e10vq

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2004

[ ] 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: 1-11608

WILLIAMS COAL SEAM GAS ROYALTY TRUST

(Exact name of registrant as specified in its charter)


Delaware (State or other jurisdiction of incorporation or organization)		75-6437433 (I.R.S. Employer Identification No.)

Trust Division
Bank of America, N.A.
901 Main Street
17th Floor
Dallas, Texas 75202
(Address of principal executive offices)
(Zip code)

(214) 209-2400

(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 [ ]

Number of units of beneficial interest outstanding at November 1, 2004: 9,700,000

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION
	Item 1. Financial Statements
		CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
		CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
		CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED)
		CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)
		NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
	Item 2. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II - OTHER INFORMATION
	Items 1 through 5
	Item 6. Exhibits
SIGNATURES
INDEX TO EXHIBITS
Letter Re: Unaudited Interim Financial Information
Certification Pursuant to Section 302
Certificate Pursuant to Section 906

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

The financial statements included herein have been prepared by Bank of America, N.A., as Trustee (the “Trustee”) of Williams Coal Seam Gas Royalty Trust (the “Trust”), pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to such rules and regulations, although the Trustee believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Trust’s Annual Report on Form 10-K for the year ended December 31, 2003 (the “2003 Annual Report”). The December 31, 2003 balance sheet is derived from the audited balance sheet of that date. In the opinion of the Trustee, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the assets, liabilities and trust corpus of the Trust as of September 30, 2004, the distributable income for the three-month and nine-month periods ended September 30, 2004 and 2003, and the changes in trust corpus for the nine-month periods ended September 30, 2004 and 2003, have been included. The distributable income for such interim periods is not necessarily indicative of the distributable income for the full year.

The financial statements as of September 30, 2004, and for the three-month and nine-month periods ended September 30, 2004 and 2003 included herein have been reviewed by Ernst & Young LLP, independent public accountants, as stated in their report appearing herein.

Report of Independent Registered Public Accounting Firm

The Trustee
Williams Coal Seam Gas Royalty Trust

We have reviewed the condensed statement of assets, liabilities and trust corpus of the Williams Coal Seam Gas Royalty Trust as of September 30, 2004, and the related condensed statements of distributable income for the three-month and nine-month periods ended September 30, 2004 and 2003, and the condensed statements of changes in trust corpus for the nine-month periods ended September 30, 2004 and 2003. These financial statements are the responsibility of the Trustee’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

As described in Note 2 to the financial statements, these financial statements have been prepared on a modified cash basis of accounting, which is a comprehensive basis of accounting other than U.S. generally accepted accounting principles.

Based on our reviews, we are not aware of any material modifications that should be made to the condensed interim financial statements referred to above for them to be in conformity with the basis of accounting described in Note 2.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statement of assets, liabilities and trust corpus of the Williams Coal Seam Gas Royalty Trust as of December 31, 2003, and the related statements of distributable income and changes in trust corpus for the year then ended not presented herein, and in our report dated March 10, 2004, we expressed an unqualified opinion on those financial statements. In our opinion, the information set forth in the accompanying condensed statement of assets, liabilities and trust corpus as of December 31, 2003, is fairly stated, in all material respects, in relation to the statement of assets, liabilities and trust corpus from which it has been derived.

Ernst & Young LLP

Tulsa, Oklahoma
November 5, 2004

WILLIAMS COAL SEAM GAS ROYALTY TRUST

CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS


	September 30,		December 31,
	2004		2003
	(Unaudited)
ASSETS
Current Assets — cash and cash equivalents	$	125,882	$	110,588
Royalty interests in oil and gas properties (less accumulated amortization of $125,774,473 at September 30, 2004 and $123,945,801 at December 31, 2003) (Note 2)		12,792,190		14,620,862

TOTAL ASSETS	$	12,918,072	$	14,731,450

LIABILITIES AND TRUST CORPUS
Current Liabilities:
Payable to The Williams Companies, Inc. (Note 4)	$	—	$	67,914
Other accounts payable		44,285		24,703

		44,285		92,617
Trust corpus -9,700,000 units of beneficial interest authorized and outstanding (Note 2)		12,873,787		14,638,833

TOTAL LIABILITIES AND TRUST CORPUS	$	12,918,072	$	14,731,450

The accompanying notes are an integral part of these financial statements. See accountants’ review report.

