UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2022 or
[ ]
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
.
Commission File
Number 1-8245
NORTH EUROPEAN OIL
ROYALTY TRUST
(Exact Name of Registrant
as Specified in its Charter)
Delaware
22-2084119
State
or Other Jurisdiction of
I.R.S. Employer Identification No.
of Incorporation
or Organization
5 N. Lincoln Street, Keene, N.H.
03431
Address of Principal Executive Offices
Zip Code
(732) 741-4008
(Registrant's Telephone
Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the
Act:
Title of each
class
Trading Symbol(s) Name of each exchange on which
registered
Units
of Beneficial Interest NRT
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No ___
Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File
required to be submitted pursuant to Rule 405 of Regulation S-T (Section
232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post
such files). Yes X No ___
Indicate by check mark whether
the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company or an emerging growth
company. See the definitions of "large accelerated filer," "accelerated
filer," "smaller reporting company," and "emerging growth company" in
Rule 12b-2 of the Exchange Act.
| Large accelerated filer
Accelerated filer |
| Non-accelerated filer
X
Smaller reporting company X
|
| Emerging growth company
|
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the
extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of
the Exchange Act
Indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes ___
No X
9,190,590 Units of Beneficial Interest Outstanding as
of July 31, 2022
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
STATEMENTS OF ASSETS, LIABILITIES
AND TRUST CORPUS (NOTE 1)
JULY 31, 2022 AND OCTOBER 31, 2021
(Unaudited)
|
2022 |
2021 |
|---|
| ASSETS |
|
|
| Current assets --
Cash and cash equivalents |
$4,537,078 |
$1,409,437 |
|
| Producing gas and oil royalty rights,
net of amortization (Notes 1 and 2) |
1 |
1 |
|
| Total Assets |
$4,537,079 |
$1,409,438 |
|
|
| LIABILITIES AND TRUST CORPUS
|
|
|
| Current liabilities -- Distributions
to be paid to unit owners,
paid August 2022 and paid November 2021
|
$4,227,671 |
$1,286,683 |
|
| Trust corpus (Notes 1 and 2)
|
1 |
1 |
|
| Undistributed earnings
|
309,407
|
122,754
|
|
| Total Liabilities and
Trust Corpus |
$4,537,079 |
$1,409,438 |
The accompanying notes are an integral part
of these financial statements.
STATEMENTS OF REVENUE COLLECTED
AND EXPENSES PAID (NOTE 1)
FOR THE THREE MONTHS ENDED JULY 31, 2022 AND 2021
(Unaudited)
|
2022 |
2021 |
| Gas, sulfur and oil royalties received |
$4,442,665 |
$1,480,863 |
| Interest income |
635 |
231 |
| Trust Income |
$4,443,300 |
$1,481,094 |
| |
| Operating expenses |
(149,376) |
(113,797) |
| Related party expenses (Note 3) |
(1,317) |
(3,707) |
| Trust Expenses |
(150,693) |
(117,504) |
| |
| Net Income |
$4,292,607
|
$1,363,590
|
| |
| Net income per unit |
$0.47 |
$0.15 |
| Distributions per unit paid or
to be paid to unit owners |
$0.46 |
$0.15 |
The accompanying notes are an integral part
of these financial statements.
STATEMENTS OF REVENUE COLLECTED
AND EXPENSES PAID (NOTE 1)
FOR THE NINE MONTHS ENDED JULY 31, 2022 AND 2021
(Unaudited)
|
2022 |
2021 |
| Gas, sulfur and oil royalties received |
$10,762,772 |
$3,164,461 |
| Interest income |
1,261 |
416 |
| Trust Income |
$10,764,033 |
$3,164,877 |
| |
| Operating expenses |
(540,792) |
(456,545) |
| Related party expenses (Note 3) |
(18,846) |
(34,453) |
| Trust Expenses |
(559,638) |
(490,998) |
| |
| Net Income |
$10,204,395
|
$2,673,879
|
| |
| Net income per unit |
$1.11 |
$0.29 |
| Distributions per unit paid or
to be paid to unit owners |
$1.09 |
$0.33 |
The accompanying notes are an integral part
of these financial statements.
