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| MTR > SEC Filings for MTR > Form 10-K on 16-Sep-2009 | All Recent SEC Filings |
16-Sep-2009
Annual Report
The following review of the Trust's financial condition and results of operations should be read in conjunction with the financial statements and notes thereto. The discussion of net production attributable to the Hugoton and San Juan properties represents production volumes that are to a large extent hypothetical as the Trust does not own and is not entitled to any specific production volumes.
Critical Accounting Policies
The financial statements of the Trust are prepared on the following basis:
(a) Royalty income recorded for a month is the amount computed and paid by the working interest owners to the Trustee for such month rather than either the value of a portion of the oil and gas produced by the working interest owners for such month or the amount subsequently determined to be the Trust's proportionate share of the net proceeds for such month;
(b) Interest income, interest receivable and distributions payable to unitholders include interest to be earned on short-term investments from the financial statement date through the next date of distribution; and
(c) Trust general and administrative expenses, net of reimbursements, are recorded in the month they are included as part of the distribution.
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, these statements differ from financial statements prepared in accordance with accounting principles generally accepted in the United States of America because, under such principles, royalty income for a month would be based on net proceeds from production 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.
Liquidity and Capital Resources
As discussed under "Business-Description of the Trust" in Item 1 of this Form 10-K, the Trust's source of cash is the Royalty income received from its share of the net proceeds from the Royalty Properties. Reference is made to the Notes to Financial Statements under Item 8 of this Form 10-K for estimates of future Royalty income attributable to the Royalty.
In accordance with the provisions of the Conveyance, generally all revenues received by the Trust, net of Trust administrative expenses and the amount of established reserves, are distributed currently to the unitholders.
During 2008, the Trustee engaged an independent consulting firm to audit revenues, expenses and established reserves of certain working interest owners. This review and audit remains ongoing. While this audit has highlighted issues that remain open, the Trustee has not determined at this time whether any audit exceptions will result in any material gains or expenses net to the Trust.
Financial Review
Years 2008 and 2007
Years Ended December 31,
2008 2007
Royalty income $ 13,845,456 $ 12,216,271
Interest income 50,869 97,278
General and administrative expenses (127,823 ) (91,504 )
Distributable income $ 13,768,502 $ 12,222,045
Distributable income per unit $ 7.3882 $ 6.5583
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The Trust's Royalty income was $13,845,456 in 2008, an increase of approximately 13% as compared to $12,216,271 in 2007, primarily as a result of increased prices for natural gas and natural gas liquids.
Hugoton Field
Royalty income attributable to the Hugoton Royalty Properties was $5,988,724 in 2008, an increase of approximately 5%, as compared to $5,705,773 million in 2007, primarily as a result of higher prices for natural gas and natural gas liquids, offset in part by lower production volumes and by payments and interest received during 2007 of approximately $1,100,000 to partially settle claims made in the John Steven Alford and Robert Larrabee v. Pioneer lawsuit discussed in Note 6 to the Notes to Financial Statements under Item 8 of this Form 10-K.
The average price received for natural gas and natural gas liquids from the Hugoton Royalty Properties was $8.07 per Mcf and $64.94 per barrel, respectively, in 2008 as compared to $6.07 per Mcf and $42.85 per barrel, respectively, in 2007. Net production attributable to the Hugoton Royalty was 516,468 Mcf of natural gas and 28,039 barrels of natural gas liquids in 2008 as compared with 543,241 Mcf of natural gas and 30,625 barrels of natural gas liquids in 2007. Actual production volumes attributable to the Hugoton properties were 656,737 Mcf of natural gas and 35,501 barrels of natural gas liquids in 2008 as compared with 759,786 Mcf of natural gas and 36,660 barrels of natural gas liquids in 2007. The decrease in gas and natural gas liquids production for the year ended December 31, 2008 compared to the same period in 2007 was primarily due to natural decline and the
nitrogen rejection unit being down for a portion of January and February in 2007. The shutdown of the nitrogen rejection unit increases the gas production while it decreases the natural gas liquids production.