WILLIAMS COAL SEAM GAS ROYALTY TRUST

CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED)


	NINE MONTHS			NINE MONTHS
	ENDED			ENDED
	September 30, 2004			September 30, 2003
Trust corpus, beginning of period	$	14,638,833		$	18,165,048
Amortization of royalty interests (Note 2)		(1,828,672	)		(2,754,538	)
Distributable income		11,037,313			9,710,205
Distributions to Unitholders (Note 5)		(10,973,687	)		(9,755,862	)

Trust corpus, end of period	$	12,873,787		$	15,364,853

Distributions per unit (9,700,000 units) (Note 5)	$	1.13		$	1.01

The accompanying notes are an integral part of these financial statements. See accountants’ review report.

WILLIAMS COAL SEAM GAS ROYALTY TRUST

NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1. TRUST ORGANIZATION AND PROVISIONS

Williams Coal Seam Gas Royalty Trust (the “Trust”) was formed as a Delaware business trust pursuant to the terms of the Trust Agreement of Williams Coal Seam Gas Royalty Trust (as amended, the “Trust Agreement”) entered into effective as of December 1, 1992, by and among Williams Production Company, a Delaware corporation (“WPC”), as trustor, The Williams Companies, Inc., a Delaware corporation (“Williams”), and Bank of America, N.A., as successor to NationsBank, N.A., a national banking association (the “Trustee”), and Chemical Bank Delaware, a Delaware banking corporation (the “Delaware Trustee”), as trustees. The trustees are independent financial institutions.

The Trust was formed to acquire and hold certain net profits interests (the “Royalty Interests”) in proved natural gas properties located in the San Juan Basin of New Mexico and Colorado (the “Underlying Properties”) owned at the time of the Trust’s formation by WPC. The Trust was initially created effective as of December 1, 1992, with a $100 contribution by WPC. On January 21, 1993, the Royalty Interests were conveyed to the Trust by WPC pursuant to the Net Profits Conveyance (the “Conveyance”) dated effective as of October 1, 1992, by and among WPC, Williams, the Trustee and the Delaware Trustee, in consideration for all the 9,700,000 authorized units of beneficial interest in the Trust (“Units”). WPC transferred its Units by dividend to its parent, Williams, which sold an aggregate of 5,980,000 Units to the public through various underwriters in January and February 1993 (the “Public Offering”). Subsequently, Williams sold to the public an additional 151,209 Units. During the second quarter of 1995, Williams transferred its remaining Units to Williams Holdings of Delaware, Inc. (“WHD”), a separate holding company for Williams’ non-regulated businesses. Effective July 31, 1999, WHD was merged into Williams and by operation of the merger Williams assumed all assets, liabilities and obligations of WHD, including without limitation ownership of WHD’s Units. Effective August 11, 2000, Williams sold its Units to Quatro Finale IV LLC, a Delaware limited liability company (“QFIV”), in a privately negotiated transaction. Williams retained the voting rights and retained a “call” option on the transferred Units, and QFIV was granted a “put” option on the Units. During the period from December 2001 through December 2002, Williams exercised its option to purchase 960,000 of the QFIV transferred Units and simultaneously sold the Units to the public. On June 6, 2003, the Trust received notice of Williams’ intent to exercise its “put” option to repurchase 2,608,791 Units in the Trust from QFIV. According to the notice, Williams exercised its “put” option on June 13, 2003, and Williams has informed the Trustee that it sold an additional 938,200 Units to the public through September 30, 2004.

Effective May 1, 1997, WPC transferred the Underlying Properties, subject to and burdened by the Royalty Interests, to Quatro Finale LLC, a non-affiliated Delaware limited liability company (“Quatro Finale”).Ownership of the Underlying Properties reverted back to WPC effective February 1, 2001, under the terms of the May 1, 1997 transaction.Pursuant to a

Purchase and Sale Agreement dated March 14, 2001 (the “2001 Transaction Agreement”), and effective March 1, 2001, WPC sold the Underlying Properties subject to and burdened by the Royalty Interests to Quatro Finale V LLC, an unaffiliated Delaware limited liability company. On June 3, 2003, the Trust received notice from WPC of its exercise of the right to repurchase interests in the Underlying Properties from Quatro Finale V LLC pursuant to the 2001 Transaction Agreement. According to the notice, the acquisition of the Underlying Properties closed May 8, 2003, upon WPC’s execution of the Assignment and Bill of Sale, and the transaction has an effective date of January 1, 2003. Unless otherwise dictated by context, references herein to WPC with respect to the ownership of the Underlying Properties for any period from May 1, 1997 through February 28, 2001, and for the period from March 1, 2001 through January 1, 2003, shall be deemed to refer to Quatro Finale.