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
FOR THE NINE MONTHS ENDED JULY 31, 2022 AND 2021
(Unaudited)
|
2022 |
2021 |
|---|
| Balance, beginning of period |
$122,754 |
$465,774 |
| Net income |
10,204,395 |
2,673,879 |
|
10,327,149 |
3,139,653 |
| Less: |
|
|
| Current year distributions
paid or to be paid to unit owners |
10,017,742 |
3,032,895 |
| Balance, end of period |
$309,407
|
$106,758
|
The accompanying notes are an integral part
of these financial statements.
STATEMENTS OF CHANGES IN CASH
AND CASH EQUIVALENTS (NOTE 1)
FOR THE NINE MONTHS ENDED
JULY 31, 2022 AND 2021
(Unaudited)
|
2022 |
2021 |
| Sources of Cash and Cash
Equivalents: |
|
|
| Gas, sulfur and oil royalties received |
$10,762,772 |
$3,164,461 |
| Interest income |
1,261 |
416 |
|
10,764,033 |
3,164,877 |
| Uses of Cash and Cash
Equivalents: |
|
|
| Payment of Trust expenses |
559,638 |
490,998 |
| Distributions paid |
7,076,754 |
1,838,118 |
|
7,636,392 |
2,329,116 |
| Net increase (decrease) in cash and
cash equivalents during the period |
3,127,641 |
835,761 |
| Cash and cash equivalents,
beginning of period |
1,409,437 |
649,585 |
| Cash and cash equivalents,
end of period |
$4,537,078
|
$1,485,346
|
The accompanying notes are an integral part
of these financial statements.
NORTH EUROPEAN OIL
ROYALTY TRUST
NOTES TO FINANCIAL
STATEMENTS
(Unaudited)
(1) Summary of significant accounting
policies:
Basis of accounting -
The accompanying financial
statements of North European Oil Royalty Trust (the "Trust") are prepared
in accordance with the rules and regulations of the
Securities and Exchange Commission. Financial statement balances and
financial results are
presented on a modified cash basis of accounting, which is a
comprehensive basis of accounting other than accounting principles
generally accepted in the United States ("GAAP basis"). In the opinion
of management, all adjustments that are considered necessary for a fair
presentation of these financial statements, including adjustments of a
normal, recurring nature, have been included.
On a modified cash basis,
revenue is earned when cash is received and expenses are incurred
when cash is paid. GAAP basis financial statements
disclose revenue as earned and expenses as incurred, without regard to
receipts or payments. The modified cash basis of accounting is utilized
to permit the accrual for distributions to be paid to unit owners (those
distributions approved by the Trustees for the Trust). The Trust's
distributable income represents royalty income received by the Trust
during the period plus interest income less any expenses incurred by the
Trust, all on a cash basis. In the opinion of the Trustees, the use of
the modified cash basis of accounting provides a more meaningful
presentation to unit owners of the results of operations of the
Trust.
The results of any interim
period are not necessarily indicative of the results to be expected for
the fiscal year. These financial statements should be read in
conjunction with the financial statements that were included in the
Trust's Annual Report on Form 10-K for the year ended October 31, 2021
(the "2021 Form 10-K"). The Statements of Assets, Liabilities and Trust
Corpus included herein contain information from the Trust's 2021 Form
10-K.
Producing gas and oil royalty
rights -
The rights to certain gas and
oil royalties in Germany were transferred to the Trust at their net book
value by North European Oil Company (the "Company") (see Note 2). The
net book value of the royalty rights has been reduced to one dollar ($1)
in view of the fact that the remaining net book value of royalty
rights is de minimis relative to annual royalties received and
distributed by the Trust and does not bear any meaningful relationship
to the fair value of such rights or the actual amount of proved
producing reserves.
Federal and state
income taxes -
The Trust, as a grantor trust,
is exempt from federal income taxes under a private letter ruling
issued by the Internal Revenue Service. The Trust has no state income
tax obligations.
Cash and cash equivalents -
Cash and cash equivalents are
defined as amounts deposited in bank accounts and amounts invested in
certificates of deposit and U. S. Treasury bills with original
maturities generally of three months or less from the date of
purchase. The investment options available to the Trust are limited in
accordance with specific provisions of the Trust Agreement. As of
July 31, 2022, the uninsured amount held in the Trust's U.S. bank
accounts was $4,276,854. In addition, the Trust held Euros 10,000, the
equivalent of $10,224, in its German bank account at July 31, 2022.
