-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, B0PMSzTo0eLe2C5kK6ZifGY9T2Osj9yuM/4q7dSgTce7B3OQKxAY2+s2tBnCUJok 6qTvbBx6JyYn+Zt3fJyF/Q== 0000072633-05-000014.txt : 20050611 0000072633-05-000014.hdr.sgml : 20050611 20050527123604 ACCESSION NUMBER: 0000072633-05-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20050430 FILED AS OF DATE: 20050527 DATE AS OF CHANGE: 20050527 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NORTH EUROPEAN OIL ROYALTY TRUST CENTRAL INDEX KEY: 0000072633 STANDARD INDUSTRIAL CLASSIFICATION: OIL ROYALTY TRADERS [6792] IRS NUMBER: 222084119 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08245 FILM NUMBER: 05862578 BUSINESS ADDRESS: STREET 1: P O BOX 456 STREET 2: 43 WEST FRONT STREET SUITE 19-A CITY: RED BANK STATE: NJ ZIP: 07701 BUSINESS PHONE: 7327414008 MAIL ADDRESS: STREET 1: P O BOX 456 STREET 2: 43 WEST FRONT STREET SUITE 19-A CITY: RED BANK STATE: NJ ZIP: 07701 10-Q 1 tenq2q05.txt SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended April 30, 2005 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 1-8245 NORTH EUROPEAN OIL ROYALTY TRUST ------------------------------------------------------ (Exact name of registrant as specified in its charter) Delaware 22-2084119 ----------------------- --------------------------- (State of organization) (I.R.S. Employer I.D. No.) Suite 19A, 43 West Front Street, Red Bank, New Jersey 07701 ------------------------------------------------------------- (Address of principal executive offices) (732) 741-4008 ---------------------------------------------------- (Registrant's telephone number, including area code) 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 X No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act. Yes X No Class Outstanding at April 30, 2005 - ---------------------------- ------------------------------- Units of Beneficial Interest 8,933,361 -2- PART I -- FINANCIAL INFORMATION ------------------------------- Item 1. Financial Statements -------------------- STATEMENTS OF REVENUE COLLECTED AND EXPENSES PAID (NOTE 1) ---------------------------------------------------------- FOR THE THREE MONTHS ENDED APRIL 30, 2005 AND 2004 ----------------------------------------------------- 2005 2004 ------------ ------------ (Unaudited) German gas, oil and sulfur royalties received $ 6,332,292 $ 4,075,008 ----------- ----------- Interest income 10,498 4,954 ----------- ----------- Trust expenses ( 205,395) ( 221,273) ----------- ----------- Net income on a cash basis $ 6,137,395 $ 3,858,689 =========== =========== Net income per unit on a cash basis $ .69 $ .43 ====== ====== Cash distributions paid or to be paid: Distributions per unit to be paid to unit owners $ .69 $ .43 ====== ====== STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1) ----------------------------------------------------------- APRIL 30, 2005 AND OCTOBER 31, 2004 ------------------------------------- 2005 2004 ------------ ------------ (Unaudited) Current assets - - Cash and cash equivalents (Note 1) $ 6,212,699 $ 3,014,386 Producing gas and oil royalty rights, net of amortization (Notes 1 and 2) 1 1 ----------- ----------- $ 6,212,700 $ 3,014,387 =========== =========== Current liabilities - - Cash distributions payable to unit owners $ 6,164,019 $ 2,947,992 Contingent liability (Note 3) Trust corpus (Notes 1 and 2) 1 1 Undistributed earnings 48,680 66,394 ----------- ----------- Total Liabilities and Trust Corpus $ 6,212,700 $ 3,014,387 =========== =========== The accompanying notes to financial statements should be read in conjunction with these statements. -3- STATEMENTS OF REVENUE COLLECTED AND EXPENSES PAID (NOTE 1) ------------------------------------------------------------ FOR THE SIX MONTHS ENDED APRIL 30, 2005 AND 2004 -------------------------------------------------- 2005 2004 ------------ ------------ (Unaudited) German gas, oil and sulfur royalties received $11,487,103 $ 8,435,738 ----------- ----------- Interest income 15,818 11,347 ----------- ----------- Trust expenses ( 530,412) ( 454,283) ----------- ----------- Net income on a cash basis $10,972,509 $ 7,992,802 =========== =========== Net income per unit on a cash basis $1.23 $0.89 ===== ===== Cash distributions paid or to be paid: Distributions per unit to be paid to unit owners $1.23 $0.89 ===== ===== The accompanying notes to financial statements should be read in conjunction with these statements. -4- STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS (NOTE 1) ----------------------------------------------------------- FOR THE SIX MONTHS ENDED APRIL 30, 2005 AND 2004 ---------------------------------------------------- 2005 2004 ------------ ------------ (Unaudited) Sources of cash and cash equivalents: German gas, oil and sulfur royalties $11,487,103 $ 8,435,738 Interest income 15,818 11,347 ----------- ----------- 11,502,921 8,447,085 =========== =========== Uses of cash and cash equivalents: Payment of Trust expenses 530,412 454,283 Distributions and dividends paid (Note 3) 7,774,196 8,127,606 ----------- ----------- 8,304,608 8,581,889 ----------- ----------- Net increase(decrease)in cash and cash equivalents during the period 3,198,313 ( 134,804) Cash and cash equivalents, beginning of period 3,014,386 4,063,766 ----------- ----------- Cash and cash equivalents, end of period $ 6,212,699 $ 3,928,962 =========== =========== STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1) --------------------------------------------- FOR THE SIX MONTHS ENDED APRIL 30, 2005 AND 2004 ---------------------------------------------------- 2005 2004 ------------ ------------ (Unaudited) Balance, beginning of period $ 66,394 $ 44,630 Net income on a cash basis 10,972,509 7,992,802 ----------- ----------- 11,038,903 8,037,432 ----------- ----------- Less: Current year distributions paid or to be paid to unit owners (Note 3) 10,990,223 7,948,978 ----------- ----------- 10,990,223 7,948,978 ----------- ----------- Balance, end of period $ 48,680 $ 88,454 =========== =========== The accompanying notes to financial statements should be read in conjunction with these statements. -5- NORTH EUROPEAN OIL ROYALTY TRUST -------------------------------- NOTES TO FINANCIAL STATEMENTS ----------------------------- (1) Summary of significant accounting policies: ---------------------- Basis of accounting - ------------------- The accompanying financial statements of North European Oil Royalty Trust (the "Trust") present financial statement balances and financial results on a cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States ("GAAP basis"). Cash basis financial statements report income when cash is received and expenses when cash is paid. GAAP basis financial statements report income as earned and expenses as incurred, without regard to receipts or payments. The sole exception to the use of the cash basis of accounting is the accrual for distributions to be paid to unit owners (those distributions approved by the Trustees for the Trust). The Trust's distributable income represents royalty income received by the Trust during the period plus interest income less any expenses incurred by the Trust, all on a cash basis. In the opinion of the Trustees, the use of the cash basis provides a more meaningful presentation to unit owners of the results of operations of the Trust. Producing gas and oil royalty rights - --------------------- The rights to certain gas and oil royalties in Germany were transferred to the Trust at their net book value by North European Oil Company (the "Company") (see Note 2). The net book value of the royalty rights has been reduced to one dollar ($1) in view of the fact that the remaining net book value of royalty rights is de minimis relative to annual royalties received and distributed by the Trust and does not bear any meaningful relationship to the fair value of such rights or the actual amount of proved producing reserves. Federal income taxes - ------------------------------ The Trust, as a grantor trust, is exempt from federal income taxes under a private letter ruling issued by the Internal Revenue Service. Cash and cash equivalents - ------------------------- Included in cash and cash equivalents are amounts deposited in bank accounts and amounts invested in certificates of deposit and U. S. Treasury bills with maturities of three months or less from the date of purchase. -6- Net income per unit on the cash basis - ------------------- Net income per unit on the cash basis is based upon the number of units outstanding at the end of the period. As of April 30, 2005 and 2004, there were 8,933,361 and 8,931,414 units of beneficial interest outstanding, respectively. (2) Formation of the Trust: ----------------------- The Trust was formed on September 10, 1975. As of September 30, 1975, the Company was liquidated and the remaining assets and liabilities of the Company, including its royalty rights, were transferred to the Trust. The Trust on behalf of the owners of beneficial interest in the Trust holds overriding royalty rights covering gas and oil production in certain concessions or leases in the Federal Republic of Germany. These rights are held under contracts with local German exploration and development subsidiaries of ExxonMobil Corp. and the Royal Dutch/Shell Group of Companies. Under these contracts, the Trust receives various percentage royalties on the proceeds of the sales of certain products from the areas involved. At the present time, royalties are received for sales of gas well gas, oil well gas, crude oil, distillate and sulfur. (3) Contingent liability: --------------------- The Trust serves as fiduciary for certain unlocated or unknown shareholders of North European Oil Corporation (the "Corporation") and North European Oil Company, corporate predecessors of the Trust. From the liquidation of the Company to October 31, 2004, 723,260 units were issued in exchange for Corporate and Company shares and dividends of $354,101 and distributions of $4,236,544 were paid to formerly unlocated Corporation and Company shareholders. For the six-month period ended April 30, 2005, 51 units were issued in exchanges and $27 in dividends and $2,280 in distributions were paid to formerly unlocated Corporation and Company shareholders. On February 26, 1996 the settlement of litigation between the Trust and the Delaware State Escheator ("Delaware Escheator") was approved by the Delaware Court of Chancery. As of that date, there were a total of 875,748 authorized but unissued units representing the unexchanged shares of the Trust's corporate predecessors. Out of this total, 760,560 units were subject to the settlement. Under the settlement, 380,280 units were issued to the Delaware Escheator on April 17, 1996. Of