GULF COAST ULTRA DEEP ROYALTY TRUST - 10-K - s 7. and 7A. Trustee's Discussion and Analysis of Financial Condition and
Results of Operations and Quantitative and Qualitative Disclosures About Market
Risk
OVERVIEW
You should read the following discussion in conjunction with Part II, Item 8.
"Financial Statements and Supplementary Data" and Part I, Items 1. and 2.
"Business and Properties" of this Form 10-K. The results of operations reported
and summarized below are not necessarily indicative of future operating results.
Unless otherwise specified, all references to "Notes" refer to Notes to
Financial Statements located in Part II, Item 8. "Financial Statements and
Supplementary Data" of this Form 10-K. A glossary of definitions for some of the
oil and gas industry terms used in this Form 10-K is provided beginning on page
57. Additionally, please refer to the section above entitled "Forward-Looking
Statements" in this Form 10-K. The information below has been furnished to the
Trustee by Freeport-McMoRan Inc. (FCX) and FCX's indirect wholly owned
subsidiary, McMoRan Oil & Gas LLC (McMoRan).
On June 3, 2013, FCX and McMoRan Exploration Co. (MMR) completed the
transactions contemplated by the Agreement and Plan of Merger, dated as of
December 5, 2012 (the merger agreement), by and among MMR, FCX, and INAVN Corp.,
a
Delaware
corporation and indirect wholly owned subsidiary of FCX (Merger Sub).
Pursuant to the merger agreement, Merger Sub merged with and into MMR, with MMR
surviving the merger as an indirect wholly owned subsidiary of FCX (the merger).
FCX's portfolio of oil and gas assets is held through its wholly owned subsidiary, FCX Oil & Gas Inc. (FM O&G). As a result of the merger, MMR and McMoRan (MMR's wholly owned operating subsidiary) are both wholly owned subsidiaries of FM O&G.
The Royalty Trust was created as contemplated by the merger agreement, and is a
statutory trust created by FCX under the Delaware Statutory Trust Act pursuant
to a trust agreement entered into on December 18, 2012 (inception), by and among
FCX, as depositor, Wilmington Trust, National Association, as
Delaware
trustee,
and certain officers of FCX, as regular trustees. On May 29, 2013, Wilmington
Trust, National Association, was replaced by BNY Trust of Delaware, as
Delaware
trustee (the Delaware Trustee), through an action of the depositor. Effective
June 3, 2013, the regular trustees were replaced by The Bank of New York Mellon
Trust Company, N.A., a national banking association, as trustee (the Trustee).
The Royalty Trust was created to hold a 5% gross overriding royalty interest
(collectively, the overriding royalty interests) in future production from each
of McMoRan's Inboard Lower Tertiary/Cretaceous exploration prospects located in
the shallow waters of the Gulf of Mexico and onshore in
South Louisiana
that
existed as of December 5, 2012, the date of the merger agreement (collectively,
the subject interests). The subject interests were "carved out" of the mineral
interests acquired by FCX pursuant to the merger and were not considered part of
FCX's purchase consideration of MMR. McMoRan owns less than 100% of the working
interest associated with each of the subject interests.
In connection with the merger, on June 3, 2013, (1) FCX, as depositor, McMoRan,
as grantor, the Trustee and the Delaware Trustee entered into the amended and
restated royalty trust agreement to govern the Royalty Trust and the respective
rights and obligations of FCX, the Trustee, the Delaware Trustee, and the
Royalty Trust unitholders with respect to the Royalty Trust (the royalty trust
agreement); and (2) McMoRan, as grantor, and the Royalty Trust, as grantee,
entered into the master conveyance of overriding royalty interest (the master
conveyance) pursuant to which McMoRan conveyed to the Royalty Trust the
overriding royalty interests in future production from the subject interests.
Other than (a) its formation, (b) its receipt of contributions and loans from
FCX for administrative and other expenses as provided for in the royalty trust
agreement, (c) its payment of such administrative and other expenses, (d) its
receipt of the conveyance of the overriding royalty interests from McMoRan
pursuant to the master conveyance, and (e) its receipt of royalties from
McMoRan, the Royalty Trust has not conducted any activities. The Trustee has no
involvement with, control over, or responsibility for, any aspect of any
operations on or relating to the subject interests.