Net income per unit -
Net income per unit is based
upon the number of units outstanding at the end of the period. As of both
July 31, 2022 and 2021, there were 9,190,590 units of beneficial interest
outstanding.
New accounting
pronouncements -
The Trust is not aware of any
recently issued, but not yet effective, accounting standards that would
be expected to have a significant impact on the Trust's financial position
or results of operations.
(2) Formation of the Trust:
The Trust was formed on
September 10, 1975. As of September 30, 1975, the Company was
liquidated and the remaining assets and liabilities of the
Company, including its royalty rights, were transferred to the Trust. The
Trust, on behalf of the owners of beneficial interest in the Trust, holds
overriding royalty rights covering gas and oil production in certain
concessions or leases in the Federal Republic of Germany. These rights
are held under contracts with local German exploration and development
subsidiaries of ExxonMobil Corporation and the Royal Dutch/Shell Group of
Companies. Under these contracts, the Trust receives various percentage
royalties on the proceeds of the sales of certain products from the
areas involved. At the present time, royalties are received for sales
of gas well gas, oil well gas, crude oil, condensate and sulfur.
(3) Related party transactions:
John R. Van Kirk, the
Managing Director of the Trust, is reimbursed by the Trust for office
space and office expenses at cost. For such expenses, the Trust
reimbursed the Managing Director $1,317 and $1,642 in the third
quarter of fiscal 2022 and 2021 and $5,256 and $5,613 in the first
nine months of fiscal 2022 and 2021, respectively.
As of December 31, 2021,
Lawrence A. Kobrin, a Trustee of the Trust, fully retired from Cahill
Gordon & Reindel LLP, which serves as counsel to the Trust. Therefore,
he is no longer considered a related party and payments to Cahill Gordon
& Reindel LLP are no longer considered to be payments to a related party
but instead are included in operating expenses. For the third quarter of
fiscal 2022 and 2021, the Trust paid Cahill Gordon & Reindel LLP $0 and
$2,065 as a related party for legal services, respectively. For the first
nine months of fiscal 2022 and 2021, the Trust paid Cahill Gordon &
Reindel LLP $13,590 and $28,840 as a related party for legal services,
respectively.
(4) Employee benefit plan:
The Trust has established a
savings incentive match plan for employees (SIMPLE IRA) that is
available to both employees of the Trust, one of whom is the Managing
Director. The Trustees have authorized the Trust to make contributions
to the accounts of the employees, on a matching basis, of up to 3% of
cash compensation paid to each employee for the 2022 and 2021
calendar years.
Item 2. Management's Discussion and Analysis of
Financial Condition and
Results of Operations.
Executive Summary
The Trust is a passive fixed
investment trust which holds overriding royalty rights, receives income
under those rights from certain operating companies, pays its
expenses and distributes the remaining net funds to its unit owners.
As mandated by the Trust Agreement, distributions of income are made on
a quarterly basis. These distributions, as determined by the Trustees,
constitute substantially all of the funds available after provision is
made for anticipated Trust expenses.
The Trust does not engage
in any business or extractive operations of any kind in the areas over
which it holds royalty rights and is precluded from engaging in such
activities by the Trust Agreement. There are no requirements,
therefore, for capital resources with which to make capital
expenditures or investments in order to continue the receipt of royalty
revenues by the Trust.
The properties of the Trust,
which the Trust and Trustees hold pursuant to the Trust Agreement on
behalf of the unit owners, are overriding royalty rights on sales of
gas, sulfur and oil under a concession or leases in the Federal
Republic of Germany. The actual concession or leases are held either
by Mobil Erdgas-Erdol GmbH ("Mobil Erdgas"), a German operating
subsidiary of the ExxonMobil Corporation ("ExxonMobil"), or by
Oldenburgische Erdolgesellschaft ("OEG"). The Oldenburg concession is
the primary area from which the natural gas, sulfur and oil are
extracted and currently provides 100% of all the royalties received by
the Trust. The Oldenburg concession, approximately 1,386,000 acres,
covers virtually the entire former Grand Duchy of Oldenburg and is
located in the German federal state of Lower Saxony. None of the
leases are active.
In 2002, Mobil Erdgas and BEB
Erdgas und Erdol GmbH ("BEB"), a joint venture of ExxonMobil and the
Royal Dutch/Shell Group of Companies, formed a company, ExxonMobil
Production Deutschland GmbH ("EMPG"), to carry out all exploration,
drilling and production activities. All sales activities are still
handled by the operating companies, either Mobil Erdgas or BEB.
