VOC Energy Trust - 10-Q Summary (Period Ended September 30, 2014)
Business Context and Reporting Period
VOC Energy Trust is a Delaware statutory trust formed to hold a term net profits interest in oil and natural gas properties located in Texas and Kansas. The Trust is passive, with no management control over operations, which are conducted by VOC Brazos Energy Partners, LP. The Trust is entitled to 80% of the net proceeds from production. The reporting period covers the three and nine months ended September 30, 2014. As of November 6, 2014, 17,000,000 Trust units were outstanding.
Key Financial Metrics
| Metric | Three Months Ended Sept 30, 2014 | Nine Months Ended Sept 30, 2014 |
|---|---|---|
| Income from Net Profits Interest | $6,898,298 | $25,956,483 |
| Distributable Income | $6,630,000 | $25,160,000 |
| Distributions per Unit | $0.39 | $1.48 |
| Cash and Cash Equivalents | $556,037 (as of Sept 30, 2014) | $556,037 (as of Sept 30, 2014) |
| Total Assets | $104,056,591 | $104,056,591 |
| General & Administrative Expenses | $144,618 | $691,716 |
| Debt | $0 | $0 |
The Trust holds no debt. A $1.0 million letter of credit is provided by VOC Brazos to cover potential future expenses.
Material Changes vs. Prior Period
- Quarterly Comparison (Q3 2014 vs. Q3 2013): Distributable income decreased by $340,000 (4.9%) to $6.63 million. This decline was driven by an 8.9% decrease in oil sales volumes and a 7.3% decrease in natural gas volumes, which offset higher average commodity prices (Oil: +4.4%, Gas: +31.3%).
- Year-to-Date Comparison (9 Months 2014 vs. 9 Months 2013): Distributable income increased by $5.61 million (28.7%) to $25.16 million. This increase was primarily due to a significant reduction in development expenses (down 53.8% to $6.48 million) and higher commodity prices, despite a 4.0% decrease in oil volumes and 5.1% decrease in gas volumes.
- Hedge Contracts: Hedge contracts expired on June 30, 2014. Consequently, the Trust has no active hedges for production after that date, increasing exposure to commodity price fluctuations.
Outlook, Risks, and Management Commentary
- Outlook: The Trust has no new hedging arrangements. Future cash flows depend entirely on prevailing market prices for oil and natural gas and production volumes from mature fields.
- Subsequent Event: On October 16, 2014, the Trust announced a distribution of $0.37 per unit ($6.29 million total) to be paid on November 14, 2014.
- Risks: The primary risk is the volatility of oil and natural gas prices. The Trust is also subject to the risk that VOC Brazos may not have sufficient cash to pay expenses, though a $1 million letter of credit mitigates this. The Trust will terminate on the later of December 31, 2030, or when 10.6 million barrels of oil equivalent have been produced.
- Unusual Items: No unusual items were reported. The decrease in development expenses in 2014 compared to 2013 was due to the timing of drilling costs for horizontal wells.
Investor Verification Checklist
- Verify the current status of oil and natural gas commodity prices, as the Trust has no active hedges post-June 2014.
- Confirm the production volumes and reserve estimates of the underlying properties in Texas and Kansas.
- Monitor the $1.0 million cash reserve held by VOC Brazos for future development expenditures.
- Review the upcoming distribution payment date of November 14, 2014.
- Assess the impact of the Trust's passive nature on the ability to influence operational decisions or capital expenditures.