McMoRan previously informed the Trustee that since 2008, McMoRan's Inboard Lower
Tertiary/Cretaceous drilling activities (below the salt weld, i.e., the listric
fault) have confirmed McMoRan's belief relating to its geologic model and the
highly prospective nature of this geologic trend. McMoRan believes that data
from nine Inboard Lower Tertiary/Cretaceous wells drilled to date indicate the
presence of geologic formations that are analogous to
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productive formations in the Deepwater Gulf of
Mexico
and onshore in the Gulf
Coast region. Eight of these wells were included in the subject interests, along
with additional exploration prospects that will also be burdened by the
overriding royalty interests. However, McMoRan has informed the Trustee that it
has no plans to pursue, has relinquished, or has allowed to expire all subject
interests except for the onshore Highlander subject interest. Additionally,
McMoRan has informed the Trustee that it is unlikely to drill additional Inboard
Lower Tertiary/Cretaceous wells at the current time, considering existing
natural gas prices and the cost of drilling and completing these wells. McMoRan
has also informed the Trustee that as annual rentals on leases outside the
currently producing unit at the onshore Highlander subject interest become due,
it will decide whether to pay or not pay its proportional share of such rentals.
Under the operating agreement applicable to these leases, McMoRan is obligated
to offer its interest in any acreage it decides to release to its co-lessees
free and clear of the overriding royalty interest. During 2016, McMoRan has
elected to release its interest in certain leases at the onshore Highlander
subject interest outside the currently producing unit, representing
approximately 9,200 net acres.
In the event on or before December 5, 2017, McMoRan acquires a leasehold
interest covering the same area covered by by a terminated lease, or acquires
additional leasehold interests associated with any of the subject interests,
such newly acquired leasehold interests will become part of the subject
interests.
Currently, only the onshore Highlander subject interest has any reserves
classified as proved, probable or possible and has established commercial
production. The Royalty Trust has no ability to direct or influence the
exploration or development of the subject interests. In addition, neither FCX
nor McMoRan is under any obligation to fund or to commit any resources to the
exploration or development of the subject interests. To the extent that McMoRan
does not fund the exploration and development of the subject interests, or if
for any other reason sufficient production from the subject interests in
commercial quantities is not achieved or maintained, Royalty Trust unitholders
will not realize any value from their investment in the royalty trust units.
In October 2015, FCX announced that its Board is undertaking a strategic review
of alternatives for its oil and gas business. FCX stated that it and its
advisors are actively engaged with interested participants in a process to
evaluate opportunities that include a sale of assets and joint venture
arrangements that would generate cash proceeds for FCX debt repayment. See Part
I, Item 1A. "Risk Factors" of this Form 10-K for more information.
On April 8, 2015, the Royalty Trust received a letter from the Listing
Qualifications Staff (the Staff) of The NASDAQ Stock Market LLC (NASDAQ)
notifying the Royalty Trust that, because the closing bid price of the royalty
trust units had been below $1.00 per unit for 30 consecutive business days, the
Royalty Trust no longer complied with the bid price requirements for continued
listing on The NASDAQ Capital Market set forth in NASDAQ Listing Rule
5550(a)(2). On October 7, 2015, the Royalty Trust received a letter from the
Staff notifying the Royalty Trust that, as a result of the Royalty Trust's
failure to regain compliance with NASDAQ Listing Rule 5550(a)(2) within the
180-day period provided by the Staff, the royalty trust units were subject to
delisting from The NASDAQ Capital Market.
On October 16, 2015, as a result of the Royalty Trust's decision not to appeal
the Staff's delisting determination, NASDAQ suspended trading of the royalty
trust units on The NASDAQ Capital Market, and on October 23, 2015, NASDAQ filed
a Form 25-NSE with the SEC to remove the royalty trust units from listing and
registration. The delisting became effective on November 2, 2015.
Upon suspension of trading on The NASDAQ Capital Market on October 16, 2015, the
royalty trust units transitioned to the OTCQX
U.S.
, where they are quoted under
the symbol "GULTU". The transition of the royalty trust units to the OTCQX
U.S.
did not affect the Royalty Trust's obligation to file reports with the SEC under
applicable federal securities laws. For information regarding the OTCQX
U.S.
,
see Part I, Item IA. "Risk Factors" of this Form 10-K.
