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MVO > SEC Filings for MVO > Form 10-Q on 8-Nov-2012All Recent SEC Filings

Show all filings for MV OIL TRUST

Form 10-Q for MV OIL TRUST


8-Nov-2012

Quarterly Report


Item 2. Trustee's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of the Trust's financial condition and results of operations should be read in conjunction with the financial statements and notes thereto. The Trust's purpose is, in general, to hold the net profits interest, to distribute to the Trust unitholders cash that the Trust receives in respect of the net profits interest and to perform certain administrative functions in respect of the net profits interest and the Trust units. The Trust derives substantially all of its income and cash flows from the net profits interest.

Results of Operations for the Quarters Ended September 30, 2012 and 2011

The cash received by the Trust from MV Partners during the quarter ended September 30, 2012 substantially represents the production by MV Partners from March 2012 through May 2012. The cash received by the Trust during the quarter ended September 30, 2011 substantially represents the production by MV Partners from March 2011 through May 2011. The revenues from oil production are typically received by MV Partners one month after production. Excess of revenues over direct operating expenses and lease equipment and development costs from the underlying properties decreased $2,709,457 to $13,158,967 for the period from April 1, 2012 through June 30, 2012 from $15,868,424 for the period from April 1, 2011 through June 30, 2011. Such decrease was primarily attributable to decreases in realized prices for crude oil sold and an increase in lease maintenance and development due to the timing of projects. The Trust's net profits interest of these totals were $10,527,173 and $12,694,739, respectively, which was decreased by a Trust holdback for future expenses of $202,173 for the quarter ended September 30, 2012 and $349,739 for the quarter ended September 30, 2011. MV Partners also released and paid to the Trust $600,000 of the reserve for future capital expenditures during the quarter ended September 30, 2012, resulting in distributable income of $10,925,000 and $11,845,000 for the quarters ended September 30, 2012 and 2011, respectively.

The Trustee paid general and administrative expenses of $194,041 and $157,703 for the quarters ended September 30, 2012 and 2011, respectively. The distributable income for the quarter ended September 30, 2012 was $10,925,000, a decrease of $920,000 from a distributable income of $11,845,000 for the quarter ended September 30, 2011.

The average price received for crude oil sold was $94.76 per Bbl and the average price received for natural gas sold was $2.18 per Mcf for the period from April 1, 2012 through June 30, 2012. The average price received for crude oil sold was $97.87 per Bbl while the average price received for natural gas sold was $3.89 per Mcf for the period from April 1, 2011 through June 30, 2011.

The overall production sales volumes attributable to the net profits interest that is for the oil and gas production collected during the period from April 1, 2012 through June 30, 2012 were 181,130 Bbls of oil, 13,093 Mcf of natural gas and 756 Bbls of natural gas liquids for a total of 183,803 barrels of oil equivalent.

The overall production sales volumes attributable to the net profits interest that is for the oil and gas production collected during the period from April 1, 2011 through June 30, 2011 were 187,518 Bbls of oil, 13,709 Mcf of natural gas and 896 Bbls of natural gas liquids for a total of 190,385 barrels of oil equivalent.

As noted above, the amounts included in the accompanying financial statements for the Trust's quarter ended September 30, 2012 reflect cash received by the Trust during the quarter. Such cash is


primarily derived from production by MV Partners from March 2012 through May 2012. MV Partners distributed cash to the Trust in October 2012 that will be reflected in the Trust's financial statements for the year ending December 31, 2012. The cash distributed to the Trust in October 2012 was primarily derived from production by MV Partners from June 2012 through August 2012. The discussion below relates to cash received by MV Partners during the quarters ended September 30, 2012 and 2011 and distributed to the Trust in October 2012 and 2011, respectively. Such distribution to the Trust in October 2012 will be reflected in the Trust's financial statements for the year ending December 31, 2012.

Excess of revenues over direct operating expenses and lease equipment and development costs from the underlying properties decreased $2,375,553 to $11,082,451 for the period from July 1, 2012 through September 30, 2012 from $13,458,004 for the period from July 1, 2011 through September 30, 2011. Such decrease was primarily attributable to decreases in realized prices for crude oil sold and an increase in lease maintenance and development costs. The Trust's net profits interest of these totals were $8,865,961 and $10,766,403, respectively, which was decreased by a Trust holdback for future expenses of $240,961 for the quarter ending December 31, 2012 and $128,903 for the quarter ended December 31, 2011. There were no amounts withheld by MV Partners or paid to the Trust in accordance with the reserve for future capital expenditures during the quarter ending December 31, 2012 or 2011, resulting in distributable income of $8,625,000 and $10,637,500 for the quarters ending December 31, 2012 and 2011, respectively.