The Trustee has the power to collect and distribute the proceeds received by the Trust and to pay Trust liabilities and expenses. The Delaware Trustee has only such powers as are set forth in the Trust Agreement and is not empowered to otherwise manage or take part in the business of the Trust. The Royalty Interests are passive in nature and neither the Delaware Trustee nor the Trustee has any control over or any responsibility relating to the operation of the Underlying Properties.

The Trust will terminate no later than December 31, 2012, subject to earlier termination under certain circumstances described in the Trust Agreement (the “Termination Date”). Cancellation of the Trust will occur on or following the Termination Date when all Trust assets have been sold and the net proceeds therefrom distributed to holders of Units in the Trust (“Unitholders”).

The only assets of the Trust, other than cash and cash equivalents being held for the payment of expenses and liabilities and for distribution to Unitholders, are the Royalty Interests. The Royalty Interests consist primarily of a net profits interest (the “NPI”) in the Underlying Properties. The NPI generally entitles the Trust to receive 60 percent of the NPI Net Proceeds, as defined below, attributable to (i) gas produced and sold from WPC’s net revenue interests (working interests less lease burdens) in the properties in which WPC has a working interest (the “WI Properties”) and (ii) the revenue stream received by WPC attributable to its 35 percent NPI in 5,348 gross acres in La Plata County, Colorado (the “Farmout Properties”). The Royalty Interests also include a 20 percent interest in WPC’s Infill Net Proceeds, as defined below, from the sale of production if well spacing rules are effectively modified and additional wells are drilled on producing drilling blocks on the WI Properties (the “Infill Wells”) during the term of the Trust. To date, 246 Infill Wells have been drilled and 179 are producing. The current status of the Infill Wells reflects the Infill Net Profit Costs exceeding the Infill Net Profit Gross Proceeds. The Trust will not be liable for such excess costs, and such excess costs will hereafter constitute Excess Infill Net Profit Costs until recovered by WPC. The Trust will not receive its 20 percent interest in WPC’s Infill Net Proceeds until such time as the Infill Gross Proceeds exceeds the Infill Net Profit Costs. “NPI Net Proceeds” consists generally of the revenue stream received by WPC from its 35 percent net profits interest in the Farmout Properties, plus the aggregate proceeds attributable to WPC’s net revenue interest, based on the price paid at or in the vicinity of the wellhead (the “Wellhead”), of gas produced from the WI Properties, less WPC’s share of certain taxes and costs. “Infill Net Proceeds” consists generally of the aggregate proceeds, based on the price at the Wellhead, of gas produced from WPC’s net revenue interest

in any Infill Wells less certain taxes and costs. The complete definitions of NPI Net Proceeds, Infill Net Profit Costs, Excess Infill Net Profit Costs, and Infill Gross Proceeds are set forth in the Conveyance.

2. BASIS OF ACCOUNTING

The financial statements of the Trust are prepared on a modified cash basis and are not intended to present financial position and results of operations in conformity with accounting principles generally accepted in the United States (“GAAP”). Preparation of the Trust’s financial statements on such basis includes the following:

• Revenues are recognized in the period in which amounts are received by the Trust. General and administrative expenses are recognized on an accrual basis.

• Amortization of the Royalty Interests is calculated on a unit-of-production basis and charged directly to trust corpus.

• Distributions to Unitholders are recorded when declared by the Trustee (See Note 5).

• Loss contingencies are recognized in the period in which amounts are paid by the Trust.

The financial statements of the Trust differ from financial statements prepared in accordance with GAAP because royalty income is not accrued in the period of production, amortization of the Royalty Interests is not charged against operating results, and loss contingencies are not charged to operating results until paid. This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the U.S. Securities and Exchange Commission, as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.

3. FEDERAL INCOME TAXES

The Trust is a grantor trust for Federal income tax purposes. As a grantor trust, the Trust is not required to pay Federal income taxes. Accordingly, no provision for income taxes has been made in these financial statements.

Because the Trust is treated as a grantor trust, and because a Unitholder is treated as directly owning an interest in the Royalty Interests, each Unitholder is taxed directly on his per Unit pro rata share of income attributable to the Royalty Interests consistent with the Unitholder’s method of accounting and without regard to the taxable year or accounting method employed by the Trust.

