(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2021 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
Delaware 22-2084119
State or Other Jurisdiction of I.R.S. Employer Identification No.
of Incorporation or Organization
5 N. Lincoln Street, Keene, N.H. 03431
Address of Principal Executive Offices Zip Code
(732) 741-4008
Title of each class Trading Symbol(s) Name of each exchange on which registered
Units of Beneficial Interest NRT New York Stock Exchange
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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes X No ___
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
| Large accelerated filer Accelerated filer |
| Non-accelerated filer X Smaller reporting company X |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ___ No X
9,190,590 Units of Beneficial Interest Outstanding as of July 31, 2021
Item 1. Financial Statements.
| 2021 | 2020 | |
|---|---|---|
| ASSETS | ||
| Current assets -- Cash and cash equivalents | $1,485,346 | $649,585 |
| Producing gas and oil royalty rights, net of amortization (Notes 1 and 2) | 1 | 1 |
| Total Assets | $1,485,347 | $649,586 |
| LIABILITIES AND TRUST CORPUS | ||
| Current liabilities -- Distributions to be paid to unit owners, paid August 2021 and paid November 2020 | $1,378,588 | $183,811 |
| Trust corpus (Notes 1 and 2) | 1 | 1 |
| Undistributed earnings | 106,758 | 465,774 |
| Total Liabilities and Trust Corpus | $1,485,347 | $649,586 |
The accompanying notes are an integral part of these financial statements.
| 2021 | 2020 | |
|---|---|---|
| Gas, sulfur and oil royalties received | $1,480,863 | $1,399,614 |
| Interest income | 231 | 231 |
| Trust Income | $1,481,094 | $1,399,845 |
| Non-related party expenses | (113,797) | (113,362) |
| Related party expenses (Note 3) | (3,707) | (8,408) |
| Trust Expenses | (117,504) | (121,770) |
| Net Income | $1,363,590 | $1,278,075 |
| Net income per unit | $0.15 | $0.14 |
| Distributions per unit paid or to be paid to unit owners | $0.15 | $0.11 |
The accompanying notes are an integral part of these financial statements.
| 2021 | 2020 | |
|---|---|---|
| Gas, sulfur and oil royalties received | $3,164,461 | $3,701,403 |
| Interest income | 416 | 2,704 |
| Trust Income | $3,164,877 | $3,704,107 |
| Non-related party expenses | (456,545) | (594,366) |
| Related party expenses (Note 3) | (34,453) | (42,027) |
| Trust Expenses | (490,998) | (636,393) |
| Net Income | $2,673,879 | $3,067,714 |
| Net income per unit | $0.29 | $0.33 |
| Distributions per unit paid or to be paid to unit owners | $0.33 | $0.30 |
The accompanying notes are an integral part of these financial statements.
| 2021 | 2020 | |
|---|---|---|
| Balance, beginning of period | $465,774 | $120,399 |
| Net income | 2,673,879 | 3,067,714 |
| 3,139,653 | 3,188,113 | |
| Less: | ||
| Current year distributions paid or to be paid to unit owners | 3,032,895 | 2,757,177 |
| Balance, end of period | $106,758 | $430,937 |
The accompanying notes are an integral part of these financial statements.
| 2021 | 2020 | |
|---|---|---|
| Sources of Cash and Cash Equivalents: | ||
| Gas, sulfur and oil royalties received | $3,164,461 | $3,701,403 |
| Interest income | 416 | 2,704 |
| 3,164,877 | 3,704,107 | |
| Uses of Cash and Cash Equivalents: | ||
| Payment of Trust expenses | 490,998 | 636,393 |
| Distributions paid | 1,838,118 | 3,216,705 |
| 2,329,116 | 3,853,098 | |
| Net increase (decrease) in cash and cash equivalents during the period | 835,761 | (148,991) |
| Cash and cash equivalents, beginning of period | 649,585 | 1,590,893 |
| Cash and cash equivalents, end of period | $1,485,346 | $1,441,902 |
The accompanying notes are an integral part of these financial statements.
