SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q/A
[X] AMENDMENT NO. 1 TO QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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 1-10243
BP PRUDHOE BAY ROYALTY TRUST
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(Exact Name of Registrant as Specified in Its Charter)
Delaware 13-6943724
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(State or Other Jurisdiction of Incorporation (I.R.S. Employer
or Organization) Identification No.)
The Bank of New York, 101 Barclay Street, New York, NY 10286
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (212) 815-6908
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 [ ] No [X]
As of April 3, 2003, 21,400,000 Units of Beneficial Interest were
outstanding.
This Amendment is being filed to correct information in the 'Results of
Operations' portion of Item 2 (Trustee's Discussion and Analysis of Financial
Condition and Results of Operations) of the original filing. The Company
currently projects that average daily production from the Prudhoe Bay Unit will
exceed 90,000 barrels until the year 2016.
BP PRUDHOE BAY ROYALTY TRUST
Statement of Assets, Liabilities and Trust Corpus
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
(in thousands)
March 31,
2003 December 31,
(Unaudited) 2002
----------- ----
ASSETS
Royalty Interest, net (notes 1, 2 and 3) $ 15,566 $ 16,068
Cash and equivalents (note 2) 686 1,025
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Total assets $ 16,252 $ 17,093
========= =========
LIABILITIES AND TRUST CORPUS
Accrued expenses $ 344 $ 595
Trust Corpus (40,000,000 units of beneficial
interest authorized, 21,400,000 units issued
and outstanding) 15,908 16,498
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Total liabilities and Trust Corpus $ 16,252 $ 17,093
========= =========
See accompanying notes to financial statements.
BP PRUDHOE BAY ROYALTY TRUST
Statements of Cash Earnings and Distribution
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
(In thousands, except unit data)
(Unaudited)
Three Months Ended
March 31,
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2003 2002
---- ----
Royalty revenues $ 12,538 $ 4,841
Interest income 4 7
Less: Trust administrative expense (469) (216)
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Cash earnings $ 12,073 $ 4,632
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Cash distributions $ 12,412 $ 4,621
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Cash distributions per unit $ 0.5800 $ 0.2159
=========== ===========
Units outstanding 21,400,000 21,400,000
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See accompanying notes to financial statements.
2
BP PRUDHOE BAY ROYALTY TRUST
Statements of Changes in Trust Corpus
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
(In thousands)
(Unaudited)
Three Months Ended
March 31,
---------------------
2003 2002
---- ----
Trust Corpus at beginning of period $ 16,498 $ 18,564
Cash earnings 12,073 4,632
Decrease (increase) in accrued expenses 251 (82)
Cash distributions (12,412) (4,621)
Amortization of Royalty Interest (502) (502)
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Trust Corpus at end of period $ 15 908 $ 17,991
========= =========
See accompanying notes to financial statements.
3
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
March 31, 2003 (Unaudited) and December 31, 2002
1. FORMATION OF THE TRUST AND ORGANIZATION
BP Prudhoe Bay Royalty Trust (the "Trust"), a grantor trust, was created as a
Delaware business trust pursuant to a Trust Agreement dated February 28, 1989
among the Standard Oil Company ("Standard Oil"), BP Exploration (Alaska) Inc.
(the "Company"), The Bank of New York (The "Trustee") and The Bank of New York
(Delaware), as co-trustee. Standard Oil and the Company are indirect
wholly-owned subsidiaries of BP p.l.c. ("BP").
Effective January 1, 2000, the Company and all other Prudhoe Bay working
interest owners cross-assigned interests in the Prudhoe Bay Field pursuant to
the Prudhoe Bay Unit Alignment Agreement. The Company retained all rights,
obligations, and liabilities associated with the Trust. This transaction is not
expected to have a material effect on the Trust's operation.