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North American Natural Gas and Crude Oil Market Prices
Market prices for natural gas and crude oil can fluctuate significantly. During
the period from January 2006 through March 8, 2016, the NYMEX natural gas price
fluctuated from a low of $1.61 per MMBtu in 2016 to a high of $13.69 per MMBtu
in 2008 and the WTI crude oil price ranged from a low of $26.05 per barrel in
2016 to a high of $147.27 per barrel in 2008. During the second half of 2014,
and throughout 2015, oil prices declined significantly. After averaging $100.84
per barrel in the first half of 2014, WTI crude oil prices averaged $85.22 per
barrel for the second half of 2014 and $48.76 in 2015. On December 31, 2015, the
NYMEX natural gas price was $2.34 per MMBtu and the WTI crude oil price was
$37.04 per barrel. During first-quarter 2016, oil and natural gas prices have
remained depressed and on March 8, 2016, the NYMEX natural gas price was $1.72
per MMBtu and the WTI crude oil price was $36.23 per barrel. Crude oil and
natural gas prices are affected by numerous factors beyond McMoRan's control as
described further in Part I, Item 1A. "Risk Factors" of this Form 10-K. The
following graph presents the NYMEX natural gas prices and the WTI crude oil
prices from January 2006 through March 8, 2016.
[[Image Removed]]
OPERATIONAL ACTIVITIES
Oil and Gas Activities
For additional information regarding McMoRan's current oil and gas activities in
relation to the subject interests, see Part I, Items 1. and 2. "Business and
Properties - The Subject Interests - Exploratory and Development Drilling" and
Part I, Item 1A. "Risk Factors" of this Form 10-K.
Production
The onshore Highlander subject interest began commercial production on
February 25, 2015. During the year ended December 31, 2015, the Royalty Trust
received royalties of $301,944 from McMoRan related to 131 MMcf of natural gas
production attributable to the onshore Highlander subject interest with average
post-production expense costs of $0.26 per Mcf and an average receipt price of
$2.56 per Mcf. Prior to this date there had been no commercial production of
hydrocarbons from any of the subject interests. In July 2015, the Highlander
well was shut in for remedial workover operations to address a mechanical issue
encountered in the wellbore. In September 2015, workover operations were
completed on the Highlander well, and production was re-established. During
November 2015, McMoRan completed the installation of additional processing
facilities to accommodate higher flow rates from the Highlander well. In
December 2015, gross rates from the Highlander well averaged approximately 44
MMcf per day (approximately 21 MMcf per day net to McMoRan).
Acreage Position
For information regarding McMoRan's acreage position, see Part I, Items 1. and
2. "Business and Properties - The Subject Interests - Acreage" of this Form
10-K.
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RESULTS OF OPERATIONS
As of December 31, 2015, only the onshore Highlander subject interest had
established commercial production. In accordance with the master conveyance, in
the second quarter of 2015, the Royalty Trust began receiving royalties from
McMoRan. During the year ended December 31, 2015, the Royalty Trust received
royalties from McMoRan of $301,944 resulting from the onshore Highlander subject
interest's production. For the years ended December 31, 2015, 2014 and 2013, the
Royalty Trust paid administrative expenses of $616,343, $603,380 and $606,163,
respectively. Administrative expenses, which consisted primarily of audit, legal
and trustee expenses incurred in connection with the administration of the
Royalty Trust, increased slightly for 2015 as compared to 2014 primarily due to
timing of payments, which are recorded in accordance with the modified cash
basis of accounting.
LIQUIDITY AND CAPITAL RESOURCES
Pursuant to the royalty trust agreement, FCX has agreed to pay annual trust
expenses up to a maximum amount of $350,000, with no right of repayment or
interest due, to the extent the Royalty Trust lacks sufficient funds to pay
administrative expenses. During each of the years ended December 31, 2015, 2014
and 2013, FCX contributed $350,000 to the Royalty Trust under this arrangement.
In addition to such annual contributions, FCX has agreed to lend money, on an
unsecured, interest-free basis, to the Royalty Trust to fund the Royalty Trust's
ordinary administrative expenses as set forth in the royalty trust agreement.
During the year ended December 31, 2015, FCX did not lend money to the Royalty
Trust under this arrangement. During the years ended December 31, 2014 and 2013,
FCX loaned $200,000 and $450,000, respectively, to the Royalty Trust under this
arrangement, none of which has been repaid as of December 31, 2015. All funds
the Trustee, on behalf of the Royalty Trust, borrows to cover expenses or
liabilities, whether from FCX or from any other source, must be repaid before
the Royalty Trust unitholders will receive any distributions.