The Hugoton capital expenditures were $15,032 for 2008, a decrease of approximately 90% as compared to $144,555 for 2007. The decrease in the capital expenditures was primarily due to fewer capital workovers in 2008. Operating costs were $1,557,932 during 2008, an increase of approximately 10% as compared to $1,422,450 during 2007 due to increases in production taxes, well workers, and higher rates charged by service providers.
San Juan Basin
Royalty income from the San Juan Basin Royalty properties is calculated and paid to the Trust on a state-by-state basis. Royalty income from the San Juan Basin Royalty Properties located in the state of New Mexico was $7,064,784 in 2008 as compared to $5,316,376 in 2007, an increase of 33%. The increase in Royalty income was due primarily to higher prices for natural gas and natural gas liquids and decreased capital expenditures during 2008. Net production attributable to the San Juan Basin Royalty located in the state of New Mexico was 617,735 Mcf of natural gas and 50,308 barrels of natural gas liquids, oil and condensate in 2008 as compared to 578,316 Mcf of natural gas and 56,188 barrels of natural gas liquids, oil and condensate in 2007. Actual production attributable to the San Juan Basin properties located in the state of New Mexico was 849,707 Mcf of natural gas and 67,025 barrels of natural gas liquids, oil and condensate in 2008 as compared with 941,366 Mcf of natural gas and 73,888 barrels of natural gas liquids, oil and condensate in 2007. The decrease in gas and natural gas liquids production volumes for the year ended December 31, 2008 compared to the same period 2007 was due to production interruptions due to gas plant fires, inclement weather and repair and workover activity. The average price received for natural gas and natural gas liquids, oil and condensate from the San Juan Basin Royalty properties located in the state of New Mexico was $6.74 per Mcf and $57.67 per barrel, respectively, in 2008 compared with $5.36 per Mcf and $39.45 per barrel, respectively, in 2007.
San Juan-New Mexico capital expenditures were $827,206 during 2008, a decrease of approximately 18% as compared to $1,007,366 during 2007. The decrease in capital expenditures was due to a decrease in development drilling. Operating costs were $1,733,498 during 2008, an increase of approximately 6% as compared to $1,638,835 during 2007. The increase in operating costs during 2008 compared to 2007 was due to increased workover, repair and maintenance activity.
The costs related to the San Juan Basin, Colorado portion of the Fruitland Coal drilling program were recovered in December 2004. However, subsequent earnings were not remitted to the Trust until December 2006 and July 2007. The cumulative earnings, including interest on undistributed earnings, reported to the Trust by the working interest owner through November 2006, totaled $1,280,412. In December 2006, BP remitted $978,349 for payment of undistributed earnings from January 2005 through October 2006 and November 2006 earnings related to the properties it operates. In July 2007, Red Willow remitted $159,497 for payment of undistributed earnings from January 2005 through December 2006 for the San Juan Basin-Colorado Royalty properties it operates. BP communicated to the Trust these distributions represent all of the previously unpaid revenues. The Trustee is currently investigating the $142,566 difference in the original estimate of unpaid proceeds of $1,280,412 and the payment of $1,137,846. Since Royalty income for the Trust is recorded on a cash basis, the earnings for the year ended December 31, 2006 were not recognized as income until the quarter ended December 31, 2006 and September 30, 2007.
Royalty income from the San Juan Basin-Colorado Royalty Properties was $791,948 in 2008 as compared to $1,194,122 in 2007. Net production attributable to the San Juan Basin Royalty properties primarily located in Colorado was 133,101 Mcf of natural gas in 2008 as compared to 194,775 Mcf of
natural gas in 2007. The average price received for natural gas from these San Juan Basin properties was $5.95 per Mcf in 2008 as compared with $5.99 per Mcf in 2007. Actual natural gas production volumes attributable to the San Juan Basin Colorado Properties were 156,917 Mcf in 2008. There was no actual or net production of natural gas liquids or oil and condensate from the San Juan Basin, Colorado Properties during 2008. During 2007, net production of natural gas liquids, oil and condensate from the San Juan Basin, Colorado Properties was 734 barrels and actual production was 1,348 barrels. Operating costs for the San Juan Basin properties were $161,286 in 2008 as compared to $136,772 in 2007.