(1) Summary of significant accounting policies:
Basis of accounting -
The accompanying financial statements of North European Oil Royalty Trust (the "Trust") are prepared in accordance with the rules and regulations of the Securities and Exchange Commission. Financial statement balances and financial results are presented on a modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States ("GAAP basis"). In the opinion of management, all adjustments that are considered necessary for a fair presentation of these financial statements, including adjustments of a normal, recurring nature, have been included.
On a modified cash basis, revenue is earned when cash is received and expenses are incurred when cash is paid. GAAP basis financial statements disclose revenue as earned and expenses as incurred, without regard to receipts or payments. The modified cash basis of accounting is utilized to permit 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 modified cash basis of accounting provides a more meaningful presentation to unit owners of the results of operations of the Trust.
The results of any interim period are not necessarily indicative of the results to be expected for the fiscal year. These financial statements should be read in conjunction with the financial statements that were included in the Trust's Annual Report on Form 10-K for the year ended October 31, 2020 (the "2020 Form 10-K"). The Statements of Assets, Liabilities and Trust Corpus included herein contain information from the Trust's 2020 Form 10-K.
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 and state 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. The Trust has no state income tax obligations.
Cash and cash equivalents -
Cash and cash equivalents are defined as amounts deposited in bank accounts and amounts invested in certificates of deposit and U. S. Treasury bills with original maturities generally of three months or less from the date of purchase. The investment options available to the Trust are limited in accordance with specific provisions of the Trust Agreement. As of July 31, 2021, the uninsured amount held in the Trust's U.S. bank accounts was $1,223,513. In addition, the Trust held Euros 9,970, the equivalent of $11,834, in its German bank account at July 31, 2021.
Net income per unit -
Net income per unit is based upon the number of units outstanding at the end of the period. As of both July 31, 2021 and 2020, there were 9,190,590 units of beneficial interest outstanding.
New accounting pronouncements -
The Trust is not aware of any recently issued, but not yet effective, accounting standards that would be expected to have a significant impact on the Trust's financial position or results of operations.
(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 Corporation 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, condensate and sulfur.
(3) Related party transactions:
John R. Van Kirk, the Managing Director of the Trust, is reimbursed by the Trust for office space and office expenses at cost. For such expenses, the Trust reimbursed the Managing Director $1,642 and $1,458 in the third quarter of fiscal 2021 and 2020 and $5,613 and $4,020 in the first nine months of fiscal 2021 and 2020, respectively.
Lawrence A. Kobrin, a Trustee of the Trust, is a Senior Counsel at Cahill Gordon & Reindel LLP, which serves as counsel to the Trust. For the third quarter of fiscal 2021 and 2020, the Trust paid Cahill Gordon & Reindel LLP $2,065 and $6,950 for legal services and $28,840 and $38,007 for legal services, respectively.
(4) Employee benefit plan:
The Trust has established a savings incentive match plan for employees (SIMPLE IRA) that is available to both employees of the Trust, one of whom is the Managing Director. The Trustees have authorized the Trust to make contributions to the accounts of the employees, on a matching basis, of up to 3% of cash compensation paid to each employee for the 2021 and 2020 calendar years.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Executive Summary
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. 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 of the funds available after provision is made for anticipated Trust expenses.
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 engaging in such activities 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 a concession or leases in the Federal Republic of Germany. The actual concession or leases are held either by Mobil Erdgas-Erdol GmbH ("Mobil Erdgas"), a German operating subsidiary of the ExxonMobil Corporation ("ExxonMobil"), or by Oldenburgische Erdolgesellschaft ("OEG"). The Oldenburg concession is the primary area from which the natural gas, sulfur and oil are extracted and currently provides 100% of all the royalties received by the Trust. The Oldenburg concession, approximately 1,386,000 acres, covers virtually the entire former Grand Duchy of Oldenburg and is located in the German federal state of Lower Saxony. None of the leases are active.
