Critical Accounting Policies

The financial statements of the Trust are prepared on the following basis:

(a) Royalties are recorded on a cash basis and are generally received by the Trustee in the third month following the month of production of oil and gas attributable to the Trust's interest.

(b) Trust expenses, which include accounting, engineering, legal and other professional fees, Trustee's fees and out-of-pocket expenses, are recorded on a cash basis.

(c) Amortization of the net overriding royalty interests in productive oil and gas properties and the 3 percent royalty interest in Fee Lands, which is calculated on a unit-of-production basis, is charged directly to the Trust corpus since the amount does not affect cash earnings. Amortization calculated for interim periods is based on the annual reserve study prepared by independent petroleum engineers as of September 30 of the preceding year. Amortization calculated in the fourth quarter is based on the current year reserve study.

(d) The initial carrying value of the Trust's royalty interests in oil and gas properties represents the Company's cost on a successful efforts basis (net of accumulated depreciation, depletion and amortization) at June 28, 1983 applicable to the interests in the properties transferred to the Trust. The unamortized balance at December 31, 2008 is not indicative of the fair market value of the interests held by the Trust.

This basis for reporting distributable income is considered to be the most meaningful because distributions to the unitholders for a month are based on net cash receipts for such month. However, it will differ from the basis used for financial statements prepared in accordance with accounting principles generally accepted in the United States of America because, under such accounting principles, royalty income for a month would be based on net proceeds from sales for such month without regard to when calculated or received and interest income for a month would be calculated only through the end of such month, and accounting principles generally accepted in the United States would require a liquidation basis of accounting.

The preparation of the financial statements requires estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

The unaudited data included in Item 1 and the financial statements and notes thereto in Item 8 are an integral part of this discussion and analysis and should be read in conjunction herewith.

Liquidity and Capital Resources

As stipulated in the Trust Agreement, the Trust is intended to be passive, and the Trustee's activities are limited to the receipt of revenues attributable to the Royalties, which revenues are to be distributed currently (after payment of or provision for Trust expenses and liabilities) to the owners of the Units. The Trust has no source of liquidity or capital resources other than the revenue, if any, attributable to the Royalties.

Recent Developments

During 2008, the Trust did not receive any royalty revenue associated with the Jay Field or Offshore Louisiana properties. The Trust received royalty revenue of $37,239 for South Pass 89 in 2008. The Jay Field, South Pass 89 and Offshore Louisiana properties excess production costs as of December 31, 2008 were approximately $10,930,000, $56,000 and $11,158,000, respectively. The excess production costs must be recovered by the Working Interest Owners before any distribution of royalty revenues will be made to the Trust.

As previously announced, in early February 2009 the Trust received a letter from Quantum Resources Management LLC addressed to all Jay Field royalty interest owners stating that Quantum had temporarily suspended production from the Jay Field on December 22, 2008. The letter stated that Quantum's decision to suspend production resulted from the dramatic decline in oil prices coupled with high operating expenses. The letter from Quantum notes that as operator of the Jay Field, Quantum is facing three major issues: declining production, increased costs, and significantly lower oil prices. The letter also states that Quantum's long term goal for the Jay Field is to economically produce the maximum amount of reserves, and notes that when Quantum temporarily suspended production, it maintained the capability to reestablish production at a future date. Quantum noted that to produce and sell the oil, it needs a combination of higher product prices and lower costs, and further noted that it is analyzing alternative production scenarios that might result in improved economics. Quantum also informed royalty interest owners that Quantum is analyzing all options to reduce operational costs in the Jay Field, and that, if its efforts are successful, Quantum expects to be able to reestablish production from the field. While production from the field is temporarily suspended, Quantum stated that it will continue to conduct Unit Operations in the Jay Field in accordance with the Unit Agreement.