Pursuant to the royalty trust agreement, FCX agreed to provide and maintain a
$1.0 million stand-by reserve account or an equivalent letter of credit for the
benefit of the Royalty Trust to enable the Trustee to draw on such reserve
account or letter of credit to pay obligations of the Royalty Trust if its funds
are inadequate to pay its obligations at any time. Currently, with the consent
of the Trustee, FCX may reduce the reserve account or substitute a letter of
credit with a different face amount for the original letter of credit or any
substitute letter of credit. In connection with this arrangement, FCX has
provided $1.0 million in the form of a reserve fund cash account to the Royalty
Trust. The Royalty Trust has not drawn any funds from the reserve account, and
FCX has not requested a reduction of such reserve account.
The onshore Highlander subject interest began commercial production on
February 25, 2015. Prior to this date there had been no commercial production of
hydrocarbons from any of the subject interests. In July 2015, the Highlander
well was shut in for remedial workover operations to address a mechanical issue
encountered in the wellbore. In September 2015, workover operations were
completed on the Highlander well, and production was re-established. During
November 2015, McMoRan completed the installation of additional processing
facilities to accommodate higher flow rates from the Highlander well. In
accordance with the master conveyance, during the year ended December 31, 2015,
the Royalty Trust received royalties from McMoRan of $301,944 resulting from the
onshore Highlander subject interest's production. Royalties are paid to the
Royalty Trust on the last day of the month following the month in which
production payments are received by McMoRan in accordance with the terms of the
master conveyance. Royalties received by the Royalty Trust will not result in
immediate distributions to the Royalty Trust unitholders as royalties are first
subject to payment of loans outstanding, administrative expenses of the Royalty
Trust and the establishment of a cash reserve for payment of future liabilities
as determined at the discretion of the Trustee. Royalty receipts were not
sufficient to repay the Royalty Trust's existing indebtedness or to cover
administrative expenses of the Royalty Trust during the year ended December 31,
2015. As a result, there were no distributions paid to Royalty Trust unitholders
during such period. The Royalty Trust's only other sources of liquidity are
mandatory annual contributions, any loans and the required standby reserve
account or letter of credit from FCX. As a result, any material adverse change
in FCX's or McMoRan's financial condition or results of operations could
materially and adversely affect the Royalty Trust and the underlying royalty
trust units. See Part I, Item 1A. "Risk Factors" of this Form 10-K for more
information.
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OFF- BALANCE SHEET ARRANGEMENTS
The Royalty Trust has no off-balance sheet arrangements. The Royalty Trust has
not guaranteed the debt of any other party, nor does the Royalty Trust have any
other arrangements or relationships with other entities that could potentially
result in unconsolidated debt, losses or contingent obligations.
CONTRACTUAL OBLIGATIONS
A summary of the Royalty Trust's contractual obligations as of December 31, 2015 is provided in the following table:
Payments Due by Year
Total 2016 2017 to 2018 2019 to 2020 After 2020 (a)
(in thousands)
Trustee Administrative Fee (a) (b) $ 200 $ 400 $ 400 (b)
Total (a) (b) $ 200 $ 400 $ 400 (b)
(a) Payable by the Royalty Trust until the dissolution of the Royalty Trust on
June 3, 2033 or earlier upon the occurrence of certain specified events. For
more information see Part I, Items 1. and 2. "Business and Properties - The
Royalty Trust - Duration of the Royalty Trust" of this Form 10-K.
(b) The Trustee Administrative Fee compensates the Trustee for performance of
its duties and responsibilities related to the administration of the Royalty
Trust, including usual and customary ministerial duties, preparation and filing
of all SEC reports and press releases, record keeping, document compliance,
coordination with the transfer agent as it relates to distributions and other
related duties and maintenance of accounts on various systems. The trust
agreement requires the Trustee to be paid the sum of $150,000 per year until the
first year in which the Royalty Trust receives any royalty payment pursuant to
the conveyances of the overriding royalty interests, at which time such sum is
increased to $200,000 per year. Because the Royalty Trust received royalties
related to the onshore Highlander subject interest in the second quarter of
2015, the Trustee's compensation increased to $200,000 per year beginning in
2016.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The financial statements of the Royalty Trust are prepared on the modified cash
basis of accounting and are not intended to present the Royalty Trust's
financial position and results of operations in conformity with
U.S.
generally
accepted accounting principles (GAAP). This other comprehensive basis of
accounting corresponds to the accounting permitted for royalty trusts by the
SEC. There has been no distributable income paid or due to the Royalty Trust
unitholders from inception through December 31, 2015.