Years 2007 and 2006
Years Ended December 31,
2007 2006
Royalty income $ 12,216,271 $ 9,809,030
Interest income 97,278 30,275
General and administrative expenses (91,504 ) (68,271 )
Distributable income $ 12,222,045 $ 9,771,034
Distributable income per unit $ 6.5583 $ 5.2431
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The Trust's Royalty income was $12,216,271 in 2007, an increase of approximately 25% as compared to $9,809,030 in 2006, primarily as a result of decreased capital spending in 2007.
Hugoton Field
Royalty income attributable to the Hugoton Royalty Properties was $5,705,773 in 2007, an increase of approximately 19%, as compared to $4,810,684 million in 2006, primarily as a result of payments and interest received during 2007 of approximately $1,100,000 to partially settle claims made in the John Steven Alford and Robert Larrabee v. Pioneer lawsuit discussed in Note 6 to the Notes to Financial Statement under Item 8 of this Form 10-K.
The average price received for natural gas and natural gas liquids from the Hugoton Royalty Properties was $6.07 per Mcf and $42.85 per barrel, respectively, in 2007 as compared to $7.48 per Mcf and $42.83 per barrel, respectively, in 2006. Net production attributable to the Hugoton Royalty was 543,241 Mcf of natural gas and 30,625 barrels of natural gas liquids in 2007 as compared with 406,409 Mcf of natural gas and 41,344 barrels of natural gas liquids in 2006. Actual production volumes attributable to the Hugoton properties were 759,786 Mcf of natural gas and 36,660 barrels of natural gas liquids in 2007 as compared with 739,168 Mcf of natural gas and 41,363 barrels of natural gas liquids in 2006. The increase in gas production and the decrease in the natural gas liquids production for the year ended December 31, 2007 compared to the same period in 2006 was primarily due to the nitrogen injection unit being shut-down for a portion of January and February in 2007. The shut-down of the nitrogen injection unit increased gas production while it decreased natural gas liquids production.
The Hugoton capital expenditures were $144,555 for 2007, a decrease of approximately 33% as compared to $217,304 for 2006. The decrease in the capital expenditures was primarily due to less wells drilled in 2007 as compared to 2006. Operating costs were $1,422,450 during 2007, an increase of approximately 11% as compared to $1,285,962 during 2006 due to increases in production taxes, well workers, and higher rates charged by service providers.
San Juan Basin
Royalty income from the San Juan Basin Royalty properties is calculated and paid to the Trust on a state-by-state basis. Royalty income from the San Juan Basin Royalty Properties located in the state of New Mexico was $5,316,376 in 2007 as compared to $4,019,997 in 2006, an increase of 33%. The increase in Royalty income was due primarily to increased natural gas liquid production and decreased operating expenditures in the first nine months of 2006 from the San Juan Basin-New Mexico properties. Net production attributable to the San Juan Basin Royalty located in the state of New Mexico was 578,316 Mcf of natural gas and 56,188 barrels of natural gas liquids, oil and condensate in 2007 as compared to 374,180 Mcf of natural gas and 40,567 barrels of natural gas liquids, oil and condensate in 2006. Actual production volumes attributable to the San Juan Basin properties located in the state of New Mexico was 941,366 Mcf of natural gas and 73,888 barrels of natural gas liquids, oil and condensate in 2007 as compared with 928,364 Mcf of natural gas and 48,046 barrels of natural gas liquids, oil and condensate in 2006. The increase in production volume for the year ended December 31, 2007 compared to the same period 2006 was due to the better run times on conventional gathering. The average price received for natural gas and natural gas liquids, oil and condensate from the San Juan Basin Royalty properties located in the state of New Mexico was $5.36 per Mcf and $39.45 per barrel, respectively, in 2007 compared with $6.37 per Mcf and $40.34 per barrel, respectively, in 2006.
