2007 and 2006 were consistent between periods at 7.1% of oil and gas sales.
Excess of Revenues Over Direct Operating Expenses. Excess of revenues over direct operating expenses increased $0.9 million from 2006 to 2007. The reasons for this increase included an 11% increase in oil prices and a 2% increase in gas prices between periods. The increased pricing was partially offset by a 5% decrease in equivalent volumes sold and higher lease operating expense and production taxes.
Liquidity and Capital Resources
The Trust has no source of liquidity or capital resources other than cash flows from the NPI. Other than Trust administrative expenses, including any reserves established by the Trustee for future liabilities, the Trust's only use of cash is for distributions to Trust unitholders. Administrative expenses include payments to the Trustee and the Delaware Trustee as well as a quarterly administrative fee to Whiting pursuant to an administrative services agreement. Each quarter, the Trustee determines the amount of funds available for distribution. Available funds are the excess cash, if any, received by the Trust from the NPI, subject to the hedge contracts, and other sources (such as interest earned on any amounts reserved by the Trustee) that quarter, over the Trust's liabilities for that quarter. Available funds are reduced by any cash the Trustee decides to hold as a reserve against future liabilities. The Trustee may borrow funds required to pay liabilities if the Trustee determines that the cash on hand and the cash to be received are insufficient to cover the Trust's liability. If the Trustee borrows funds, the Trust unitholders will not receive distributions until the borrowed funds are repaid.
Income to the Trust from the NPI is based on the calculation and definitions of "gross proceeds" and "net proceeds" contained in the conveyance, the form of which is filed as an exhibit to this report, and reference is hereby made to the conveyance for the actual definitions of "gross proceeds" and "net proceeds".
Although capital expenditures for the testing, drilling, completion, equipping, plugging back or recompletion of any well that is a part of the underlying properties cannot be deducted from gross proceeds pursuant to the terms of the conveyance agreement, Whiting incurred capital expenditures of $5,380,760 on the underlying properties that were not deducted from gross proceeds during 2008, but which have the effect of ultimately increasing current and future period NPI net proceeds and thereby benefiting Trust unitholders.

The Trust does not have any transactions, arrangements or other relationships with unconsolidated entities or persons that could materially affect the Trust's liquidity or the availability of capital resources. Off-Balance Sheet Arrangements
The Trust has no off-balance sheet arrangements. The Trust has not guaranteed the debt of any other party, nor does the Trust have any other arrangements or relationships with other entities that could potentially result in unconsolidated debt, losses or contingent obligations other than the commodity hedge contracts disclosed in the section "Quantitative and Qualitative Disclosures About Market Risk".
Contractual Obligations
Pursuant to the Trust agreement, the Trust is obligated to pay the Trustee an administrative fee of $160,000 per year, and the Trust is obligated to pay the Delaware Trustee a fee of $3,500 per year. Additionally, pursuant to the terms of the administrative services agreement with Whiting, the Trust is obligated throughout the term of the Trust to pay Whiting quarterly an administrative services fee of $50,000 for accounting, bookkeeping and informational services performed by Whiting on behalf of the Trust. The administrative services agreement will terminate upon the termination of the NPI unless earlier terminated by mutual agreement of the Trustee and Whiting. New Accounting Pronouncements
In December 2008, the SEC released Final Rule, Modernization of Oil and Gas Reporting. The new disclosure requirements include provisions that permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserves volumes. The new requirements also will allow companies to disclose their probable and possible reserves to investors. In addition, the new disclosure requirements require companies to: (i) report the independence and qualifications of its reserves preparer or auditor; (ii) file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and (iii) report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The new disclosure requirements are effective for financial statements for fiscal years ending on or after December 31, 2009. The effect of adopting the SEC rule has not been determined, but it is not expected to have a significant effect on our reported financial position, distributable income or the disclosure in our notes to the financial statements.
Critical Accounting Policies and Estimates The financial statements of the Trust are significantly affected by its basis of accounting and estimates related to its oil and gas properties and proved reserves, as summarized below.
Basis of Accounting. The Trust's financial statements are prepared on a modified cash basis, which is a comprehensive basis of accounting other than GAAP. This method of accounting is consistent with reporting of taxable income to the Trust unitholders. The most significant differences between the Trust's financial statements and those prepared in accordance with GAAP are:
a) Income from net profits interest is recognized when received rather than accrued in the month of production;

b) Trust expenses are recognized when paid rather than when incurred; and

c) Cash reserves may be established by the Trustee for certain expenditures that would not be recorded as contingent liabilities under GAAP.

While these statements differ from financial statements prepared in accordance with GAAP, based on the judgment of the Trustee the modified cash basis of reporting revenues and distributions is considered to be the most meaningful because quarterly distributions to the Trust unitholders are based on net cash receipts. This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the U.S. Securities and Exchange Commission as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts. For further information regarding the Trust's basis of accounting, see Note 2 to the Financial Statements included in this Form 10-K.
All amounts included in the Trust's financial statements are based on cash amounts received or disbursed, or on the carrying value of the net profits interests, which was derived from the historical cost of the interests at the date of their transfer from Whiting, less accumulated amortization to date. Accordingly, there are no fair value estimates included in the financial statements based on either exchange or nonexchange trade values.
Oil and Gas Reserves. The proved oil and gas reserves for the underlying properties are estimated by independent petroleum engineers. Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof. Estimates by different engineers often vary, sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using prices at the date of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices. Accordingly, oil and gas quantities ultimately recovered and the timing of production may be substantially different from original estimates.
The standardized measure of discounted future net cash flows is prepared using assumptions required by the Financial Accounting Standards Board and the Securities and Exchange Commission. Such assumptions include using year-end oil and gas prices and year-end costs for estimated future development and production expenditures. Discounted future net cash flows are calculated using a 10% rate. Changes in any of these assumptions, including consideration of other factors, could have a significant impact on the standardized measure. The standardized measure does not necessarily result in an estimate of the current fair market value of proved reserves.
Amortization of Net Profits Interest. We amortize the investment in net profits interest using the units-of-production method. Our rate of recording amortization is dependent upon our estimates of total proved reserves, which incorporates various assumptions and future projections. If the estimates of total proved reserves decline significantly, the rate at which we record amortization expense may increase, reducing Trust corpus. Such a decline in reserves may result from lower commodity prices, which may make it uneconomic to . . .