Coal seam gas produced and sold after December 31, 2002, no longer generates a Section 29 credit under the Internal Revenue Code (the “Code”). Therefore, Unitholders are not entitled to claim Section 29 credits for coal seam gas produced and sold after 2002. However, a Unitholder may benefit from unused Section 29 credits for alternative minimum tax purposes. Before its expiration, the Section 29 credit could be used only to the extent that a Unitholder’s

regular tax liability exceeded the Unitholder’s tentative minimum tax liability after the regular tax liability had been reduced by the foreign tax credit and certain nonrefundable personal credits. Any part of the Section 29 credit not allowed for the tax year solely because of this alternative minimum tax limitation was subject to certain carryover provisions relating to the alternative minimum tax calculation. Except for the foregoing, there were no other Code provisions that allowed for the carryback or carryforward of Section 29 credits. As the carryforward of unused Section 29 credits is related to the alternative minimum tax calculation for succeeding years, carryforwards should continue to be allowed, even though the Section 29 credit is no longer allowed for coal seam gas produced and sold after 2002.

Each Unitholder should consult his tax adviser regarding Trust tax compliance matters.

4. RELATED PARTY TRANSACTIONS

Williams provides accounting, bookkeeping and informational services to the Trust in accordance with an Administrative Services Agreement effective December 1, 1992. The fee is $50,000 per quarter, escalating 3 percent each October 1 commencing October 1, 1993. Amounts payable by the Trust to Williams at December 31, 2003 represent the fourth quarter fee. The third quarter fee was paid by the Trust to Williams prior to September 30, 2004. Substantially all production from the WI Properties is sold to a Williams’ subsidiary. Additionally, all royalty income is received from Williams.

5. DISTRIBUTIONS TO UNITHOLDERS

The Trustee determines for each quarter the amount of cash available for distribution to Unitholders. Such amount (the “Quarterly Distribution Amount”) is an amount equal to the excess, if any, of the cash received by the Trust, on or prior to the last day of the month following the end of each calendar quarter from the Royalty Interests, plus, with certain exceptions, any other cash receipts of the Trust during such quarter, over the liabilities of the Trust paid during such quarter, subject to adjustments for changes made by the Trustee during such quarter in any cash reserves established for the payment of contingent or future obligations of the Trust.

The Trustee distributes the Quarterly Distribution Amount within 60 days after the end of each calendar quarter to each person who was a Unitholder of record on the associated record (i.e. the 45th day following the end of each calendar quarter or if such day is not a business day, the next business day thereafter), together with interest estimated to be earned on such amount from the date of receipt thereof by the Trustee to the payment date.

In addition to the regular quarterly distributions, under certain circumstances specified in the Trust Agreement (such as upon a purchase price adjustment, if any, or pursuant to the sale of a Royalty Interest), the Trust would make a special distribution (a “Special Distribution Amount”). A Special Distribution Amount would be made when amounts received by the Trust under such circumstances aggregated in excess of $9,000,000. The record date for a Special Distribution Amount will be the 15th day following receipt of amounts aggregating a Special Distribution Amount by the Trust (unless such day is not a business day in which case the record date will be the next business day thereafter or unless such day is within 10 days of the record

date for a Quarterly Distribution Amount in which case the record date will be the date as is established for the next Quarterly Distribution Amount). Distribution to Unitholders of a Special Distribution Amount will be made no later than 15 days after the Special Distribution Amount record date.

6. SUBSEQUENT EVENTS

Subsequent to September 30, 2004, the Trust declared the following distribution:


Quarterly
Record	Payment	Distribution
Date	Date	per Unit
November 15, 2004	November 29, 2004	$	.372400

The distribution per unit decreased from $.405316 attributable to the second quarter of 2004 (paid in the third quarter of 2004) to $.372400 attributable to the third quarter of 2004 (payable in the fourth quarter of 2004). The slight decrease in distributions was primarily the result of a non-recurring retroactive adjustment of $0.04 for the WI Properties included in the distribution attributable to the third quarter.

7. CONTINGENCIES

WPX Gas Resources Company (“WPX Gas Resources,” as successor in interest to Williams Gas Marketing Company), purchases natural gas produced from the WI Properties (except for certain small volumes) at the Wellhead under the terms of a gas purchase contract dated October 1, 1992, as amended (the “Gas Purchase Contract”). The Gas Purchase Contract provides for a pricing mechanism during an initial 5-year period, which expired on December 31, 1997, and continuing for one or more consecutive additional 1-year terms unless and until WPX Gas Resources exercises its annual option, exercisable 15 days prior to the end of each contract year, to discontinue purchasing gas under the pricing mechanism of the Gas Purchase Contract and instead purchase gas at a monthly market base price. WPX Gas Resources has not exercised this option and therefore the pricing mechanism will continue to remain in effect through at least December 31, 2004.