the Trust units remaining to be issued to the Delaware Escheator, approximately 50%(190,128 units) had been issued to the Delaware Escheator as of June 30, 2000 and the remaining balance will be issued by June 30, 2005. Through June 30, 2000, claims by unlocated or unknown shareholders of the Trust's corporate predecessors for units and past dividends and distributions thereon ("subsequent claims") were paid by the Delaware Escheator and the Trust on a 50:50 basis. From July 1, 2000 to June 30, 2005, subsequent claims will be paid by the Delaware Escheator and the Trust on a 75:25 basis. Any subsequent claims will reduce the number of units to be issued to the Delaware Escheator in 2005. Following the final issuance of units to the Delaware Escheator in 2005, the Trust's contingent liability for past dividends and distributions attributable to all unexchanged Corporation and Company shares -7- subject to the settlement will be completely eliminated. Under the terms of the settlement, the maximum liability of the Delaware Escheator for subsequent claims is limited to the value of the units received, plus current distributions on units retained, less the Delaware Escheator's share of subsequent claims. As of the receipt of the May 2005 distribution, the maximum liability of the Delaware Escheator will be $13,752,245. As of the record date for the May distribution, the Delaware Escheator no longer owned any units of the 570,408 units previously issued to it as part of the Settlement. In addition to the agreement reached with the Delaware Escheator, on December 4, 2001 the Trust reached a parallel agreement with the Administrator of Unclaimed Property, Office of the New York State Comptroller (the "New York Administrator") covering units for which owners were unlocated but for whom New York state addresses were shown in predecessor corporation records. The New York Settlement Agreement (the "Settlement Agreement") covers 89,220 units attributable to stock ownership by unlocated shareholders of corporate predecessors. Of the units covered by the Settlement Agreement, 44,610 were issued to the New York Administrator on December 21, 2001 and the balance of 44,565 will be issued on or before June 30, 2005. The Settlement Agreement provides for processing of claims in the period until June 30, 2005 and the sharing on a 50:50 basis of any costs relating to any claims which are allowed. Any subsequent claims will reduce the number of units to be issued to the New York Administrator in 2005. Following the final issuance of units to the New York Administrator in 2005, the Trust's contingent liability for past dividends and distributions attributable to all unexchanged Corporation and Company shares subject to the Settlement Agreement will be completely eliminated. Under the terms of the Settlement Agreement, the maximum liability of the New York Administrator for subsequent claims is limited to the value of the units received, plus current distributions on units retained, less the New York Administrator's share of subsequent claims. As of the receipt of the May 2005 distribution, the maximum liability of the New York Administrator will be $1,126,567. As of the record date for the May distribution, the New York Administrator continues to own 44,565 of the 44,610 units previously issued to it as part of the settlement. Under the Trust Agreement as deemed amended by the February 26, 1996 Delaware Court Order, the Trust is not required to make payments of arrearages of Company dividends or Trust distributions with respect to units issued or to be issued to the Delaware Escheator or the New York Administrator. As of April 30, 2005, there remained a total of 257,235 units that could be issued to unlocated or unknown Corporation and Company shareholders. Of this total, 234,687 units are subject to the settlements and remain to be issued to the Delaware Escheator or the New York Administrator. If all shares, represented by the units already issued as well as the units remaining to be issued, were presented for exchange, $489,115 in dividends and $31,527,305 in distributions would be payable. In the opinion of the Trustees, based in part on the history of exchanges during the last ten fiscal years, the maximum liability of the Delaware Escheator and the New York Administrator would be adequate to cover their respective share of any subsequent claims. In any event, the Trust's contingent liability for all claims for arrearages will be eliminated after June 30, 2005. -8- (4) Related party transactions: -------------------------- John R. Van Kirk, the Managing Director of the Trust, provides office space and office services to the Trust at cost. During the second quarter of fiscal 2005 the Trust reimbursed him a total of $2,018 for such office space and office services. Item 2. Management's Discussion and Analysis of Financial ------------------------------------------------- Condition and Results of Operations. ------------------------------------ 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. 