On February 28, 1989, Standard Oil conveyed an overriding royalty interest (the
"Royalty Interest") to the Trust. The Trust was formed for the sole purpose of
owning and administering the Royalty Interest. The Royalty Interest represents
the right to receive, effective February 28, 1989, a per barrel royalty (the
"Per Barrel Royalty") of 16.4246% on the lesser of (a) the first 90,000 barrels
of the average actual daily net production of oil and condensate per quarter or
(b) the average actual daily net production of oil and condensate per quarter
from the Company's working interest in the Prudhoe Bay Field (the "Field") as of
February 28, 1989, located on the North Slope of Alaska. Trust Unit holders will
remain subject at all times to the risk that production will be interrupted or
discontinued or fall, on average, below 90,000 barrels per day in any quarter.
BP has guaranteed the performance of the Company of its payment obligations with
respect to the Royalty Interest.
The trustees of the Trust are The Bank of New York, a New York banking
corporation, and The Bank of New York (Delaware), a Delaware banking
corporation. The Bank of New York (Delaware) serves as co-trustee in order to
satisfy certain requirements of the Delaware Trust Act. The Bank of New York
alone is able to exercise the rights and powers granted to the Trustee in the
Trust Agreement.
The Per Barrel Royalty in effect for any day is equal to the price of West Texas
Intermediate crude oil (the "WTI Price") for that day less scheduled Chargeable
Costs (adjusted for inflation) and Production Taxes (based on statutory rates
then in existence). For years subsequent to 2006, Chargeable Costs will be
reduced up to a maximum amount of $1.20 per barrel in each year if additions to
the Field's proved reserves do not meet certain specific levels.
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BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
March 31, 2003 (Unaudited) and December 31, 2002
1. FORMATION OF THE TRUST AND ORGANIZATION (CONT'D)
The Trust is passive, with the Trustee having only such powers as are necessary
for the collection and distribution of revenues, the payment of Trust
liabilities, and the protection of the Royalty Interest. The Trustee, subject to
certain conditions, is obligated to establish cash reserves and borrow funds to
pay liabilities of the Trust when they become due. The Trustee may sell Trust
properties only (a) as authorized by a vote of the Trust Unit Holders, (b) when
necessary to provide for the payment of specific liabilities of the Trust then
due (subject to certain conditions) or (c) upon termination of the Trust. Each
Trust Unit issued and outstanding represents an equal undivided share of
beneficial interest in the Trust. Royalty payments are received by the Trust and
distributed to Trust Unit holders, net of Trust expenses, in the month
succeeding the end of each calendar quarter. The Trust will terminate upon the
first to occur of the following events:
a. On or prior to December 31, 2010: upon a vote of Trust Unit holders of not
less than 70% of the outstanding Trust Units.
b. After December 31, 2010: (i) upon a vote of Trust Unit holders of not less
than 60% of the outstanding Trust Units, or (ii) at such time the net
revenues from the Royalty Interest for two successive years commencing
after 2010 are less than $1,000,000 per year (unless the net revenues
during such period are materially and adversely affected by certain
events).
In order to ensure the Trust has the ability to pay future expenses, the Trust
established a cash reserve account which the Trustee believes is sufficient to
pay approximately one year's current and expected liabilities and expenses of
the Trust.
2. BASIS OF ACCOUNTING
The financial statements of the Trust are prepared on a modified cash basis and
reflect the Trust's assets, liabilities, Corpus, earnings, and distributions, as
follows:
a. Revenues are recorded when received (generally within 15 days of the end of
the preceding quarter) and distributions to Trust Unit holders are recorded
when paid.
b. Trust expenses (which include accounting, engineering, legal, and other
professional fees, trustees' fees, and out-of-pocket expenses) are recorded
on an accrual basis.
c. Amortization of the Royalty Interest is calculated using the units of
production method. Such amortization is charged directly to the Trust
Corpus, and does not affect cash earnings. The daily rate for amortization
per net equivalent barrel of oil for the three months ended, March 31, 2003
and 2002 was $.37. The Trust evaluates impairment of the Royalty Interest
by comparing the undiscounted cash flows expected to be realized from the
Royalty Interest to the carrying value, pursuant to Statement of Financial
Accounting Standards No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS 144"). If the expected future undiscounted cash
flows are less than the carrying value, the Trust recognizes an impairment
loss for the difference between the carrying value and the estimated fair
value of the Royalty Interest.