The operating companies pay
monthly royalties to the Trust based on their sales of natural gas,
sulfur and oil. Of these three products, natural gas provided
approximately 94% of the cumulative royalty income received in fiscal
2022. The amount of royalties paid to the Trust is primarily based
on four factors: the amount of gas sold, the price of that gas, the
area from which the gas is sold, and the exchange rate.
On or about the 25th of the
months of January, April, July and October of each year, the operating
companies determine the amount of royalties that are payable to the
Trust based on applicable sales during the relevant period. This
amount is paid out to the Trust in three monthly installments as
royalty payments (payable on or about the 15th of each month) during
its upcoming fiscal quarter. In addition, the operating companies
review the actual amount of royalties that were paid to the Trust for
that period and calculate the difference between the amounts paid and
the amounts payable. Any additional amounts payable by the operating
companies would be paid immediately and any overpayment would be
deducted from the payment for the first month of the
following fiscal quarter. In September of each year, the operating
companies make the final determination of any necessary underpayment or
overpayment of royalties for the prior calendar year. The Trust's
independent accountants based in Germany review the royalty calculations
on a biennial basis.
There are two types of natural
gas found within the Oldenburg concession, sweet gas and sour gas.
Sweet gas has little or no contaminants and needs no treatment before it
can be sold. Sour gas, in comparison, must be processed at the
Grossenkneten desulfurization plant which commenced operations in 1972.
The desulfurization process removes hydrogen sulfide and other
contaminants before the clean gas can be sold. The hydrogen sulfide in
gaseous form is converted to sulfur in a solid form and sold separately.
With full operation of the plant's two remaining parallel processing units
("trains"), raw gas input capacity stands at approximately 400 million
cubic feet ("MMcf") per day. As needed, EMPG conducts maintenance on the
plant generally during the summer months when demand is lower. However,
there are no planned interruptions in the plant's operations during 2022.
Under one set of rights
covering the western part of the Oldenburg concession (approximately
662,000 acres), the Trust receives a royalty payment of 4% on gross
receipts from sales by Mobil Erdgas of gas well gas, oil well gas,
crude oil and condensate (the "Mobil Agreement"). Under the Mobil
Agreement, there is no deduction of costs prior to the calculation of
royalties from gas well gas and oil well gas, which together accounted
for approximately 99% of the cumulative royalty income received under
this agreement in fiscal 2022. Historically, the Trust has received
significantly greater royalty payments under the Mobil Agreement, as
compared to the OEG Agreement described below, due to the higher
royalty rate specified by that agreement.
The Trust is also entitled
under the Mobil Sulfur Agreement to receive a 2% royalty on gross receipts
of sales of sulfur obtained as a by-product of sour gas produced from the
western part of Oldenburg. The payment of the sulfur royalty is conditioned
upon sales of sulfur by Mobil Erdgas at a selling price above an agreed upon
base price. This base price is adjusted annually by an inflation index. In
the first nine months of fiscal 2022, the Trust received $231,356 in sulfur
royalties under the Mobil Sulfur Agreement, including $101,221 in sulfur
royalties during the third quarter. In the first nine months of fiscal 2021,
the Trust received $151,861 in sulfur royalties under the Mobil Sulfur
Agreement, including $50,184 in sulfur royalties during the third quarter.
Under another set of rights
covering the entire Oldenburg concession and pursuant to the agreement with
OEG, the Trust receives royalties at the rate of 0.6667% on gross receipts
from sales by BEB of gas well gas, oil well gas, crude oil, condensate and
sulfur (removed during the processing of sour gas) less a certain allowed
deduction of costs (the "OEG Agreement"). Under the OEG Agreement, 50%
of the field handling and treatment costs, as reported for state royalty
purposes, are deducted from the gross sales receipts prior to the
calculation of the royalty to be paid to the Trust.
In 2016, the Mobil and OEG
Agreements were amended, establishing a new base for the determination of
gas prices upon which the Trust's royalties are calculated. This change
reflects a shift to the prices calculated for the German Border Import gas
Price ("GBIP"). The average GBIP used under the Mobil and OEG Royalty
Agreements has been and will continue to be increased by 1% and 3%,
respectively, for the royalty calculations. This change was intended to
reduce the scope and cost of the accounting examination, eliminate ongoing
disputes with OEG and Mobil regarding sales to related parties, and reduce
prior year adjustments to the normally scheduled year-end reconciliation.