In 2002, Mobil Erdgas and BEB Erdgas und Erdol GmbH ("BEB"), a joint venture of ExxonMobil 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, either Mobil Erdgas or BEB.
The operating companies pay monthly royalties to the Trust based on their sales of natural gas, sulfur and oil. Of these three products, natural gas provided approximately 90% of the cumulative royalty income received in fiscal 2021. The amount of royalties paid to the Trust is primarily based on four factors: the amount of gas sold, the price of that gas, the area from which the gas is sold, and the exchange rate.
On or about the 25th of the months of January, April, July and October of each year, the operating companies determine the amount of royalties that are payable to the Trust based on applicable sales during the relevant period. This amount is paid out to the Trust in three monthly installments as royalty payments (payable on or about the 15th of each month) during its upcoming fiscal quarter. In addition, the operating companies review the actual amount of royalties that were paid to the Trust for that period and calculate the difference between the amounts paid and the amounts payable. Any additional amounts payable by the operating companies would be paid immediately and any overpayment would be deducted from the payment for the first month of the following fiscal quarter. In September of each year, the operating companies make the final determination of any necessary underpayment or overpayment of royalties for the prior calendar year. The Trust's independent accountants based in Germany review the royalty calculations on a biennial basis.
There are two types of natural gas found within the Oldenburg concession, sweet gas and sour gas. Sweet gas has little or no contaminants and needs no treatment before it can be sold. Sour gas, in comparison, must be processed at the Grossenkneten desulfurization plant which commenced operations in 1972. The desulfurization process removes hydrogen sulfide and other contaminants before the clean gas can be sold. The hydrogen sulfide in gaseous form is converted to sulfur in a solid form and sold separately. With full operation of the plant's two remaining parallel processing units ("trains"), raw gas input capacity stands at approximately 400 million cubic feet ("MMcf") per day. As needed, EMPG conducts maintenance on the plant generally during the summer months when demand is lower. For a 10-week period during the summer of 2020, Grossenkneten was completely shut down. Major renovation work was conducted between August 21 and October 13, 2020 with lead-up and finalization work being added to the respective ends of the period. This refurbishment must be undertaken every 10 years and is monitored by an independent third-party inspector that must certify the successful completion of all the required work with regard to the safety of operations. The work necessitated an expansion in the number of employees by about 800 employees and technicians for the duration and included the installation of a new gas and heat exchanger with a cost of approximately Euros 500,000. Following this most recent refurbishment, ExxonMobil has stated that beginning in Spring 2021 it will be conducting a sour gas study, which is expected to be ongoing through the end of 2021. All cost aspects from drilling through processing with ongoing maintenance from the wellhead to pipelines to final processing at Grossenkneten will be evaluated in light of current sour gas reserves and possible additions to reserves through new wells or sidetracks from existing wells. This analysis will be matched with anticipated future gas prices and the return on investment to determine the most economical course of action.
Under one set 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 (the "Mobil Agreement"). Under the Mobil Agreement, there is no deduction of costs prior to the calculation of royalties from gas well gas and oil well gas, which together accounted for approximately 99% of the cumulative royalty income received under this agreement in fiscal 2021. Historically, the Trust has received significantly greater royalty payments under the Mobil Agreement, as compared to the OEG Agreement described below, due to the higher royalty rate specified by that agreement.
The Trust is also entitled under the Mobil Sulfur Agreement to receive a 2% royalty on gross receipts of sales of sulfur obtained as a by-product of sour gas produced from the western part of Oldenburg. The payment of the sulfur royalty is conditioned upon sales of sulfur by Mobil Erdgas at a selling price above an agreed upon base price. This base price is adjusted annually by an inflation index. In the first nine months of fiscal 2021, the Trust received $151,861 in sulfur royalties under the Mobil Sulfur Agreement, including $50,184 in sulfur royalties during the third quarter. In the first nine months of fiscal 2020, the Trust received $71,099 in sulfur royalties under the Mobil Sulfur Agreement. The Trust did not receive any royalties attributable to sulfur sales during the third quarter of fiscal 2020 because the selling price for that quarter was below the agreed upon base price.