San Juan-New Mexico capital expenditures were $1,007,366 during 2007, a decrease of approximately 16% as compared to $1,205,870 during 2006. Operating costs were $1,638,835 during 2007, a decrease of approximately 38% as compared to $2,627,868 during 2006. The decrease in operating costs during 2007 compared to 2006 was due to inclement weather that impacted the operations coupled with a reduction in lease inspections, facilities expenses and well workover expenses.
The costs related to the San Juan Basin, Colorado portion of the Fruitland Coal drilling program were recovered in December 2004. However, subsequent earnings were not remitted to the Trust until December 2006 and July 2007. The cumulative earnings, including interest on undistributed earnings, reported to the Trust by the working interest owner through November 2006, totaled $1,280,412. In December 2006, BP remitted $978,349 for payment of undistributed earnings from January 2005 through October 2006 and November 2006 earnings related to the properties it operates. In July 2007, Red Willow remitted $159,497 for payment of undistributed earnings from January 2005 through December 2006 for the San Juan Basin-Colorado Royalty properties it operates. BP communicated to the Trust these distributions represent all of the previously unpaid revenues. The Trustee is currently investigating the $142,566 difference in the original estimate of unpaid proceeds of $1,280,412 and the payment of $1,137,846. Since Royalty income for the Trust is recorded on a cash basis, the earnings for the year ended December 31, 2006 were not recognized as income until the quarter ended December 31, 2006 and September 30, 2007.
Royalty income from the San Juan Basin-Colorado Royalty Properties was $1,194,122 in 2007 as compared to $978,349 in 2006. Net production attributable to the San Juan Basin Royalty properties primarily located in Colorado were 194,775 Mcf of natural gas in 2007 as compared to 223,367 Mcf of natural gas in 2006. The average price received for natural gas from these San Juan Basin properties was $5.99 per Mcf in 2007 as compared with $4.38 per Mcf in 2006. Actual natural gas production volumes attributable to the San Juan Basin Colorado Properties were 177,619 Mcf in 2007. Net production of natural gas liquids, oil and condensate from the San Juan Basin-Colorado Properties in 2007 was 734 barrels and actual production was 1,348 barrels in 2007. The average price received for natural gas liquids, oil and condensate from the San Juan Basin-Colorado properties was $37.36 per barrel in 2007. Operating costs for the San Juan Basin properties was $136,772 in 2007 as compared to $270,017 in 2006.
SUMMARY OF ROYALTY INCOME, PRODUCTION AND AVERAGE PRICES (Unaudited)
San Juan
Hugoton New Mexico Colorado Total
Oil, Oil, Oil,
Condensate Condensate Condensate
and and and
Natural Natural Natural Natural
Natural Gas Natural Gas Natural Gas Natural Gas
Gas Liquids Gas Liquids Gas Liquids Gas Liquids
Year ended December 31,
2008:
The Trust's
proportionate share of-
Gross Proceeds(1) $ 5,257,637 $ 2,304,051 $ 5,740,154 $ 3,885,334 $ 953,234 $ - $ 11,951,025 $ 6,189,385
Less the Trust's
proportionate share of-
Capital costs (9,181 ) (5,851 ) (515,425 ) (311,781 ) - - (524,606 ) (317,632 )
Operating costs (1,080,559 ) (477,373 ) $ (1,061,194 ) (672,304 ) (161,286 ) - $ (2,303,039 ) (1,149,677 )
Royalty Income $ 4,167,897 $ 1,820,827 $ 4,163,535 $ 2,901,249 $ 791,948 $ - $ 9,123,380 $ 4,722,076
Average Sales Price $ 8.07 $ 64.94 $ 6.74 $ 57.67 $ 5.95 $ - $ 7.20 $ 60.27
Net production volumes
attributable to the (Mcf ) (Bbls ) (Mcf ) (Bbls ) (Mcf ) (Bbls ) (Mcf ) (Bbls )