Under the pricing mechanism of the Gas Purchase Contract, when the market price is less than $1.70 per MMBtu (the “Minimum Purchase Price”), the Trust will be paid the Minimum Purchase Price for the gas and an account (the “Price Credit Account”) will be maintained to identify the accrued and unrecouped amount of payments made to the Trust in excess of the market price. Any amounts in the Price Credit Account are subject to future recoupment when the market price exceeds the Minimum Purchase Price. As of September 30, 2004, there were no remaining unrecouped price credits in the Price Credit Account. To the extent there may in the future be a balance in the Price Credit Account, the entitlement to recoup price credits means that if and when the index price is above the Minimum Purchase Price, future royalty income paid to the Trust would be reduced until such time as such Price Credit Account is once again reduced to zero. Corresponding cash distributions to Unitholders would also be reduced.

While the terms of the Gas Purchase Agreement pricing mechanism remain in place and no balance exists in the Price Credit Account, when the market price for natural gas exceeds $1.94 price per MMBtu, the Trust receives only 50 percent of the excess of the market price over the $1.94 price per MMBtu before reduction for gathering, processing and certain other costs. For production months in the second quarter of 2004, which are reported as Royalty Income in the third quarter 2004, the index price remained above the Minimum Purchase Price.

The majority of the production attributable to the Trust is within Federal units. Unit participating areas are formed by pooling production from the participating area. Entitlement to the pooled production is based on each party’s acreage in the participating area divided by the total participating acreage. Wells drilled outside the participating area may create an enlargement to the participating area and a revision of the Unit ownership entitlement. The Bureau of Land Management (“BLM”) must approve Unit participating area expansions. The effective date for Unit expansions is retroactive to the date the well creating the expansion was tested. For the nine month period ended on September 30, 2004, retroactive adjustments were processed on certain federal units. These retroactive adjustments resulted from a payout determination and unit expansions on certain federal units. The net effect of these retroactive adjustments increased royalty income by approximately $133,000 for the nine month period ended September 30, 2004. In the prior year, similar retroactive adjustments were processed on certain federal units resulting from a payout determination and unit expansions. The net effect of these retroactive adjustments decreased royalty income by approximately $357,000 for the nine month period ended September 30, 2003. The revenues presented in the accompanying statements of distributable income are on an entitlement basis and reflect the most recent BLM participating area approvals at September 30, 2004 and 2003, respectively. There are pending or anticipated applications or approvals for additional participating area enlargements that could impact future operating results.

On January 5, 2001, the State of New Mexico, acting under authority of the Minerals Management Services (“MMS”), presented WPC with an Audit Issue Letter for the alleged underpayment of royalties in the amount of $948,501, on gas produced from the Underlying Properties due to Federal royalty owners during the time period from January 1992 through December 1996. MMS regulations permit a lessee to deduct from its gross proceeds its reasonable actual cost of transportation and processing to transport the gas from the lease to the point of sale in calculating the market value of its production. The State of New Mexico claims that certain costs of removing and transporting carbon dioxide gas are not deductible. On March 22, 2001, WPC responded to the Audit Issue Letter and contested the State of New Mexico’s claim for additional royalties as being contrary to law. In early November 2001, WPC received from the MMS an order to Report and Pay Additional Royalties and Perform Restructured Accounting on subsequent periods. The order was dated October 30, 2001. The order requires WPC to (1) pay additional royalties of $943,964 on production related to the audit period of January 1, 1992 through December 31, 1996; (2) pay an estimated incremental royalty

amount of $991,549 for production covering January 1, 1997 through March 31, 2001; and (3) perform a restructured accounting and pay any additional royalties for months after March 2001. On January 30, 2002, WPC filed its Statement of Reasons in support of its earlier appeal of the audit issue letter. Applying the MMS methodology asserted by the State of New Mexico could potentially result in negative adjustments to amounts previously paid to the Trust of approximately $3,500,000, including interest. On November 1, 2004, WPC received notice that their appeal was denied in part by the MMS. WPC is currently evaluating the necessary course of action to defend against the claims asserted by the MMS. A separate but similar matter is currently under appeal by another major oil and gas producer in the D.C. circuit court. If the D.C. circuit court upholds the lower court ruling, it is likely that WPC would not appeal the MMS decision and this would result in an adjustment to royalty income otherwise payable from WPC to the Trust and a corresponding decrease in distributions to Unitholders, which could eliminate entirely distributions for one or more future quarterly periods.