Under another set of rights covering the entire Oldenburg concession and pursuant to the agreement with OEG, the Trust receives royalties at the rate of 0.6667% on gross receipts from sales by BEB 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 (the "OEG Agreement"). Under the OEG Agreement, 50% of the field handling and treatment 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.
In 2016, the Mobil and OEG Agreements were amended, establishing a new base for the determination of gas prices upon which the Trust's royalties are calculated. This change reflects a shift to the prices calculated for the German Border Import gas Price ("GBIP"). The average GBIP used under the Mobil and OEG Royalty Agreements has been and will continue to be increased by 1% and 3%, respectively, for the royalty calculations. This change was intended to reduce the scope and cost of the accounting examination, eliminate ongoing disputes with OEG and Mobil regarding sales to related parties, and reduce prior year adjustments to the normally scheduled year-end reconciliation. The pricing basis has eliminated certain costs (transportation and plant gas storage), that were previously deductible prior to the royalty calculation under the OEG Agreement.
For unit owners, changes in the currency exchange rate between the U.S. Dollar and the Euro have an immediate impact. This impact occurs at the time the royalties, which are paid to the Trust in Euros, are converted into U.S. Dollars at the applicable exchange rate and promptly transferred from Germany to the Trust's bank account in the United States. In relation to the U.S. Dollar, a stronger Euro would yield more U.S. Dollars and a weaker Euro would yield fewer U.S. Dollars.
The Trust continues to engage a consultant in Germany, who provides general information to the Trust on the German and European economies and energy markets. The consultant receives reports from EMPG with respect to current and planned drilling and exploration efforts. EMPG and the operating companies continue to limit the information flow to that which is required by German law, and the Trust is not able to confirm any of the information supplied by EMPG or the operating companies. EMPG notified the Trust's consultant that, due to the continuing low gas prices, Ahlhorn Z-3, originally scheduled to commence drilling in 2020, had been postponed until gas prices recover. For the time being, EMPG has not scheduled any new gas well drilling through 2021.
Results: Third Quarter of Fiscal 2021 Versus Third Quarter of Fiscal 2020
Total royalty income received during the third quarter of fiscal 2021 was derived from sales of gas, sulfur and oil from the Trust's overriding royalty areas in Germany during the second calendar quarter of 2021. A distribution of 15 cents per unit was paid on August 25, 2021 to owners of record as of August 13, 2021. Comparisons of total royalty income and net income for the third quarter of fiscal 2021 and 2020 are shown below.
| 3rd Fiscal Quarter Ended 7/31/2021 | 3rd Fiscal Quarter Ended 7/31/2020 | Percentage Change | |
|---|---|---|---|
| Total Royalty Income | $1,480,863 | $1,399,614 | +5.81% |
| Net Income | $1,363,590 | $1,278,075 | +6.69% |
| Distribution per Unit | $0.15 | $0.11 | +36.36% |
Total royalty income reflects the inclusion of positive and/or negative adjustments that the operators make during the quarter based upon their corrected royalty calculations for the prior periods, as well as the inclusion of Mobil sulfur royalties. In the third quarter of fiscal 2021, total royalty income was not affected because there were no prior period adjustments, but total royalty income was increased by Mobil sulfur royalties of $50,184. In the third quarter of fiscal 2020, total royalty income was reduced by net prior period adjustments totaling ($10,192) and reflected no further increase due to the absence of a current quarter Mobil sulfur royalties.