As a result of a review by an independent oil and gas accounting firm retained by the Trustee to review the Working Interest Owner's calculation of amounts relevant to the determination of the net proceeds properly payable to the Trust under the Conveyances, the Trustee and the Working Interest Owner concluded that the Working Interest Owner had inadvertently included sulfur extraction processing costs at the Jay and Little Escambia Creek Field Unit desulfurization plant in the calculation of Jay Field Gross Proceeds. Because neither the Trustee's oil and gas accounting firm nor the Working Interest Owner was able to quantify the amount of the sulfur extraction costs inadvertently included, the Trustee requested that the Working Interest Owner pay to the Trust royalties on the revenue generated by the sale of the sulfur in lieu of refunding the amount charged to the Trust's interest. The Trustee engaged an independent joint venture auditor to review payments to the Trust for a portion of the Trust properties as part of the termination of the Trust. The joint venture auditor reviewed the period from January 2004 through December 2007. As a result of the review, one of the Working Interest Owners made a payment of approximately $437,000 in March 2008 to the Trust to settle certain issues identified. In addition, the independent joint venture auditor has recently completed a review of the working interest owner's calculations relating to the Trust's interest in the Jay Field for the period July 1, 2007 through December 31, 2008. Although the matters reviewed have not yet been finalized with the working interest owner, the Trustee does not expect any significant net adjustment to the working interest owner's calculations relating to the Trust's interest in the Jay Field for the period July 1, 2007 through December 31, 2008.

During 2005, Hurricanes Katrina and Rita affected the operational status of properties included in the Offshore Louisiana and South Pass 89 groups of properties, and Hurricane Dennis and Tropical Storm Cindy affected the operational status of the gas plant at Jay Field. The gas plant at Jay Field returned to full operating status on April 13, 2006. However, distributions to the Trust will be reduced significantly for a period of time as a result of the damage from these storms to the production facilities for properties in which the Trust has an interest. As a result of the uncertainty of future proceeds from these properties, the Trustee as of December 31, 2008 has reserved $62 that

otherwise would have been distributed to the unitholders for the payment of the Trust's likely expenses in the foreseeable future. The Trustee intends to hold these funds for use in the payment of future Trust expenses until it becomes reasonably clear that they are no longer necessary.

Following is a description of the damage caused by Hurricanes Katrina and Rita to production facilities for properties in which the Trust has an interest. This information is based on assessments of damage the Working Interest Owner has received regarding damage from Hurricanes Katrina and Rita to the Offshore Louisiana and South Pass 89 properties. All of the information in this Report on Form 10-K relating to the operational status of the properties provided to the Working Interest Owner by the various operators of the properties in which the Trust has an interest, and was provided to the Trust by the Working Interest Owner. The Working Interest Owner is not the operator of any of these properties, and relies on the various operators for information regarding the operational status of the various properties. Consequently, all of the information provided herein is based on preliminary and sometimes informal information provided by the operators of the Properties. The information provided herein is based on the respective operators' preliminary assessments of the damage to the production facilities. The Trustee has been informed that the assessments are ongoing, and that the assessments of damages, the predictions of the likelihood of repairs and time necessary to complete such repairs, the decisions to repair or abandon facilities, and all other estimates are subject to change.

South Pass 89

Repairs due to Hurricane Katrina damage (August 2005) were completed in the fourth quarter of 2006 and the field was substantially restored to production in December 2006. The operator, Marathon Oil Company, had provided a cost estimate of $6,000,000 ($1,500,000 net to the Trust) to repair the South Pass 89 "B" platform, however the operator has indicated the actual cost to date is estimated at $6,500,000 ($1,600,000 net to the Trust).

Offshore Properties:

East Cameron 336

The Working Interest Owner had previously elected not to participate in proposed wellwork and remained responsible only for field abandonment costs. The lease expired in 2007 and the operator, Apache, informed the Working Interest Owner that it had abandoned the wells in the first half of 2008. The platform has not been abandoned yet and no cost estimates or actual costs have been received to date.