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 any such involvement 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 certain concessions or leases in the Federal Republic of Germany. The actual leases or concessions are held either by Mobil Erdgas-Erdol GmbH ("Mobil Erdgas"), a German operating subsidiary of the ExxonMobil Corp., or by Oldenburgische Erdolgesellschaft ("OEG"). In 2002 Mobil Erdgas and BEB Erdgas und Erdol GmbH ("BEB"), a joint venture of ExxonMobil Corp. and the Royal Dutch/Shell Group of Companies, formed a company ExxonMobil Production Deutschland GmbH ("EMPG") to carry out all exploration, drilling and production activities. All sales activities are still handled by the operating companies Mobil Erdgas or BEB. The operating companies pay monthly royalties to the Trust based on their sales of natural gas, sulfur and oil. The Oldenburg concession is the primary area from which these products are extracted and provides nearly 100% of all the royalties received by the Trust. Of these three products, natural gas provides approximately 98% of the total royalties. The Oldenburg concession (1,398,000 acres) covers virtually the entire former State of Oldenburg and is located in the federal state of Lower Saxony. Under one series 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. Under the royalty agreement with Mobil Erdgas, there is no deduction of costs prior to the calculation of royalties from gas well gas and oil well gas. Under another series of rights covering the entire Oldenburg concession and pursuant to an agreement with OEG, the Trust receives royalties at the rate of 0.6667% on gross receipts from sales 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. Under the agreement with OEG, 50% of the field handling, treatment and transportation 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. -9- Seasonal demand factors affect the income from royalty rights insofar as they relate to energy demands and increases or decreases in prices, but on average they are not material to the regular annual income received under the royalty rights. The gas is sold to various distributors under long term contracts which delineate, among other provisions, the timing, manner, volume and price of the gas sold. The pricing mechanisms contained in these contracts include a delay factor of three to six months and use the price of light heating oil in Germany as one of the primary pricing components. Since Germany must import a large percentage of its energy requirements, the U.S. dollar price of oil on the international market has a significant impact on the price of light heating oil and a delayed impact on the price of gas. Although the Trust itself does not have access to the specific sales contracts under which the Oldenburg gas is sold, these contracts are reviewed periodically Ernst & Young AG. For unit owners changes in value of the Euro have both an immediate and a long term impact. The immediate impact relates to the determination of the number of dollars the Trust receives when Euros are converted into dollars at the time of the transfer of the royalties from Germany to the United States. At the time of the exchange, a higher exchange rate would yield more dollars and a lower exchange rate fewer. The long term impact comes into play through the mechanism of gas pricing. With the price of light heating oil used as a component in the calculation of gas prices in the various contracts under which the gas is sold, changes in world crude oil prices are eventually reflected in gas prices. Since oil on the international market is priced in dollars, a lower exchange rate for the Euro means that oil imported into Germany is more expensive which results in higher local oil prices. A higher exchange rate for the Euro means that oil imported into Germany is less expensive which results in lower local oil prices. These higher or lower local oil prices are in turn reflected in higher or lower gas prices. For the second quarter of fiscal 2005, the Trust's net income was $6,137,395, a 59% increase over net income for the prior year's period. This income was derived from sales of gas, sulfur and oil from the Trust's overriding royalty areas in Germany during the first calendar quarter of 2005 but included a positive adjustment of $646,881 to account for a prior royalty underpayment. As part of their reconciliation process, the operating companies generally make adjustments for under or overpayments of the prior calendar year's royalties during the Trust's second fiscal quarter. For the quarter just ended, this adjustment accounted for seven cents out of the total distribution of sixty-nine cents. The Trustees have announced a distribution of sixty-nine cents per unit payable on May 25, 2005 to owners of record as of May 13, 2005. For the six month period, the Trust's net income was $10,972,509, an increase of 37.3% from the net income for last year's equivalent period. For the six month period ended April 30, 2005 total distributions were equal to $1.23 per unit. The amount of royalties paid to the Trust is based on four primary factors: the amount of gas sold, the price of that gas, the area from which the gas is sold and the exchange rate. For the quarter just ended the impact of the higher gas prices, higher average exchange rates and a slight increase in gas sales from the higher royalty rate -10- area of western Oldenburg offset an overall decline in gas sales and resulted in the higher distribution payable. Under the higher percentage royalty rate agreement covering western Oldenburg, both gas prices and gas sales increased. For the quarter just ended the average price of gas sold