The initial amount recorded for the overriding royalty interests in the subject
interests conveyed to the Royalty Trust was derived from the actual number of
royalty trust units issued, the closing price of $16.75 per share of MMR's
common stock on June 3, 2013, the closing date of the merger, reduced by the per
share cash consideration received by MMR shareholders resulting in the related
implied initial value of the royalty trust units of $400.3 million. Application
of income tax requirements resulted in different values for tax reporting
purposes for the Royalty Trust unitholders.
The value of the Royalty Trust's overriding royalty interests in the subject
interests (defined in Note 2) will be amortized using the units of production
method based on estimated proved reserves, on an individual subject interest
basis, once production has been achieved for the respective subject interests.
Such non-cash amortization will be charged directly to the Trust Corpus, and
will not affect distributable cash or the determination of distributable cash
per royalty trust unit.
The Royalty Trust evaluates the carrying values of the overriding royalty
interests in the subject interests for impairment if conditions indicate that
potential uncertainty exists regarding the Royalty Trust's ability to recover
its recorded amounts related to the overriding royalty interests. Indications of
potential impairment with respect to the overriding royalty interests can
include, among other things, subject interest lease expirations, reductions in
estimated reserve quantities or resource potential, changes in estimated future
oil and gas prices, exploration costs,
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and/or drilling plans, and other matters that arise that could negatively impact
the carrying values of the overriding royalty interests. If an impairment event
occurs and it is determined that the carrying value of the Royalty Trust's
overriding royalty interests in the subject interests may not be recoverable, an
impairment will be recognized as measured by the amount by which the carrying
amount of the overriding royalty interests in the subject interests exceeds the
fair value of these assets, which would be measured by discounting projected
cash flows. The related impairment amounts are recorded as a reduction to the
overriding royalty interests with an offsetting reduction to the Trust Corpus in
the period such impairment is determined (See Note 3).
The Royalty Trust recorded impairment charges totaling $161.8 million during the
year ended December 31, 2015, and $231.7 million during the year ended December
31, 2014. During 2015, the impairment charges included $101.0 million related to
the offshore
England
and onshore Tortuga and Lineham Creek subject interests as
McMoRan informed the Trustee that it does not plan to conduct further activities
on these subject interests and intends to relinquish the related leases, and
$60.8 million related to the onshore Highlander subject interest primarily as a
result of declines in commodity prices and changes in McMoRan's operating and
development plans. During 2015, McMoRan also informed the Trustee that it
intends to assign or relinquish the lease related to the offshore
Lafitte
subject interest, for which the Royalty Trust had no carrying value.
During 2014, the Royalty Trust recorded impairment charges related to 13 of the
subject interests, due to the decline in oil prices during the fourth quarter of
2014, and FM O&G's reduced budgeted capital expenditures and other activities
for 2015. In the event on or before December 5, 2017, McMoRan acquires a
leasehold interest covering the same area covered by a terminated lease, or
acquires additional leasehold interests associated with any of the subject
interests, such newly acquired leasehold interests will become part of the
subject interests.
DISCLOSURES ABOUT MARKET RISKS
The Royalty Trust's most significant credit risk relates to adverse changes in
FCX's or McMoRan's financial condition or results of operations. Until the
Royalty Trust receives royalties from McMoRan in an amount sufficient to pay
administrative expenses, it must rely on FCX for funding of its administrative
expenses.
Royalties are paid to the Royalty Trust on the last day of the month following
the month in which production payments are received by McMoRan in accordance
with the terms of the master conveyance. Royalties received by the Royalty Trust
will not result in immediate distributions to the Royalty Trust unitholders as
royalties are first subject to payment of loans outstanding, administrative
expenses of the Royalty Trust and the establishment of a cash reserve for
payment of future liabilities as determined at the discretion of the Trustee.