East Cameron 195

The East Cameron 195 platform was heavily damaged during Hurricane Rita; however, it was not a significant producer, had been shut in by the operator, Maritech, and had been approved for abandonment prior to Hurricane Rita. The operator's early estimate of the wells-only abandonment for East Cameron 195 was $27,000,000 ($9,100,000 net to the Trust), however costs to date are estimated at $31,000,000 ($10,300,000 net to the Trust). These costs are for well abandonment only and do not include platform abandonment and debris removal costs. Well abandonment work began in February 2006 and was substantially finished in December 2006 (7 wells were plugged and abandoned and 3 wells have remaining plugging work that will be completed as part of the platform and debris removal process). Platform abandonment and debris removal work has not commenced and the Working Interest Owner has not received an estimated cost for such work from the operator.

South Marsh Island 76

The South Marsh Island 76 platform was heavily damaged during Hurricane Rita in 2005. The operator, Mariner, abandoned the wells in 2008 for a cost of $4,485,953 ($403,736 net to the Trust). No cost estimates have been received for the final platform debris removal and site clearance.

Eugene Island 261

The Eugene Island 261 platform was damaged during Hurricane Rita but was repaired and returned to production in November 2005. The estimated repair cost was $220,000 (resulting in costs attributable to the Trust's interest of $44,000).

Vermillion 331

The Vermillion 331 platform was damaged during Hurricane Rita. The operator, Energy Resources Technology, repaired the platform and returned it to production in November 2006. The estimated repair cost was $1,200,000 (resulting in costs attributable to the Trust's interest of approximately $150,000).

Jay Field

In December 2006, the Working Interest Owner and ExxonMobil, as the operator of the Jay Field, sold their respective interests in the field to Quantum Resource Management LLC (Quantum). Quantum became the operator in April 2007. As described above under "Recent Developments", Quantum suspended production from the Jay Field on December 22, 2008.

Other

The Working Interest Owner has advised the Trustee that the Working Interest Owner has completed its analysis of the scope and applicability of the insurance policies carried by the Working Interest Owner to the damages that resulted from Hurricanes Katrina and Rita to properties in which the Trust has an interest. The Working Interest Owner has advised the Trustee that, except as noted below, the Working Interest Owner believes it has received all of the insurance reimbursements it will receive for damages to the South Pass 89 and Offshore Louisiana properties, and has reported the amounts (net to the working interest owner's interest) to the Trustee as follows:

Reimbursements received by the Working Interest Owner due to lost production (which will be reported as Other Revenue) as follows:

Offshore Louisiana Property
South Marsh Island 76 (Hurricane Rita)                                    $ 1,275,000
Reimbursements received by the Working Interest Owner for operating
costs (which will be reported as a reduction to lease operating
expense) as follows:
South Pass 89
SP 89B (Hurricane Katrina)                                                $   816,088
SP 86C (Hurricane Katrina)                                                $   111,725
Offshore Louisiana Property
East Cameron 195 (Hurricane Rita)                                         $ 6,525,937
South Marsh Island 76 (Hurricane Rita)                                    $ 2,328,915
Eugene Island 261 (Hurricane Rita)                                        $    52,160
Vermillion 331 (Hurricane Rita)                                           $   206,259

The figures given above relate to the Working Interest Owner's interest in the properties. The Trust's interest in these amounts is 50% with respect to South Pass 89 and 90% with respect to Offshore Louisiana. The exception noted above relates to several making well safe claims for certain properties which have been denied by the Working Interest Owner's insurers. The Working Interest Owner is evaluating the denials.

The Working Interest Owner further informed the Trustee that the insurance proceeds received will be applied, to the extent permitted by the Trust's governing documents, to offset existing Excess Production Costs and to fund the Special Cost Escrows for Offshore Louisiana and South Pass 89.