under this agreement increased 21.3% from 1.2583 Eurocents/Kwh ("Ecents/Kwh") to 1.5258 Ecents/Kwh. Under this agreement gas sales increased 2.1% from 17.277 billion cubic feet ("Bcf") to 17.639 Bcf compared to the second quarter of fiscal 2004. Under the lower percentage royalty rate agreement covering the entire Oldenburg concession, gas prices increased but gas sales declined. The average price of gas sold increased 26.7% from 1.2646 Ecents/Kwh to 1.6018 Ecents/Kwh. Overall gas sales declined 5.1% from 45.347 Bcf to 43.045 Bcf in comparison for the same period. Under the higher percentage royalty rate agreement, the average value of the Euro based on the monthly transfer of royalties to the United States for the quarter just ended was $1.3029, an increase of 7.6% from $1.2106, the average value for the second quarter of fiscal 2004. Under the lower percentage royalty rate agreement, the average value of the Euro based on the monthly transfer of royalties to the United States during the quarter just ended was $1.3012, an increase of 7.5% from $1.2105, the average value for the second quarter of fiscal 2004. Converting the average gas prices using the average exchange rates for the quarter into more familiar terms yields an average gas price under the higher and lower percentage royalty rate agreements of $5.72 and $5.86 per thousand cubic feet, respectively. The current Statement of Assets, Liabilities and Trust Corpus of the Trust at April 30, 2005, compared to that at fiscal year end (October 31, 2004), shows an increase in assets due to the increase in royalty receipts during the quarter. Interest income was higher reflecting the increased funds available for investment and the slight increase in interest rates applicable during the period. Trust expenses for the second quarter were lower in comparison to the expenses recorded for the second quarter of fiscal 2004, but the bulk of the decline was related to the timing of the payment of the NYSE listing fee. 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 the funds on hand after provision is made for Trust expenses then anticipated. As permitted by the Trust Agreement, no provision is made for the retention of reserve funds of any kind. If funds were to be required for payments to owners of units not previously presented for issuance, quarterly distributions would be reduced to the extent required to provide funds for such payments. REPORT ON DRILLING AND GEOPHYSICAL WORK The Trust's German consultant, Mr. Alfred Stachel, met with representatives of the operating companies to inquire about drilling and geophysical work for 2005 and other general matters. The operating companies reported to him that the expanded drilling program is being continued with five wells (one western and four eastern) planned for -11- calendar 2005. Processing and interpretation of earlier seismic work covering five fields is continuing. An extensive evaluation of the Carboniferous zone is being conducted with the close cooperation of ExxonMobil Houston. Initial preparation for three new drilling projects is being conducted with possible start dates in 2006. The operating companies have also scheduled the major inspection of the Grossenkneten desulfurization plant that is required every five years to carry out the certification check of the tail gas clean-up unit. The inspection will take place during the five week period from August 15 to September 21, 2005. While the plant will operate on at least a partial basis during this period, the level of through-put and the corresponding level of gas sales for the Trust's fourth fiscal quarter will be adversely affected. The following paragraph is a summary of Mr. Stachel's account of the operating companies' response to his inquiries. The Trust is not able to confirm the accuracy of any of these findings or responses. In addition, the operating companies are not obligated to take any of the actions outlined and, if they change their plans with respect to any such actions, they are not obligated to inform the Trust. Goldenstedt Z-12a, an eastern development sour gas well, was successfully completed by the end of March as a horizontal deviation of 950 meters. The start of production is scheduled for September 2005. Drilling for Hemmelte Z-5a, a western development sour gas well, has already begun with scheduled completion in late May. Planned drilling depth is 3,820 meters with a horizontal deviation of 350 meters. The start of production is scheduled for September 2005. Doetlingen Ost Z-2, an eastern exploratory sour gas well, is scheduled to begin drilling in June with completion expected in October 2005. This well will test whether the south-eastern trend of successful wells continues in separate geological blocks. Total drilling depth of 5,000 meters is contemplated with a horizontal deviation of 400 meters. The well is considered high risk. Oythe Z-3, an eastern development sweet gas well, is scheduled to start drilling in September 2005. This well will replace another production well that suffered a casing collapse and is intended to produce from the Carboniferous zone. The fifth well, Doetlingen Z-8a, an eastern development sour gas well, is scheduled to begin drilling in December 2005 with a planned horizontal deviation of 300 meters. ------------------------------------------ This report on Form 10-Q contains