The average price received for crude oil sold was $81.74 per Bbl and the average price received for natural gas sold was $2.12 per Mcf for the period from July 1, 2012 through September 30, 2012. The average price received for crude oil sold was $86.09 per Bbl while the average price received for natural gas sold was $2.71 per Mcf for the period from July 1, 2011 through September 30, 2011.

The overall production sales volumes collected attributable to the net profits interest that is for the oil and gas production collected during the period from July 1, 2012 through September 30, 2012 were 178,317 Bbls of oil, 15,073 Mcf of natural gas and 748 Bbls of natural gas liquids for a total of 181,315 barrels of oil equivalent.

The overall production sales volumes collected attributable to the net profits interest that is for the oil and gas production collected during the period from July 1, 2011 through September 30, 2011 were 181,774 Bbls of oil, 19,842 Mcf of natural gas and 793 Bbls of natural gas liquids for a total equivalent barrels of oil of 185,597.

For the quarters ended September 30, 2012 and 2011, MV Purchasing, LLC, which is majority owned by the indirect equity owners of MV Partners, purchased a majority of the production from the underlying properties. Sales to MV Purchasing, LLC are under short-term arrangements, ranging from one to six months, using market sensitive pricing.

Results of Operations for the Nine Months Ended September 30, 2012 and 2011

As noted above, the revenues from oil production are typically received by MV Partners one month after production; thus, the cash received by the Trust during the nine months ended September 30, 2012 substantially represents the production by MV Partners from September 2011 through May 2012 and the cash received by the Trust during the nine months ended September 30, 2011 substantially represents the production by MV Partners from September 2010 through May 2011. Excess of revenues over direct operating expenses and lease equipment and development costs from the


underlying properties increased $3,442,905 to $40,403,756 for the period from October 1, 2011 through June 30, 2012 from $36,960,851for the period from October 1, 2010 through June 30, 2011. Included in these amounts are payments to settle hedges totaling $0 and $3,771,286, respectively. The increase for the period ended June 30, 2012 compared to the period ended June 30, 2011 is primarily attributable to higher realized prices for unhedged volumes of oil for the 2012 period compared to the 2011 period. This was partially offset by an increase in lease maintenance and development costs. The portions of these totals attributable to the Trust's net profits interest were $32,323,004 and $29,568,680, respectively. MV Partners released a net $350,000 and $250,000 reserved for future capital expenditures during the nine months ended September 30, 2012 and 2011, respectively, which resulted in a total cash proceeds received by the Trust of $32,673,004 and $29,818,680 for the nine months ended September 30, 2012 and 2011, respectively. The cash proceeds received by the Trust for the nine months ended September 30, 2011 also included 80% of the $1,274,477 payment received by MV Partners in the fourth quarter of 2010 in connection with the SemGroup bankruptcy. See Note 7 of the Notes to Condensed Financial Statements.

The Trustee paid general and administrative expenses of $735,584 and $621,983 for the nine months ended September 30, 2012 and 2011, respectively. The distributable income for the nine months ended September 30, 2012 was $32,200,000, an increase of $3,162,500 from distributable income of $29,037,500 for the nine months ended September 30, 2011.

The average price received for crude oil sold was $90.45 per Bbl while the average price received for natural gas sold was $3.11 per Mcf for the period from October 1, 2011 through June 30, 2012. The average price received for crude oil sold was $84.74 per Bbl while the average price received for natural gas sold was $3.61 per Mcf for the period from October 1, 2010 through June 30, 2011.

The overall production sales volumes attributable to the net profits interest that is for the oil and gas production collected during the nine months ended September 30, 2012 were 543,552 Bbls of oil, 35,971 Mcf of natural gas and 2,228 Bbls of natural gas liquids for a total of 550,995 barrels of oil equivalent.

The overall production sales volumes attributable to the net profits interest that is for the oil and gas production collected during the nine months ended September 30, 2011 were 554,698 Bbls of oil, 42,768 Mcf of natural gas and 2,649 Bbls of natural gas liquids for a total of 563,548 barrels of oil equivalent.