The Working Interest Owner has further informed the Trustee that although the work to secure and repair or replace damaged equipment and restore production at properties the operators have determined to repair has now

been completed, work nevertheless remains ongoing to secure, plug, abandon and dismantle other properties in which the Trust has an interest and that the operators have determined to abandon. In particular, the work and expenses to plug, abandon and dismantle the facilities at South Marsh Island 76 and East Cameron 195 are expected to extend into 2009 or longer. The Working Interest Owner has informed the Trustee that these ongoing expenses are not insured.

The abandonment and repair costs estimated by the Working Interest Owner have had and are expected to have a material adverse effect on royalties payable from the South Pass 89 and Offshore Louisiana properties to the Trust, and from the Trust to Unit holders. As previously disclosed, the Working Interest Owner began escrowing funds otherwise distributable to the Trust from the South Pass 89 property and Offshore Louisiana properties, beginning with the April 2006 monthly distribution. Consequently, distributions from the Trust to the Unit holders have been eliminated for a period of time. The Trustee does not expect to make any further distribution prior to a final liquidating distribution after the sale of the Trust's interests.

Results of Operations

                                                 Years Ended December 31,
                                          2008             2007             2006

      Royalty revenues                $    678,528     $  1,965,473     $  3,068,638
      Trust administrative expenses     (1,010,449 )     (1,331,095 )       (974,412 )

      Cash earnings                   $   (331,921 )   $    634,378     $  2,094,226
      Changes in undistributed cash        331,921          516,103         (263,146 )

      Cash distributions              $          -     $  1,150,481     $  1,831,080

      Cash distributions per unit     $     0.0000     $     0.0606     $     0.0964

      Units outstanding                 18,991,304       18,991,304       18,991,304

Royalty revenues are generally received in the third month following the month of production of oil and gas attributable to the Trust's interest. Both revenues and expenses are recorded on a cash basis. Accordingly, distributions to Unit holders for the years ended December 31, 2008, 2007 and 2006 are attributable to the Working Interest Owner's operations during the twelve-month periods ended September 30, 2008, 2007 and 2006, respectively.

Administrative expenses incurred by the Trust decreased $320,646 or 24% for the year ended December 31, 2008 as compared to the year ended December 31, 2007. The decrease in 2008 administrative expenses was primarily a result of decreases in accounting and legal fees incurred by the Trust. Administrative expenses incurred by the Trust increased $356,683 or 37% for the year ended December 31, 2007 as compared to the year ended December 31, 2006. The increase in 2007 administrative expenses was primarily a result of increases in accounting and legal fees incurred by the Trust.

Distributions to Unit holders for 2008, 2007 and 2006 amounted to $0 ($0.0000 per Unit), $1,150,481 ($0.0606 per Unit) and $1,831,080 ($0.0964 per Unit) respectively. During these years, the Trust received cash of $678,528,

$1,965,473 and $3,068,638, respectively, from the Working Interest Owner with respect to the Royalties from the Properties.

The following unaudited schedule provides a summary of the Working Interest Owner's calculation of the Net Proceeds from the Properties and the Royalties paid to the Trust for the respective years.

                                                               Years Ended December 31,
                                                      2008               2007               2006

Net Proceeds:
Revenues                                          $  52,452,108      $  29,574,488      $  30,199,489
Amounts withheld in escrow                          (11,527,054 )       (7,973,453 )       (2,096,559 )
Production costs and expenses                       (32,635,590 )      (27,468,852 )      (19,076,533 )
Capital expenditures                                (15,922,161 )       (2,417,881 )       (5,042,463 )

Net Proceeds                                      $  (7,632,697 )    $  (8,285,698 )    $   3,983,934

Royalties paid to the Trust:
Overriding Royalties                              $      37,239      $   1,566,221      $   2,726,914
Fee Lands Royalties                                     204,741            399,252            341,724

Other Proceeds paid to the Trust                        436,548                  -                  -

Royalties paid to the Trust (Royalty revenues)    $     678,528      $   1,965,473      $   3,068,638

Revenues of the Working Interest Owner with respect to the Productive Properties increased approximately $22,878,000 or 77 percent during the 2008 operating period compared to the same operating period in 2007. This was offset by higher production costs and capital expenditures. Revenues decreased approximately $625,000 or 2 percent during the 2007 operating period compared to the same operating period in 2006 as a result of the Jay Field trunk line being down from December 20, 2006 to April 2, 2007, partially offset by South 89 properties producing in 2007. The following unaudited schedule provides a summary of the Working Interest Owner's net production attributable to the Trust.