The pricing basis has eliminated certain costs (transportation and plant
gas storage), that were previously deductible prior to the royalty
calculation under the OEG Agreement.
For unit owners, changes
in the currency exchange rate between the U.S. Dollar and the Euro
have an immediate impact. This impact occurs at the time the
royalties, which are paid to the Trust in Euros, are converted into
U.S. Dollars at the applicable exchange rate and promptly
transferred from Germany to the Trust's bank account in the United
States. In relation to the U.S. Dollar, a stronger Euro would
yield more U.S. Dollars and a weaker Euro would yield fewer U.S.
Dollars.
The Trust continues to engage
a consultant in Germany, who provides general information to the Trust on
the German and European economies and energy markets as well as monitoring
the continuing impact of the war in Ukraine and ongoing efforts by the
European governments to respond to the economic impacts of the war.
The Trust had previously
disclosed that to the best of its knowledge the Farm-In Agreement between
Vermilion Energy Inc. ("Vermilion") and Mobil Erdgas and BEB had expired
due to Vermilion's failure to meet its drilling commitments within the
Oldenburg Concession. Due to the efforts of the Trust's consultant in
Germany, the Trust was informed by EMPG that Vermilion's drilling
obligation in the Oldenburg area has been halted for the time being due
to difficulties obtaining the required permits, and that Vermilion may
or may not mature other prospects in the central and northern parts of
the Oldenburg Concession in the future.
Results: Third Quarter of Fiscal 2022 Versus
Third Quarter of Fiscal 2021
Total royalty income received
during the third quarter of fiscal 2022 was derived from
sales of gas, sulfur and oil from the Trust's overriding royalty areas
in Germany during the second calendar quarter of 2022. A distribution of
46 cents per unit was paid on August 31, 2022 to owners of record as
of August 19, 2022. Comparisons of total royalty income and net
income for the third quarter of fiscal 2022 and 2021 are shown below.
|
3rd Fiscal Quarter
Ended 7/31/2022 |
3rd Fiscal Quarter
Ended 7/31/2021 |
Percentage Change |
| Total Royalty Income |
$4,442,665 |
$1,480,863 |
+200.01% |
| Net Income |
$4,292,607 |
$1,363,590 |
+214.80% |
| Distributions per Unit |
$0.46 |
$0.15 |
+206.67% |
The increase in total
royalty income for the third quarter of fiscal 2022 in comparison to the
third quarter of fiscal 2021 resulted primarily from the increase in gas
prices. Total royalty income reflects the inclusion of positive and/or
negative adjustments that the operators make during the quarter based
upon their corrected royalty calculations for the prior periods, as well
as the inclusion of Mobil sulfur royalties. In the third quarter of
fiscal 2022, total royalty income was not affected because there were no
prior period adjustments, but total royalty income was increased by Mobil
sulfur royalties of $101,221. In the third quarter of fiscal 2021, total
royalty income was not affected because there were no prior period
adjustments, but total royalty income was increased by Mobil sulfur
royalties of $50,184.
The following table is intended
to illustrate trends based on actual gas sales in each fiscal quarter.
Gas royalties shown in the table below are determined based on the actual
physical gas sales that occurred during the second calendar quarter of
2022 and the average German Border Import gas Price for the period of
February 2022 through April 2022.