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BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
March 31, 2003 (Unaudited) and December 31, 2002
2. BASIS OF ACCOUNTING (CONT'D)
While these statements differ from financial statements prepared in accordance
with generally accepted accounting principles, the cash basis of reporting
revenues and distributions is considered to be the most meaningful because
quarterly distributions to the Unit holders are based on net cash receipts. The
accompanying modified cash basis financial statements contain all adjustments
necessary to present fairly the assets, liabilities and Trust corpus of the
Trust as of March 31, 2003 and December 31, 2002, and the modified cash earnings
and distributions and changes in Trust corpus for the three month periods ended,
March 31, 2003 and 2002. The adjustments are of a normal recurring nature and
are, in the opinion of management, necessary to fairly present the results of
operations.
As of March 31, 2003 and December 31, 2002, cash equivalents which represent the
cash reserve consist of US treasury bills with an initial term of less than
three months.
Estimates and assumptions are required to be made regarding assets, liabilities
and changes in Trust Corpus resulting from operations when financial statements
are prepared. Changes in the economic environment, financial markets and any
other parameters used in determining these estimates could cause actual results
to differ.
The financial statements should be read in conjunction with the financial
statements and related notes in the Trust's 2002 Annual Report on Form 10-K. The
cash earnings and distributions for the interim period presented are not
necessarily indicative of the results to be expected for the full year.
3. ROYALTY INTEREST
The Royalty Interest is comprised of the following at March 31, 2003 and
December 31, 2002 (in thousands):
March 31, December 31,
2003 2002
---- ----
Royalty Interest $ 535,000 $ 535,000
Less: Accumulated amortization (345,916) (345,414)
Impairment write-down (173,518) (173,518)
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$ 15,566 $ 16,068
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BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
March 31, 2003 (Unaudited) and December 31, 2002
4. INCOME TAXES
The Trust files its federal tax return as a grantor trust subject to the
provisions of subpart E of Part I of Subchapter J of the Internal Revenue Code
of 1986, as amended, rather than as an association taxable as a corporation. The
Unit holders are treated as the owners of Trust income and Corpus, and the
entire taxable income of the Trust is reportable by the Unit holders on their
respective tax returns.
If the Trust were determined to be an association taxable as a corporation, it
would be treated as an entity taxable as a corporation on the taxable income
from the Royalty Interest, the Trust Unit holders would be treated as
shareholders, and distributions to Trust Unit holders would not be deductible in
computing the Trust's tax liability as an association.
7
ITEM 2. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Cautionary Statement
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The Trustee, its officers or its agents on behalf of the Trustee may, from time
to time, make forward-looking statements (other than statements of historical
fact). When used herein, the words "anticipates," "expects," "believes,"
"intends" or "projects" and similar expressions are intended to identify
forward-looking statements. To the extent that any forward-looking statements
are made, the Trustee is unable to predict future changes in oil prices, oil
production levels, economic activity, legislation and regulation, and certain
changes in expenses of the Trust. In addition, the Trust's future results of
operations and other forward looking statements contained in this item and
elsewhere in this report involve a number of risks and uncertainties. As a
result of variations in such factors, actual results may differ materially from
any forward looking statements. Some of these factors are described below. The
Trustee disclaims any obligation to update forward looking statements and all
such forward-looking statements in this document are expressly qualified in
their entirety by the cautionary statements in this paragraph.
Liquidity and Capital Resources
-------------------------------
The Trust is a passive entity, and the Trustee's activities are limited to
collecting and distributing the revenues from the Royalty Interest and paying
liabilities and expenses of the Trust. Generally, the Trust has no source of
liquidity and no capital resources other than the revenue attributable to the
Royalty Interest that it receives from time to time. See the discussion under
"THE ROYALTY INTEREST" for a description of the calculation of the Per Barrel
Royalty, and the discussion under "THE PRUDHOE BAY UNIT - Reserve Estimates" and
"INDEPENDENT OIL AND GAS CONSULTANTS' REPORT" in Part I, Item 1 of the Trust's
Annual Report on Form 10-K for the fiscal year ended December 31, 2003 (the
"Annual Report") for information concerning the estimated future net revenues of
the Trust. However, the Trustee does have a limited power to borrow, establish a
cash reserve, or dispose of all or part of the Trust Estate, under limited
circumstances pursuant to the terms of the Trust Agreement. See the discussion
under "THE TRUST" in Part I, Item 1 of the Annual Report.