Item 2. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations.

The Trust makes quarterly cash distributions to Unitholders. The only assets of the Trust, other than cash and cash equivalents being held for the payment of expenses and liabilities and for distribution to Unitholders, are net profits interests (the “Royalty Interests”) in certain proved coal seam gas properties located in the San Juan Basin of New Mexico and Colorado (the “Underlying Properties”). The Royalty Interests owned by the Trust burden the Underlying Properties, which are owned by WPC and not the Trust.

Distributable income of the Trust consists of the excess of royalty income plus interest income over the general and administrative expenses of the Trust. Upon receipt by the Trust, royalty income is invested in short-term investments in accordance with the Trust Agreement until its subsequent distribution to Unitholders.

The amount of distributable income of the Trust for any quarter may differ from the amount of cash available for distribution to Unitholders in such quarter due to differences in the treatment of the expenses of the Trust in the determination of those amounts. The financial statements of the Trust are prepared on a modified cash basis pursuant to which the expenses of the Trust are recognized when incurred. Consequently, the reported distributable income of the Trust for any quarter is determined by deducting from the income received by the Trust the amount of expenses incurred by the Trust during such quarter. The amount of cash available for distribution to Unitholders, however, is determined in accordance with the provisions of the Trust Agreement and reflects the deduction from the income actually received by the Trust of the amount of expenses actually paid by the Trust and adjustments for changes in reserves for unpaid liabilities. See Note 5 to the financial statements of the Trust appearing elsewhere in this Form 10-Q for additional information regarding the determination of the amount of cash available for distribution to Unitholders.

Three Months and Nine Months Ended September 30, 2004 Compared to Three Months and Nine Months Ended September 30, 2003

For the quarter ended September 30, 2004, royalty income received by the Trust amounted to $4,128,702 as compared to $4,191,222 received for the same quarter in 2003. The decrease in royalty income is a result of lower production volumes attributable to the Trust’s net profits interest offset by a favorable retroactive adjustment of approximately $408,000 (see Note 7 to the Financial Statements) and higher natural gas prices in 2004 compared to 2003. Production related to the royalty income received by the Trust in the third quarter of 2004 was 1,745,534 MMBtu compared to 2,052,170 MMBtu for the same quarter in 2003. Royalty income for the nine months ended September 30, 2004 was $11,652,389 compared to $10,318,848 for the same period in 2003. The increase in royalty income is due to net favorable retroactive adjustments of approximately $133,000 in 2004 versus net unfavorable retroactive adjustments of $357,000 in 2003 (see Note 7 to the Financial Statements) and higher natural gas prices offset by lower production volumes attributable to the Trust’s net profits interest in 2004 compared to 2003. Production related to the royalty income received by the Trust for the nine months ended September 30, 2004 was 4,823,143 MMBtu compared to 5,419,097 MMBtu for the nine months ended September 30, 2003. Interest income for the three and nine month periods ended September 30, 2004 was comparable to prior year. General and administrative expenses decreased for the quarter ended September 30, 2004 compared to 2003. The decrease is related to a one-time charge incurred in 2003 for costs incurred to prepare and submit a private letter ruling request to the IRS on the Section 29 credit timing issue. General and administrative expenses for the nine month period ended September 30, 2004 were comparable to prior year.

Distributable income for the quarter ended September 30, 2004 was $3,982,301, or $.41 per Unit, compared to $4,028,072, or $.42 per Unit, for the third quarter of 2003. A distribution of $.405316 per Unit was made on August 27, 2004 to Unitholders of record on August 16, 2004. Distributable income for the nine months ended September 30, 2004 was $11,037,314, or $1.14 per Unit compared to $9,710,205, or $1.00 per Unit, for the same period in 2003. The increase was the result of items previously discussed.

Because the Trust incurs administrative expenses throughout a quarter but receives its royalty income only once in a quarter, the Trustee established in the first quarter of 1993 a cash reserve for the payment of expenses and liabilities of the Trust. The Trustee thereafter has adjusted the amount of such reserve in certain quarters as required for the payment of the Trust’s expenses and liabilities, in accordance with the provisions of the Trust Agreement. The Trustee anticipates that it will maintain for the foreseeable future a cash reserve which will fluctuate as expenses are paid and royalty income is received.

