Business Context and Reporting Period
Company: Marine Petroleum Trust (a Texas royalty trust)
Reporting Period: Quarterly period ended March 31, 2012 (Nine months ended March 31, 2012)
Business Overview: The Trust holds overriding royalty interests in oil and natural gas leases offshore Texas and Louisiana. It is a passive entity prohibited from engaging in trade or business, distributing all collected cash to unitholders. The Trust holds a 32.6% interest in Tidelands Royalty Trust "B".
Units Outstanding: 2,000,000 units as of May 7, 2012.
Key Financial Metrics
| Metric | Three Months Ended Mar 31, 2012 | Nine Months Ended Mar 31, 2012 |
|---|---|---|
| Total Income | $1,059,564 | $3,278,303 |
| Distributable Income | $973,205 | $3,043,275 |
| Distributable Income Per Unit | $0.49 | $1.52 |
| Distributions Per Unit | $0.50 | $1.56 |
| General & Administrative Expenses | $86,359 | $232,228 |
| Cash and Cash Equivalents | $1,261,285 (as of Mar 31, 2012) | |
| Total Assets | $1,275,717 (as of Mar 31, 2012) | |
| Total Liabilities | $0 |
Material Changes vs. Prior Period
- Income Growth: Total income for the nine months ended March 31, 2012, increased to $3.28 million from $2.47 million in the prior year period. Distributable income rose to $3.04 million from $2.27 million.
- Oil Price Impact: The average realized price per barrel of oil increased 39% to $113.80 for the nine-month period (up from $81.90). Oil production volume increased 21% to 21,334 barrels.
- Natural Gas: Natural gas production increased slightly (2%) to 110,256 mcf, with average prices rising marginally to $4.95 per mcf.
- Affiliate Income Decline: Income from the Trust's interest in Tidelands Royalty Trust "B" decreased significantly, dropping to $304,657 for the nine months ended March 31, 2012, from $489,180 in the prior year.
- Expense Fluctuation: General and administrative expenses increased to $232,228 for the nine-month period compared to $203,850 in the prior year, primarily due to higher professional fees.
Outlook, Risks, and Commentary
- Depleting Assets: The Trust's properties are depleting assets. Production from existing wells is anticipated to decrease in the future due to normal well depletion. The Trust is prohibited from investing in new properties.
- Market Dependency: Income is entirely dependent on third-party operators and fluctuates based on oil and natural gas prices and production volumes, over which the Trust has no control.
- Lease Expirations: Two leases terminated in the second half of 2011. The Trust holds interests in 55 leases covering 199,868 gross acres.
- Forward-Looking Risks: Risks include reductions in commodity prices, demand, production disruptions (storms, accidents), and lease expirations. No material changes in market risk were reported.
- Accounting Basis: Financial statements are prepared on a modified cash basis, not GAAP. Royalty income is recognized when received.
Investor Verification Checklist
- Verify the current status and production levels of the 55 active leases in the Gulf of Mexico.
- Monitor the performance and distribution schedule of Tidelands Royalty Trust "B", given the recent decline in income from this affiliate.
- Review the Trust's expiration date (June 1, 2021) and any potential for extension via unitholder vote.
- Confirm the impact of future oil and natural gas price volatility on quarterly distributions.
- Check for any new well completions or workovers on leases where the Trust holds an interest, as these are the primary drivers of future income.