The Trustee initially established a cash reserve of $1,000,000 to provide
liquidity to the Trust during any future periods in which the Trust does not
receive a distribution. This amount is equal to approximately one year's
expected liabilities and expenses of the Trust. Amounts set aside for the cash
reserve are invested in U.S. government or agency securities secured by the full
faith and credit of the United States. The Trustee will draw funds from the cash
reserve account during any quarter in which the quarterly distribution received
by the Trust does not exceed the liabilities and expenses of the Trust, and will
replenish the reserve from future quarterly distributions, if any. The Trustee
anticipates that it will keep the cash reserve in place until termination of the
Trust.
The amount of the cash reserve as of March 31, 2003 was $686,000, due to the
reimbursement to the Company by the Trust of amounts paid by the Company on
behalf of the Trust in connection with the New York Stock Exchange listing
expenses over a period of several years. The cash reserve will be replenished
from royalty amounts until it is once again 1,000,000,000. $100,000 was
replenished to the cash reserve from royalty amounts.
As discussed under CERTAIN TAX CONSIDERATIONS in the Annual Report, amounts
received by the Trust as quarterly distributions are income to the holders of
the Units, (as will be any earning on investment of the cash reserve) and must
be reported by the holders of the Units, even if such amounts are used to repay
borrowings or establish a cash reserve and are not received by the holders of
the Units.
Results of Operations
---------------------
Royalty revenues are generally received on fifteenth day of the month) following
the end of the calendar quarter in which the related Royalty Production occurred
(the "Quarterly Record Date"). The Trustee, to the extent possible, pays all
expenses of the Trust for each quarter on the Quarterly Record Date on which the
revenues for the quarter are received. For the statement of cash earnings and
distributions, revenues and Trust expenses are recorded on a cash basis and, as
a result, royalties paid to the Trust and distributions to Unit holders in the
8
quarters ended March 31, 2003 and 2002 are attributable to the Company's
operations during the quarters ended December 31, 2002 and 2001, respectively.
The following table shows the factors for the quarters ended December 31, 2002
and 2001 which were employed to compute the Per Barrel Royalty received by the
Trust during the quarters ended March 31, 2003 and 2002 (see Note 1 of Notes to
Financial Statements in Part I, Item 1). The information in the table has been
furnished by the Company.
Quarter ended December 31,
---------------------------------------------------
2002 2001
---------------------- ----------------------
Average WTI Price $ 28.25 $ 20.41
Chargeable Costs $ 11.25 $ 10.75
Cost Adjustment Factor 1.3960 1.3660
Adjusted Chargeable Costs $ 15.71 $ 14.68
Production Taxes $ 3.33 $ 2.17
-------
$ 19.04 $ 16.85
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Per Barrel Royalty $ 9.21 $ 3.56
======= =======
As long as the Company's average daily net production from the Prudhoe Bay Unit
exceeds 90,000 barrels, which the Company currently projects will continue until
the year 2016, the only factors affecting the Trust's revenues and distributions
to Unit holders are changes in WTI Prices, scheduled annual increases in
Chargeable Costs, changes in the Consumer Price Index, changes in Production
Taxes and changes in the expenses of the Trust.
Quarter Ended March 31, 2003 Compared to
Quarter Ended March 31, 2002
----------------------------
The Trust received royalty revenues of $12,538,000 in the quarter ended March
31, 2003, compared to $4,841,000 received in the quarter ended March 31, 2002,
due to a 38.4% increase in the Average WTI Price from $20.41 in the quarter
ended December 31, 2001 to $28.25 in the quarter ended December 31, 2002. Total
deductions from the Average WTI Price increased $2.19 (approximately 13%) in the
same period, due to increases of $1.03 in the Adjusted Chargeable Costs, and
increases of $1.16 cents in Production Taxes. See the discussion under "THE
ROYALTY INTEREST" for a description of the calculation of the Per Barrel Royalty
in the Annual Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See discussion above under Item 2. Trustee's Discussion and Analysis of
Financial Condition and Results of Operations.