                                                                       Offshore
                                   Jay Field       South Pass 89      Louisiana      Total

   Year Ended December 31, 2007
   Oil & Condensate (MBbls)                23                   -              -         23
   Gas (Mcf)                                3                   -              -          3
   Year Ended December 31, 2008
   Oil & Condensate (MBbls)                 -                   -              -          -
   Gas (Mcf)                                -                   -              -          -

Average natural gas prices received in 2008 increased to $9.29 per thousand cubic feet ("mcf") from $7.12 per mcf in 2007. Average crude oil prices increased to $109.32 per barrel in 2008 from $65.01 per barrel in 2007 while natural gas liquids prices decreased to $51.15 per barrel in 2008 from $52.58 in 2007. Average natural gas prices received in 2007 decreased to $7.12 per thousand cubic feet ("mcf") from $8.68 per mcf in 2006. Average crude oil prices increased to $65.01 per barrel in 2007 from $63.87 per barrel in 2006 while natural gas liquids prices increased to $52.58 per barrel in 2007 from $48.41 in 2006.

In 2008, the Working Interest Owner reserved $11,527,054 in escrow as a result of uncertainties related to the oil and gas properties. In 2007, the Working Interest Owner reserved $7,973,453 in escrow as a result of uncertainties related to the oil and gas properties. In 2006, the Working Interest Owner reserved $2,096,559.

Production costs and expenses incurred by the Working Interest Owner on the Productive Properties increased approximately $5,200,000, or 19 percent, between the 2008 operating period and the 2007 operating period. Production costs and expenses incurred by the Working Interest Owner on the Productive Properties increased approximately $8,400,000, or 44 percent, between the 2007 operating period and the 2006 operating period. The

increase in 2007 was primarily attributed to increased lease operating expenses, non-operated overhead, and labor costs at Jay Field and Offshore Louisiana.

Capital expenditures increased approximately $13,500,000, or 559% percent, between 2008 and 2007. The increase in 2008 was primarily the result of plant turnaround and workovers at Jay Field. Capital expenditures decreased approximately $2,600,000, or 52 percent, between 2007 and 2006. The decrease in 2007 was primarily the result of a decrease in developmental drilling at Jay Field.

The Trust's Fee Lands Royalties decreased approximately $194,511 or 49 percent in the 2008 operating period compared to the same period in 2007. The Trust's Fee Lands Royalties increased approximately $58,000 or 17 percent in the 2007 operating period compared to the same period in 2006. The amount of Fee Lands leased as of December 31, 2008 and December 31, 2007 was approximately 1,062 and 1,015 acres, respectively.

The Trustee has been informed by the Working Interest Owner that the Working Interest Owner has been named as one of many defendants in certain lawsuits alleging the underpayment of royalties on the production of natural gas and natural gas liquids through the use of below-market prices, improper deductions, improper measurement techniques and transactions with affiliated companies. Plaintiffs in some of the lawsuits allege that the underpayment of royalties, among other things, resulted in false forms being filed by the Working Interest Owner with the Minerals Management Service, thereby violating the civil False Claims Act.

If the plaintiffs are successful in the matters described above, revenues to the Trust could decrease. A judgment or settlement could entitle the Working Interest Owner to reimbursements for past periods attributable to properties covered by the Trust's interest, which could decrease future royalty payments to the Trust. The Working Interest Owner has informed the Trustee that at this time, the Working Interest Owner is not able to reasonably estimate the amount of any potential loss or settlement allocable to the Trust's interest.