Royalty income to the Trust is attributable to the sale of depleting assets. All of the Underlying Properties burdened by the Royalty Interests consist of producing properties. Accordingly, the proved reserves attributable to WPC’s interest in the Underlying Properties are expected to decline substantially during the term of the Trust and a portion of each cash distribution made by the Trust will, therefore, be analogous to a return of capital. Accordingly, cash yields attributable to the Units are expected to decline over the term of the Trust.

Royalty income received by the Trust in a given calendar quarter will generally reflect the sum of (i) proceeds from the sale of gas produced from the WI Properties during the

preceding calendar quarter, plus (ii) cash received by WPC with respect to the Farmout Properties either (a) during the preceding calendar quarter or (b) if received in sufficient time to be paid to the Trust, in the month immediately following such calendar quarter. Accordingly, the royalty income included in distributable income for the quarter ended September 30, 2004, was based on production volumes and natural gas prices for the period April 2004 through June 2004, as shown in the table below. Due to delays associated with the receipt of income related to the Farmout Properties, the Trust’s royalty income for the third quarter of 2004 reflects estimated production volumes from the Farmout Properties for the months of March 2004 through May 2004, as shown in the table below. The production volumes included in the table below are for production attributable to net profits of the Underlying Properties, and not for production attributable to the Trust’s Royalty Interests.


	Three Months			Three Months
	Ended			Ended
	June 30, 2004			June 30, 2003
Production (MMBtu) (1)
WI Properties		3,857,349	(2)		4,147,234	(4)
Farmout Properties		866,571	(3)		884,321	(5)
Blanco Hub Spot Price ($/MMBtu) (6)	$	5.08		$	4.26
Net Wellhead Price WI Properties ($/MMBtu) (6)	$	2.38		$	2.06

(1)		Million British Thermal Units.

(2)		Includes retroactive adjustments of 139,816 MMBtu.

(3)		Reflects estimated volumes for March 2004 through May 2004.

(4)		Includes retroactive adjustments of 29,550 MMBtu.

(5)		Reflects estimated volumes for March 2003 through May 2003.

(6)		Simple average of estimates for the months included in the period presented.

Production from the WI Properties is generally sold by WPC to WPX Gas Resources pursuant to the Gas Purchase Contract that provides certain protections for WPC and Unitholders by providing that WPX Gas Resources will purchase gas from WPC at a minimum purchase price of $1.70 even when the applicable index price (which is equal to 97% of the Blanco Hub Spot Price) falls below $1.70 per MMBtu, provided that WPX Gas Resources is entitled to accrue price credits in the amount of any excess of the minimum price so paid over the applicable index price. When the applicable index price exceeds $1.70 per MMBtu, WPX Gas Resources is entitled to recoup any price credits previously accrued. When the applicable index price is greater than $1.94 per MMBtu, the Gas Purchase Contract protects and benefits WPX Gas Resources by allowing it to purchase gas from WPC at a contract price equal to $1.94 per MMBtu plus only 50 percent of the difference between the applicable index price and $1.94 per MMBtu. The Gas Purchase Contract also provides that the price paid for gas by WPX Gas

Resources is reduced by the amount of gathering, processing and certain other costs paid by WPX Gas Resources. See “Item 2 Properties— The Royalty Interests — Gas Purchase Contract” in the 2003 Annual Report for detailed information about the Gas Purchase Contract and its impact on Trust income.

The initial five-year term of the pricing provision (“Primary Term”) of the Gas Purchase Contract expired on December 31, 1997. Following the expiration of the Primary Term, the pricing provision will continue in effect for one or more consecutive additional one-year terms (each such term a “Contract Year”) unless and until WPX Gas Resources exercises its annual option, exercisable 15 days prior to the end of each Contract Year, to discontinue purchasing gas from WPC under the pricing provision of the Gas Purchase Contract and instead purchase gas at a monthly price equal to the index price of 97 percent of the Blanco Hub Spot Price. WPX has not yet exercised this option and the pricing mechanism of the Primary Term therefore has been and will continue to remain in effect through at least December 31, 2004.

For the nine months ended September 30, 2004, which is based on production volumes and natural gas prices for the nine months ended June 30, 2004, the Blanco Hub Spot Price was above $2.00 per MMBtu, and therefore the applicable index price under the Gas Purchase Contract, which is equal to 97% of the Blanco Hub Spot Price, was above $1.94 per MMBtu through such periods. In general, under the Gas Purchase Contract, the Trust only receives the benefit of 50 percent of any amount by which the applicable index price exceeds $1.94 per MMBtu. Consequently, pursuant to the terms of the Gas Purchase Contract, WPX Gas Resources paid WPC an amount for gas purchased equal to $1.94 per MMBtu, less the costs paid by WPX Gas Resources to gather and process such gas and deliver it to specified delivery points plus 50 percent of the excess of the applicable index price over $1.94 per MMBtu. The Blanco Hub Spot Price remained above $2.00 per MMBtu in October 2004.