The table below is intended to illustrate trends based on actual gas sales in each fiscal quarter. Gas royalties shown in the table below are determined based on the actual physical gas sales that occurred during the second calendar quarter of 2021 and the average German Border Import gas Price for the period of February 2021 through April 2021.
| Mobil Agreement | 2nd Calendar
|
2nd Calendar
|
Percentage
| Gas Sales (Bcf) 1 | 4.259 | 4.565 | - 6.70% | Gas Prices2 (Ecents/Kwh)3 | 1.6032 | 1.2326 | +30.07% | Average Exchange Rate4 | 1.2004 | 1.1143 | + 7.73% |
|---|---|---|---|
| Gas Royalties | $937,634 | $718,425 | +30.51% | Gas Prices ($/Mcf)5
| $5.50 |
$3.93 |
+39.95% |
| OEG Agreement |
Gas Sales (Bcf) |
14.465 |
13.948 |
+3.71% | Gas Prices (Ecents/Kwh) |
1.6349 |
1.2570 |
+30.06% | Average Exchange Rate |
1.1998 |
1.1141 |
+ 7.69% | Gas Royalties |
$402,862 |
$236,432 |
+70.39% | Gas Prices ($/Mcf) |
$5.48 |
$3.92 |
+39.80% | |
| Footnotes |
|---|
| 1. Billion cubic feet |
| 2. Gas prices derived from February-April period |
| 3. Euro cents per kilowatt hour |
| 4. Based on average Euro/dollar exchange rates of cumulative royalty transfers |
| 5. Dollars per thousand cubic feet |
Excluding the effects of differences in prices and average exchange rates, the combination of royalty rates on gas sold from western Oldenburg results in an effective royalty rate approximately seven times higher than the royalty rate on gas sold from eastern Oldenburg. This is of particular significance to the Trust since gas sold from western Oldenburg provides the bulk of royalties paid to the Trust. For the calendar quarter ended June 30, 2021, gas sales from western Oldenburg accounted for only 29.44% of all gas sales from the Oldenburg concession. However, royalties on these gas sales provided approximately 78.81%, or $1,057,242 out of $1,341,495, of all royalties attributable to gas.
Trust expenses for the third quarter of fiscal 2021 decreased 3.50%, or $4,266, to $117,504 in comparison to $121,770 for the third quarter of fiscal 2020. The Trust received interest income in the amount of $231 during both the third quarters of fiscal 2021 and fiscal 2020.
The current Statement of Assets, Liabilities and Trust Corpus of the Trust at July 31, 2021, compared to that at fiscal year-end (October 31, 2020), shows an increase in assets due to higher royalty receipts during the third quarter of fiscal 2021.
Results: First Nine Months of Fiscal 2021 Versus First Nine Months of Fiscal 2020
Total royalty income received during the first nine months of fiscal 2021 was primarily derived from sales of gas, sulfur and oil from the Trust's overriding royalty areas in Germany during the fourth calendar quarter of 2020 and the first and second calendar quarters of 2021. Comparisons of total royalty income and net income for the first nine months of fiscal 2021 and 2020 are shown below.
| Nine Months
|
Nine Months
|
Percentage Change | |
|---|---|---|---|
| Total Royalty Income | $3,164,461 | $3,701,403 | -14.51% |
| Net Income | $2,673,879 | $3,067,714 | -12.84% |
| Distribution per Unit | $0.33 | $0.30 | +10.00% |
The decrease in total royalty income in the first nine months of fiscal 2021 from the first nine months of fiscal 2020 resulted primarily from lower gas sales under both the Mobil and OEG Agreements. Total royalty income also reflects the inclusion of various positive and negative adjustments that the operators made during the nine-month period, including adjustments from prior periods, as well as the inclusion of Mobil sulfur royalties. During the first nine months of fiscal 2021 and fiscal 2020, total royalty income was reduced by prior period adjustments totaling $538,651 and $399,547, respectively. The Trust received separate sulfur royalty payments under the Mobil Agreement of $151,861 and $71,099 during the first nine months of fiscal 2021 and 2020, respectively.