Quarterly Gas Data Providing Basis for Fiscal
Quarter Royalties
| Mobil Agreement
|
2nd Calendar
Quarter Ended
6/30/2022 |
2nd Calendar
Quarter Ended
6/30/2021 |
Percentage
Change |
|---|
Gas Sales (Bcf)
1 |
3.665 |
4.259 |
- 13.95% |
Gas Prices2
(Ecents/Kwh)3 |
6.1535 |
1.6032 |
+283.83% |
Average Exchange Rate4 |
1.0236 |
1.2004 |
- 14.73% |
| Gas Royalties |
$2,640,584 |
$937,634 |
+181.62% |
Gas Prices ($/Mcf)5
| $18.01 |
$5.50 |
+227.45% |
| |
| OEG Agreement |
|---|
| Gas Sales (Bcf) |
13.341 |
14.465 |
-7.77% |
| Gas Prices (Ecents/Kwh) |
6.2753 |
1.6349 |
+283.83% |
| Average Exchange Rate |
1.0236 |
1.1998 |
-14.69% |
| Gas Royalties |
$1,469,383 |
$402,862 |
+264.74% |
| Gas Prices ($/Mcf) |
$17.93 |
$5.48 |
+227.19% |
|
| Footnotes |
|---|
| 1. Billion cubic
feet |
| 2. Gas prices
derived from February-April period |
| 3. Euro cents per
kilowatt hour |
| 4. Based on average
Euro/dollar exchange rates of cumulative royalty transfers |
| 5. Dollars per
thousand cubic feet |
| |
Excluding the effects of
differences in prices and average exchange rates, the combination of
royalty rates on gas sold from western Oldenburg results in an effective
royalty rate approximately seven times higher than the royalty rate on
gas sold from eastern Oldenburg. This is of particular significance to
the Trust since gas sold from western Oldenburg provides the bulk of
royalties paid to the Trust. For the calendar quarter ended June 30,
2022, gas sales from western Oldenburg accounted for only 27.47% of all
gas sales from the Oldenburg concession. However, royalties on these
gas sales provided approximately 74.07%, or $3,044,661 out of $4,110,364,
of all royalties attributable to gas.
Trust expenses for the third
quarter of fiscal 2022 increased 28.24%, or $33,189, to $150,693 in
comparison to $117,504 for the third quarter of fiscal 2021. The
increase in expenses reflects higher Trustee fees as specified by the
provisions of the Trust Agreement. The Trust received interest income
in the amount of $635 and $231 during the third quarters of fiscal
2022 and 2021, respectively.
The current Statement of
Assets, Liabilities and Trust Corpus of the Trust at July 31, 2022,
compared to that at fiscal year-end (October 31, 2021), shows an
increase in assets due to higher royalty receipts during the third
quarter of fiscal 2022.
Results: First Nine Months of Fiscal 2022 Versus
First Nine Months of Fiscal 2021
Total royalty income received
during the first nine months of fiscal 2022 was primarily derived from
sales of gas, sulfur and oil from the Trust's overriding royalty areas
in Germany during the fourth calendar quarter of 2021 and the first and
second calendar quarters of 2022. Comparisons of total royalty income
and net income for the first nine months of fiscal 2022 and 2021 are
shown below.
|
Nine Months
Ended 7/31/2022 |
Nine Months
Ended 7/31/2021 |
Percentage
Change |
| Total Royalty Income |
$10,762,772 |
$3,164,461 |
+240.11% |
| Net Income |
$10,204,395 |
$2,673,879 |
+281.63% |
| Distributions per Unit |
$1.09 |
$0.33 |
+230.30% |
The increase in total royalty
income in the first nine months of fiscal 2022 from the first nine
months of fiscal 2021 resulted primarily from higher gas prices under
both the Mobil and OEG Agreements. Total royalty income also reflects
the inclusion of various positive and negative adjustments that the
operators made during the nine-month period, including adjustments from
prior periods, as well as the inclusion of Mobil sulfur royalties.
During the first nine months of fiscal 2022, there were no prior period
adjustments. However, during the first nine months of fiscal 2021, total
royalty income was reduced by prior period adjustments totaling $538,651.
The Trust received separate sulfur royalty payments under the Mobil
Agreement of $231,356 and $151,861 during the first nine months of fiscal
2022 and 2021, respectively.
The following table is intended
to illustrate trends based on actual gas sales in each of the fiscal
nine-month periods shown. Gas royalties for the nine-month periods shown
in the table below are determined based on the actual physical gas sales
that occurred during the period from October 1st through June 30th and the
average German Border Import gas Price for the period of August 1st
through April 30th.