Royalty paid(3) 516,468 28,039 617,735 50,308 133,101 - 1,267,304 78,347
Year ended December 31,
2007:
The Trust's
proportionate share of-
Gross Proceeds(1) $ 5,702,879 $ 1,569,899 $ 5,047,932 $ 2,914,645 $ 1,309,166 $ 28,771 $ 12,059,977 $ 4,513,315
Less the Trust's
proportionate share of-
Capital costs (107,490 ) (37,065 ) (714,876 ) (292,490 ) (6,939 ) (104 ) (829,305 ) (329,659 )
Operating costs (1,201,906 ) (220,544 ) (1,233,284 ) (405,551 ) (135,524 ) (1,248 ) (2,570,714 ) (627,343 )
Royalty Income $ 4,393,483 $ 1,312,290 $ 3,099,772 $ 2,216,604 $ 1,166,703 $ 27,419 $ 8,659,958 $ 3,556,313
Average Sales Price $ 6.07 $ 42.85 $ 5.36 $ 39.45 $ 5.99 $ 37.36 $ 6.62 $ 40.62
Net production volumes
attributable to the (Mcf ) (Bbls ) (Mcf ) (Bbls ) (Mcf ) (Bbls ) (Mcf ) (Bbls )
Royalty paid(3) 543,241 30,625 578,316 56,188 194,775 734 1,316,332 87,547
Year ended December 31,
2006:
The Trust's
proportionate share of-
Gross Proceeds(1) $ 5,527,968 $ 1,770,745 $ 5,915,794 $ 1,937,941 $ 1,550,429 $ - $ 12,994,191 $ 3,708,686
Less the Trust's
proportionate share of-
Capital costs (217,180 ) - (1,205,870 ) - - (1,423,050 ) -
Operating costs (2,270,849 ) - (2,326,396 ) (301,472 ) (270,017 ) - (4,867,262 ) (301,472 )
Withheld revenues(2) - - - - (302,063 ) - (302,063 ) -
Royalty Income $ 3,039,939 $ 1,770,745 $ 2,383,528 $ 1,636,469 $ 978,349 $ - $ 6,401,816 $ 3,407,214
Average Sales Price $ 7.48 $ 42.83 $ 6.37 $ 40.34 $ 4.38 $ - $ 6.38 $ 41.58
Net production volumes
attributable to the (Mcf ) (Bbls ) (Mcf ) (Bbls ) (Mcf ) (Bbls ) (Mcf ) (Bbls )
Royalty paid(3) 406,409 41,344 374,180 40,567 223,367 - 1,003,956 81,911
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º (2)
º The Colorado portion of the San Juan Basin Royalty properties recouped all
costs related to the Fruitland Coal drilling program as of December 2004.
However, subsequent cumulative earnings were not remitted to the Trust
until December 2006 and July 2007. The cumulative earnings reported to the
Trust by the Working Interest Owner from January 2005 through October 2006
totaled approximately $1,280,000. In December 2006, BP as operator of a
portion of the San Juan Basin-Colorado Royalty properties remitted
approximately $978,000 for payment of undistributed earnings from January
2005 through October 2006 and November 2006 earnings. In 2007, Red Willow
remitted $226,000 to the Trust relating to San Juan Basin-Colorado Royalty
properties that it operates. Of the $226,000 remitted by Red Willow,
$66,000 related to production during 2007. The remaining $159,000 related
to undistributed earnings from January 2005 through December 2006. Since
Royalty income for the Trust is recorded on a cash basis, Royalty income
for year ended December 31, 2005 and 2004 of $543,989 and $38,860,
respectively, was not recognized until the year ended December 31, 2006.
Royalty income reported from BP is net of pre-main line production costs. These costs were charged to the Trust in error and as a result royalty income for previous periods were reduced. Because royalty income recorded for a month is the amount computed and paid by BP, the additional royalties, if any, will not be recorded until received.
º (3)
º Net production volumes attributable to the Royalty are determined by
dividing Royalty income by the average sales price received. Net production
volumes attributable for Hugoton Royalty for 2007 were not calculated for
the 2007 reimbursement from PNR related to the Alford settlement.
Off-Balance Sheet Arrangements
None.
Contractual Obligations
None.
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