The table below is intended to illustrate trends based on actual gas sales in each of the fiscal nine-month periods shown. Gas royalties for the nine-month periods shown in the table below are determined based on the actual physical gas sales that occurred during the period from October 1st through June 30th and the average German Border Import gas Price for the period of August 1st through April 30th. Lower gas sales under both the Mobil and OEG Agreements were the primary factors contributing to the decrease in royalty income during the first nine-month period of fiscal 2021 in comparison to the first nine-month period of fiscal 2020.
| Mobil Agreement | Nine Months
|
Nine Months
|
Percentage
| Gas Sales (Bcf) | 11.835 | 14.073 | -15.90% | Gas Prices(Ecents/Kwh) | 1.4683 | 1.4071 | +4.35% | Average Exchange Rate | 1.2035 | 1.1054 | +8.87% |
|---|---|---|---|
| Gas Royalties Payable | $2,391,658 | $2,508,507 | -4.66% | Gas Prices ($/Mcf) | $5.05 | $4.46 | +13.23% |
| OEG Agreement | |||
| Gas Sales (Bcf) | 40.581 | 45.240 | -10.30% |
| Gas Prices (Ecents/Kwh) | 1.4925 | 1.4395 | +3.68% |
| Average Exchange Rate | 1.2032 | 1.1055 | +8.84% |
| Gas Royalties Payable | $979,970 | $961,675 | +1.90% |
| Gas Prices ($/Mcf) | $5.01 | $4.45 | +12.58% |
For the nine months ended June 30, 2021, gas sales from western Oldenburg accounted for only 29.16% of all gas sales from the Oldenburg concession. However, royalties on these gas sales provided approximately 79.79%, or $2,260,721 out of $2,833,374, of all royalties attributable to gas sales from the Oldenburg concession.
Trust expenses for the first nine months of fiscal 2021 decreased 22.85% or $145,395 to $490,998 in comparison to $636,393 for the prior fiscal year's equivalent period. The decrease in expenses reflects the absence of current costs relating to the biennial examination of the royalty statements by the Trust's accountants in Germany because 2021 is an alternate year. Expenses also declined due to lower insurance costs and reduced meeting and travel costs resulting from the shift to virtual meetings. Trust interest income received during the first nine months of fiscal 2021 decreased to $416 in comparison to $2,704 received in the first nine months of fiscal 2020 due to lower interest rates in effect and reduced deposit balances.
This report on Form 10-Q may contain forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such statements address future expectations and events or conditions concerning 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:
- risks and uncertainties concerning levels of gas production and gas sale prices, general economic conditions, currency exchange rates, and the overall impact of the novel coronavirus identified as COVID-19;
- the ability or willingness of the operating companies to perform under their contractual obligations with the Trust; and
- potential disputes with the operating companies and the resolution thereof.
All such factors are difficult to predict, contain uncertainties that may materially affect actual results, and are generally beyond the control of the Trust. New factors emerge from time to time and it is not possible for the Trust to predict all such factors or to assess the impact of each such factor on the Trust. Any forward-looking statement speaks only as of the date on which such statement is made, and the Trust does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Trust is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and is not required to provide the information required under this item.
Item 4. Controls and Procedures.
The Trust maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Trust is recorded, processed, summarized, accumulated and communicated to its management, which consists of the Managing Director, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the Securities and Exchange Commission's rules and forms.
The Managing Director has performed an evaluation of the effectiveness of the design and operation of the Trust's disclosure controls and procedures as of July 31, 2021 based on the criteria for effective internal control over financial reporting described in the standards promulgated by the Public Company Accounting Oversight Board and the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, the Managing Director concluded that the Trust's disclosure controls and procedures were effective as of July 31, 2021.
There have been no changes in the Trust's internal control over financial reporting identified in connection with the evaluation described above that occurred during the third quarter of fiscal 2021 that have materially affected or are reasonably likely to materially affect the Trust's internal control over financial reporting. We are continually monitoring and assessing the COVID-19 situation to minimize the impact on their design and operating effectiveness of the Trust's internal controls.
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings.
The Trust is not a party to any pending legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosure.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
Exhibit 31. Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Exhibit 32. Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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.
August 30, 2021