As noted above, the amounts reflected in the accompanying financial statements for the Trust's nine month period ended September 30, 2012 reflect cash received by the Trust during such nine month period. Such cash is primarily derived from production by MV Partners from September 2011 through May 2012. MV Partners distributed cash to the Trust in October 2012 that will be reflected in the Trust's financial statements for the year ending December 31, 2012. The cash distributed to the Trust in October 2012 is primarily derived from production of the underlying properties from June 2012 through August 2012. The discussion below relates to cash received by MV Partners during the nine months ended September 30, 2012 and 2011 and distributed to the Trust in April, July and October 2012 and 2011, respectively.

Excess of revenues over direct operating expenses and lease equipment and development costs from the underlying properties decreased $2,011,906 to $39,418,046 for the nine months ended September 30, 2012 from $41,429,952 for the nine months ended September 30, 2011. Included in these amounts are payments to settle hedges totaling $0 and $1,286,436, respectively. There were no amounts


received to settle hedges for the nine months ended September 30, 2012 or the nine months ended September 30, 2011, which resulted in total cash receipts over cash disbursements of $39,418,046 and $41,429,952, respectively. The decrease was primarily attributable to an increase in lease maintenance and development costs. The portions of these totals attributable to the Trust's net profits interest were $31,534,437 and $33,143,961, respectively, which was decreased by a Trust holdback for future expenses of $604,437 and $731,461 for the nine months ending December 31, 2012 and 2011, respectively. MV Partners also released a net of $350,000 and withheld $500,000 of the reserve for future capital expenditures during the nine months ended December 31, 2012 and 2011, respectively, resulting in distributable income of $31,280,000 and $31,912,500 for the nine months ended December 31, 2012 and 2011, respectively.

The average price received for crude oil sold was $90.05 per Bbl while the average price received for natural gas sold was $2.51 per Mcf for the nine months ended September 30, 2012. The average price received for crude oil sold was $88.92 per Bbl while the average price received for natural gas sold was $3.30 per Mcf for the nine months ended September 30, 2011.

The overall production sales volumes collected attributable to the net profits interest that is for the oil and gas production collected during the nine months ended September 30, 2012 were 540,473 Bbls of oil, 35,632 Mcf of natural gas and 2,191 Bbls of natural gas liquids for a total of 547,836 barrels of oil equivalent.

The overall production sales volumes collected attributable to the net profits interest that is for the oil and gas production collected during the nine months ended September 30, 2011 were 550,950 Bbls of oil, 49,902 Mcf of natural gas and 2,520 Bbls of natural gas liquids for a total equivalent barrels of oil of 560,905.

Liquidity and Capital Resources

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 as well as an annual administrative fee to MV Partners 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 net profits interest and payments from other sources (such as interest earned on any amounts reserved by the Trustee) in that quarter, over the Trust's expenses for that quarter. Available funds are reduced by any cash the Trustee decides to hold as a reserve against future expenses. As of September 30, 2012, $12,600 was held by the trustee as such a reserve. The Trustee may cause the Trust to borrow funds required to pay expenses if the Trustee determines that the cash on hand and the cash to be received are insufficient to cover the Trust's expenses. If the Trust borrows funds, the Trust unitholders will not receive distributions until the borrowed funds are repaid. During the three and nine months ended September 30, 2012 and 2011, there were no such borrowings. MV Partners has provided a letter of credit in the amount of $1 million to the Trustee to protect the Trust against the risk that it does not have sufficient cash to pay future expenses.

Income to the Trust from the net profits interest is based on the calculation and definitions of "gross proceeds" and "net proceeds" contained in the conveyance.

As substantially all of the underlying properties are located in mature fields, MV Partners does not expect future costs for the underlying properties to change significantly compared to recent historical


costs other than changes due to fluctuations in the general cost of oilfield services. MV Partners may establish a capital reserve of up to $1.0 million in the aggregate at any given time to reduce the impact on distributions of uneven capital expenditure timing. MV Partners withheld $250,000 from the dollar amount otherwise distributable to the Trust during April 2012 and released $600,000 during July 2012 in accordance with the capital reserve.

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.

Note Regarding Forward-Looking Statements

This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this Form 10-Q, including without limitation the statements under "Management's Discussion and Analysis of Financial Condition and Results of Operations" are forward-looking statements. Although MV Partners advised the Trust that it believes that the expectations reflected in the forward-looking statements contained herein are reasonable, no assurance can be given that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from expectations ("Cautionary Statements") are disclosed in this Form 10-Q and in the Trust's Annual Report on Form 10-K for the year ended December 31, 2011, including under the section "Item 1A. Risk Factors". All subsequent written and oral forward-looking statements attributable to the Trust or persons acting on its behalf are expressly qualified in their entirety by the Cautionary Statements.

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