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
In 2002, Mobil Erdgas and BEB Erdgas und
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 99.10% of the cumulative royalty income received in fiscal 2023. 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 were
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
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 very minor
treatment before it can be sold. Sour gas, in comparison, must be processed at
the
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 99.57% of the cumulative royalty income received under this agreement in fiscal 2023. 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 fiscal quarter of 2023, the Trust received no
royalties under this agreement because prices were below the adjusted base
price. In the first quarter of fiscal 2022, the Trust received
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
The Trust's consultant in
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
Results: First Quarter of Fiscal 2023 versus First Quarter of Fiscal 2022
Total royalty income received during the first quarter of fiscal 2023 was
derived from sales of gas, sulfur and oil from the Trust's overriding royalty
areas in
1st Fiscal Quarter 1st Fiscal Quarter Percentage Ended 1/31/2023 Ended 1/31/2022 Change Total Royalty Income$9,765,883 $2,546,539 +283.50% Net Income$9,536,014 $2,351,819 +305.47% Distribution per Unit$1.00 $0.25 +300.00%
Despite the lingering economic effects caused by COVID-19 and the ongoing
political and economic consequences of
Total royalty income often includes positive and negative adjustments that the
operators made during the quarter based upon their corrected royalty
calculations for the prior periods, as well as Mobil sulfur royalties. In the
first quarter of fiscal 2023, total royalty income was not affected because
there were no prior period adjustments and there were no Mobil sulfur royalties.
In the first quarter of fiscal 2022, total royalty income also was not affected
because there were no prior period adjustments but was increased by Mobil sulfur
royalties of
The Trust's monthly royalty payments are paid prospectively based on the amount
of royalties payable to the Trust in the prior quarter. End of quarter royalty
adjustments result from the need to align prospective royalty payments from the
operating companies with actual royalties that should have been paid. When
actual prices and volumes are reported, there will be a positive reconciliation
in the current quarter or a negative reconciliation in the subsequent quarter.
Primarily as a result of the recent decline in gas prices, it is now anticipated
that royalty payments to the Trust will be subject to a negative adjustment in
the third fiscal quarter (May-
The table below is intended to illustrate trends based on actual gas sales in
each quarter. Gas royalties shown in the table below are determined based on the
actual physical gas sales that occurred during the fourth calendar quarters of
2022 and 2021 and the average German Border Import gas Price for the periods of
August through
4th Calendar 4th Calendar Quarter Ended Quarter Ended Percentage Mobil Agreement 12/31/2022 12/31/2021 Change Gas Sales (Bcf)1 3.519 4.105 -14.28% Gas Prices2 (Ecents/Kwh)3 14.1664 3.0604 +362.89% Average Exchange Rate4 1.0706 1.1256 -4.89% Gas Royalties$6,097,114 $1,618,746 +276.66% Gas Prices ($/Mcf)5$43.32 $9.86 +339.35% OEG Agreement Gas Sales (Bcf) 12.881 13.970 -7.80% Gas Prices (Ecents/Kwh) 14.4469 3.1210 +362.89% Average Exchange Rate 1.0700 1.1255 -4.93% Gas Royalties$3,580,010 $778,969 +359.58% Gas Prices ($/Mcf)$43.12 $9.81 +339.55% Footnotes 1. Billion cubic feet 2. Gas prices derived from August-October 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 first quarter of fiscal 2023, gas sales from western Oldenburg
accounted for only 27.32% of all gas sales from the Oldenburg concession.
However, royalties on these gas sales provided approximately 73.11% or
Trust expenses for the first quarter of fiscal 2023 increased 29.67%, or
The current Statements of Assets, Liabilities and Trust Corpus of the Trust at
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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 and currency exchange rates; - 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 fromRussia's invasion ofUkraine .
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.
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