forward looking statements concerning business, financial performance and financial condition of 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 uncertainties concerning levels of gas production and gas prices, general economic conditions and currency exchange rates. Actual results and events may vary significantly from those discussed in the forward looking statements. -12- Item 3. Quantitative and Qualitative Disclosures About Market Risk. ---------------------------------------------------------- The Trust does not engage in any trading activities with respect to possible foreign exchange fluctuations. The Trust does not use any financial instruments to hedge against possible risks related to foreign exchange fluctuations. The market risk is negligible because standing instructions at its German bank require the bank to process conversions and transfers of royalty payments as soon as possible following their receipt. Item 4. Controls and Procedures. ----------------------- As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the Trust's management, which consists of the Managing Trustee and the Managing Director, of the effectiveness of the design and operation of the Trust's disclosure controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934. Based upon that evaluation, the Managing Trustee and the Managing Director concluded that the Trust's disclosure controls and procedures were effective, in all material respects, with respect to the recording, processing, summarizing and reporting, within the time periods specified in the Securities and Exchange Commission's rules and forms, of information required to be disclosed by the Trust's management in the reports that are filed or submitted under the Exchange Act. There have been no changes in our internal control over financial reporting identified in connection with the evaluation described above that occurred during the second quarter of fiscal 2005 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting. Part II -- OTHER INFORMATION ---------------------------- Item 6. Exhibits. -------- (a) Exhibits. Exhibit 31.1. Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 31.2. Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Exhibit 32. Certification of Chief Executive and Chief Financial Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 -13- 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 hereunto duly authorized. NORTH EUROPEAN OIL ROYALTY TRUST -------------------------------- (Registrant) By: /S/ John R. Van Kirk ---------------------------- John R. Van Kirk Managing Director Dated: May 27, 2005 EX-31 2 x31-0430.txt -14- Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, John H. Van Kirk, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of North European Oil Royalty Trust; 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 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, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; and b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this quarterly report based on such evaluation; and d) Disclosed in this quarterly report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and -15- 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and to the audit committee of the board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: May 27, 2005 /s/ John H. Van Kirk ------------------------ John H. Van Kirk Managing Trustee (Chief Executive Officer) -16- Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, John R. Van Kirk, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q of North European Oil Royalty Trust; 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 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, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Quarterly Report; 4. The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; and b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and c) Evaluated the effectiveness of the Registrant's disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this quarterly report based on such evaluation; and d) Disclosed in this quarterly report any change in the Registrant's internal control over financial reporting that occurred during the Registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant's internal control over financial reporting; and -17- 5. The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant's auditors and to the audit committee of the board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal control over financial reporting. Date: May 27, 2005 /s/ John R. Van Kirk ------------------------ John R. Van Kirk Managing Director (Chief Financial Officer) EX-32 3 x32-0430.txt -18- Exhibit 32 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chapter 63, Title 18 U.S.C. 1350(a) and (b)), the undersigned hereby certify that the Quarterly Report on Form 10-Q for the period ended April 30, 2005 of North European Oil Royalty Trust ("Trust") fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in such Report fairly presents, in all material respects, the financial condition and results of operations of the Trust. Dated: May 27, 2005 /s/ John H. Van Kirk ----------------------- John H. Van Kirk Managing Trustee (Chief Executive Officer) /s/ John R. Van Kirk ----------------------- John R. Van Kirk Managing Director (Chief Financial Officer) -----END PRIVACY-ENHANCED MESSAGE-----