ITEM 4. CONTROLS AND PROCEDURES.
Within 90 days prior to the date of this report (the "Evaluation Date") the
officer of the Trustee signing this report carried out an evaluation of the
effectiveness of the design and operation of the Trustee's disclosure controls
and procedures for the Trust pursuant to Exchange Act Rule 13a-14. Based on the
foregoing that officer concluded that the disclosure controls and procedures for
the Trust are effective in timely alerting the responsible officers of the
Trustee to material information relating to the Trust required to be included in
the Trust's Exchange Act reports. There have been no significant changes in the
Trustee's internal controls or in other factors which could significantly affect
internal controls subsequent to the date the Trustee carried out its evaluation.
9
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On April 18, 2003 the Trust received a cash distribution of $17,721,892 from the
Company with respect to the quarter ended March 31, 2003 and, after deducting
expenses of $332,863, and replenishing the cash reserve in the amount of
$100,000, on April 18, 2003 distributed $17,291,321 or approximately $0.8080 per
Unit, to Unit holders of record.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
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4.1 BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among The
Standard Oil Company, BP Exploration (Alaska) Inc., The Bank of New York,
Trustee, and F. James Hutchinson, Co-Trustee.
4.2 Overriding Royalty Conveyance dated February 27, 1989 between BP
Exploration (Alaska) Inc. and The Standard Oil Company.
4.3 Trust Conveyance dated February 28, 1989 between The Standard Oil Company
and BP Prudhoe Bay Royalty Trust.
4.4 Support Agreement dated as of February 28, 1989 among The British Petroleum
Company p.l.c., BP Exploration (Alaska) Inc., The Standard Oil Company and
BP Prudhoe Bay Royalty Trust.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended March 31, 2003.
10
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, thereunto duly authorized.
BP PRUDHOE BAY ROYALTY TRUST
By: THE BANK OF NEW YORK,
as Trustee
By: /s/ Marie E. Trimboli
-----------------------------
Marie E. Trimboli
Assistant Vice President
Date: June 12, 2003
The registrant is a trust and has no officers or persons performing similar
functions. No additional signatures are available and none have been provided.
11
CERTIFICATIONS
I, Marie E. Trimboli, certify that:
1. I have reviewed this quarterly report on Form 10-Q of BP Prudhoe Bay
Royalty Trust, for which The Bank of New York acts as Trustee;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in the light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;
3. Based on my knowledge, the financial statements and other financial
information included in this quarterly report fairly present in all
material respects the financial condition, cash earnings and distributions
and changes in trust corpus of the registrant as of and for the periods
presented in this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14), or for
causing such procedures to be established and maintained, for the
registrant and I have:
a) designed such disclosure controls and procedures, or caused such
controls and procedures to be designed, to ensure that material
information relating to the registrant is made known to me by others,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves persons who have a
significant role in the registrant's internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of my most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
In giving the certifications in paragraphs 4, 5 and 6 above, I have relied to
the extent I consider reasonable on information provided to me by BP Exploration
(Alaska) Inc.
Date: June 12, 2003 /s/ Marie E. Trimboli
------------------------------
Marie E. Trimboli
Assistant Vice President
The Bank of New York
12
INDEX TO EXHIBITS
Exhibit Exhibit
No. Description
*4.1 BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among The
Standard Oil Company, BP Exploration (Alaska) Inc., The Bank of New York,
Trustee, and F. James Hutchinson, Co-Trustee.
*4.2 Overriding Royalty Conveyance dated February 27, 1989 between BP
Exploration (Alaska) Inc. and The Standard Oil Company.
*4.3 Trust Conveyance dated February 28, 1989 between The Standard Oil Company
and BP Prudhoe Bay Royalty Trust.
*4.4 Support Agreement dated as of February 28, 1989 among The British Petroleum
Company p.l.c., BP Exploration (Alaska) Inc., The standard Oil Company and
BP Prudhoe Bay Royalty Trust.
-----------------------------
* Incorporated by reference to the correspondingly numbered exhibit to the
registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1996 (Commission File No. 1-10243).
13