Gas Data Providing Basis for Fiscal Nine-Month
Period Royalties
| Mobil Agreement
|
Nine Months
Ended 6/30/2022 |
Nine Months
Ended 6/30/2021 |
Percentage
Change |
|---|
Gas Sales (Bcf) |
11.375 |
11.835 |
-3.89% |
Gas Prices(Ecents/Kwh) |
4.7168 |
1.4683 |
+221.24% |
Average Exchange Rate |
1.0699 |
1.2035 |
-11.10% |
| Gas Royalties Payable |
$6,566,767 |
$2,391,658 |
+174.57% |
Gas Prices ($/Mcf)
| $14.43 |
$5.05 |
+185.74% |
| |
| OEG Agreement |
|---|
| Gas Sales (Bcf) |
40.434 |
40.581 |
-0.36% |
| Gas Prices (Ecents/Kwh) |
4.8508 |
1.4925 |
+225.01% |
| Average Exchange Rate |
1.0673 |
1.2032 |
-11.29% |
| Gas Royalties Payable |
$3,506,328 |
$979,970 |
+257.80% |
| Gas Prices ($/Mcf) |
$14.45 |
$5.01 |
+188.42% |
For the nine months ended
June 30, 2022, gas sales from western Oldenburg accounted for only
28.13% of all gas sales from the Oldenburg concession. However,
royalties on these gas sales provided approximately 74.90%, or
$7,546,130 out of $10,074,338, of all royalties attributable to gas
sales from the Oldenburg concession.
Trust expenses for the
first nine months of fiscal 2022 increased 13.98% or $68,640 to
$559,638 in comparison to $490,998 for the prior fiscal year's
equivalent period. The increase in expenses reflects higher Trustee
fees as specified by the provisions of the Trust Agreement and the
inclusion of costs relating to the biennial examination of the
royalty statements by the Trust's accountants in Germany. Trust
interest income received during the first nine months of fiscal
2022 increased to $1,261 in comparison to $416 received in the
first nine months of fiscal 2021 due to higher net income.
This report on Form 10-Q may
contain forward-looking statements intended to qualify for the safe
harbor from liability established by the Private Securities Litigation
Reform Act of 1995. Such statements address future expectations and
events or conditions concerning the Trust. Many of these statements
are based on information provided to the Trust by the operating
companies or by consultants using public information sources. These
statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those anticipated in
any forward-looking statements. These include:
- risks and uncertainties concerning
levels of gas production and gas sale prices, general economic
conditions, currency exchange rates, and the overall impact
of the novel coronavirus identified as
COVID-19;
- the ability or willingness of the
operating companies to perform under their contractual
obligations with the Trust;
- potential disputes with the operating
companies and the resolution thereof; and
- political and economic uncertainty
arising from Russia's invasion of Ukraine.
All such factors are difficult
to predict, contain uncertainties that may materially affect actual
results, and are generally beyond the control of the Trust. New factors
emerge from time to time and it is not possible for the Trust to predict
all such factors or to assess the impact of each such factor on the
Trust. Any forward-looking statement speaks only as of the date on
which such statement is made, and the Trust does not undertake any
obligation to update any forward-looking statement to reflect events
or circumstances after the date on which such statement is made.
Item 3. Quantitative and Qualitative Disclosures
About Market Risk.
The Trust is a smaller
reporting company as defined by Rule 12b-2 of the Securities Exchange
Act of 1934, as amended, and is not required to provide the information
required under this item.
Item 4. Controls and Procedures.
The Trust maintains disclosure
controls and procedures that are designed to ensure that information
required to be disclosed by the Trust is recorded, processed, summarized,
accumulated and communicated to its management, which consists of the
Managing Director, to allow timely decisions regarding required
disclosure, and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
The Managing Director has
performed an evaluation of the effectiveness of the design and operation
of the Trust's disclosure controls and procedures as of July 31, 2022
based on the criteria for effective internal control over financial
reporting described in the standards promulgated by the Public Company
Accounting Oversight Board and the Internal Control-Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on that evaluation, the Managing Director
concluded that the Trust's disclosure controls and procedures were
effective as of July 31, 2022.
There have been no changes in
the Trust's internal control over financial reporting identified in
connection with the evaluation described above that occurred during the
third quarter of fiscal 2022 that have materially affected or are
reasonably likely to materially affect the Trust's internal control
over financial reporting. We are continually monitoring and assessing
the COVID-19 situation to minimize the impact
on their design and operating effectiveness of the Trust's internal
controls.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
The Trust is not a party
to any pending legal proceedings.
Item 2. Unregistered Sales of Equity Securities
and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosure.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibit 31.
Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32.
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
SIGNATURE
Pursuant to the
requirements of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTH EUROPEAN OIL ROYALTY
TRUST
(Registrant)
/s/
John R. Van Kirk
John R. Van Kirk
Managing Director
August 31, 2022