Royalty receipts were not sufficient to repay the Royalty Trust's existing
indebtedness or to cover administrative expenses of the Royalty Trust during the
year ended December 31, 2015. As a result, there were no distributions paid to
Royalty Trust unitholders during such period. The Royalty Trust's only other
sources of liquidity are mandatory annual contributions, any loans and the
required standby reserve account or letter of credit from FCX.
FCX has agreed to pay annual trust expenses up to a maximum amount of $350,000,
with no right of repayment or interest due, to the extent the Royalty Trust
lacks sufficient funds to pay administrative expenses. During each of the years
ended December 31, 2015, 2014 and 2013, FCX contributed $350,000 to the Royalty
Trust under this arrangement. In addition to such annual contributions, FCX has
agreed to lend money, on an unsecured, interest-free basis, to the Royalty Trust
to fund the Royalty Trust's ordinary administrative expenses as set forth in the
royalty trust agreement. Since inception, FCX has loaned $650,000 to the Royalty
Trust under this arrangement, none of which has been repaid as of December 31,
2015.
FCX has also agreed to provide and maintain a $1.0 million stand-by reserve
account or an equivalent letter of credit for the benefit of the Royalty Trust
to enable the Trustee to draw on such reserve account or letter of credit to pay
obligations of the Royalty Trust if its funds are inadequate to pay its
obligations at any time. Currently, with the consent of the Trustee, FCX may
reduce the reserve account or substitute a letter of credit with a different
face amount for the original letter of credit or any substitute letter of
credit. In connection with this arrangement, FCX has provided $1.0 million in
the form of a reserve fund cash account to the Royalty Trust. The Royalty Trust
has not drawn any funds from the reserve account, and FCX has not requested a
reduction of such reserve account. As a result, any material adverse change in
FCX's or McMoRan's financial condition or results of operations could materially
and adversely affect the Royalty Trust and the underlying royalty trust units,
if FCX requests and the Trustee consents, to reduce the $1.0 million reserve
cash fund.
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The Royalty Trust is a passive entity and, except for the Royalty Trust's
ability to borrow from FCX as described above, the Royalty Trust is prohibited
from engaging in loan transactions. The Royalty Trust periodically holds
short-term investments acquired with funds that it holds for the payment of its
administrative and other expenses. Because of the short-term nature of these
investments and limitations on the types of investments that the Royalty Trust
may hold, the Royalty Trust is not subject to any material interest rate risk.
The Royalty Trust does not engage in transactions in foreign currencies that
could expose the Royalty Trust unitholders to foreign currency-related market
risk, nor does the Royalty Trust engage in any other financial derivative
transactions.
The Royalty Trust's most significant market risk relates to the prices received
for oil and natural gas production. Any royalties that the Royalty Trust
receives will be derived from the subject interests and will depend
substantially on prevailing prices for natural gas, and, to a lesser extent,
oil. As a result, commodity prices also will affect the amount of cash flow, if
any, available for distribution to the Royalty Trust unitholders. Lower oil and
natural gas prices may also reduce the amount of oil and natural gas, if any,
that McMoRan or the third-party operators will be able to economically produce
and may reduce the likelihood that the subject interests will be developed.
Downward pressure on oil and natural gas prices continued in 2015. During 2015,
the NYMEX natural gas price fluctuated from a low of $1.68 per MMBtu to a high
of $3.35 per MMBtu and the WTI crude oil price ranged from a low of $33.98 per
barrel to a high of $62.58 per barrel. On December 31, 2015, the NYMEX natural
gas price was $2.34 per MMBtu and the WTI crude oil price was $37.04 per barrel.
During the first quarter of 2016, oil and natural gas prices have remained
depressed and on March 8, 2016, the NYMEX natural gas price was $1.72 per MMBtu
and the WTI crude oil price was $36.23 per barrel.
Any additional future production will be subject to uncertainties, many of which
will be beyond McMoRan's control, including the timing and flow rates associated
with the initial production from discoveries, weather-related factors, shut-in
or recompletion activities on any of the subject interests' related properties
or on third-party-owned pipelines or facilities, and the state of the financial
and commodity markets. Any of these factors, among others, could materially
adversely affect the Royalty Trust. For more information regarding risks
associated with oil and natural gas production and commodity price fluctuations,
see Part I, Item 1A. "Risk Factors" of this Form 10-K.
NEW ACCOUNTING STANDARDS
The Royalty Trust does not expect recently issued accounting standards to have a significant impact on its future financial statements and disclosures.
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