The information in this Form 10-Q concerning production and prices relating to the Underlying Properties is based on information prepared and furnished by WPC to the Trustee. The Trustee has no control over and no responsibility relating to the operation of the Underlying Properties.

Forward - Looking Statements

This report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included in this Form 10-Q, including, without limitation, statements contained in this “Trustee’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Trust’s financial position and industry conditions, are forward-looking statements. Although the Trustee believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

The only assets of and sources of income to the Trust are the Royalty Interests, which generally entitle the Trust to receive a share of the net profits from natural gas production from

the Underlying Properties. Consequently, the Trust’s financial results can be significantly affected by fluctuations in natural gas prices and the Trust has commodity price risk exposure associated with the natural gas markets in the United States. The Royalty Interests do not entitle the Trust to control or influence the operation of the Underlying Properties or the sale of gas produced therefrom. Natural gas produced from the WI Properties, which comprises the majority of production attributable to the Royalty Interests, is currently sold by WPC pursuant to the terms of the Gas Purchase Contract. Although the Trust is not a party to the Gas Purchase Contract, the Gas Purchase Contract may significantly impact revenues to the Trust. Although the Gas Purchase Contract mitigates the risk to the Trust of low gas prices, it also limits the ability of the Trust to benefit from the effects of higher gas prices. See “Item 2 Properties — The Royalty Interests — Gas Purchase Contract” in the 2003 Annual Report for detailed information about the Gas Purchase Contract and its impact on the Trust and Unitholders.

The Trust is passive in nature and other than the Trust’s ability to periodically borrow money as necessary to pay expenses, liabilities and obligations of the Trust that cannot be paid out of cash held by the Trust, the Trust is prohibited from engaging in borrowing transactions. The amount of any such borrowings is unlikely to be material to the Trust. The Trust periodically holds short-term investments acquired with funds held by the Trust pending distribution to Unitholders and funds held in reserve for the payment of Trust expenses and liabilities. Because of the short-term nature of these borrowings and investments and certain limitations upon the types of such investments which may be held by the Trust, the Trustee believes that the Trust is not subject to any material interest rate risk. The Trust does not engage in transactions in foreign currencies which could expose the Trust or Unitholders to any foreign currency related market risk.

Item 4. Controls and Procedures.

As of the end of the period covered by this report, the Trustee carried out an evaluation of the effectiveness of the design and operation of the Trust’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 and 15d-15. Based upon that evaluation, the Trustee concluded that the Trust’s disclosure controls and procedures are effective in timely alerting the Trustee to material information relating to the Trust required to be included in the Trust’s periodic filings with the Securities and Exchange Commission. In its evaluation of disclosure controls and procedures, the Trustee has relied, to the extent considered reasonable, on information provided by WPC. There has not been any change in the Trust’s internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Trust’s internal control over financial reporting.

PART II - OTHER INFORMATION

Items 1 through 5.

Not applicable.

Item 6. Exhibits.

The exhibits listed below are filed as part of this report:


EXHIBIT
NUMBER		EXHIBIT
15.1 —		Letter regarding unaudited interim financial information dated November 5, 2004, from the independent accountant which acknowledges awareness of the use in registration statement of a report on unaudited interim financial information.

31.1 —		Certification by Ron E. Hooper, Senior Vice President and Administrator of Bank of America, Trustee of Williams Coal Seam Gas Royalty Trust, dated November 9, 2004, and submitted pursuant to Rule 13a-14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 —		Certificate by Bank of America, Trustee of Williams Coal Seam Gas Royalty Trust, dated November 9, 2004, and submitted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).

INDEX TO EXHIBITS


EXHIBIT
NUMBER		EXHIBIT
15.1 —		Letter regarding unaudited interim financial information dated November 5, 2004, from the independent accountant which acknowledges awareness of the use in registration statement of a report on unaudited interim financial information.

31.1 —		Certification by Ron E. Hooper, Senior Vice President and Administrator of Bank of America, Trustee of Williams Coal Seam Gas Royalty Trust, dated November 9, 2004, and submitted pursuant to Rule 13a- 14(a)/15d-14(a) and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 —		Certificate by Bank of America, Trustee of Williams Coal Seam Gas Royalty Trust, dated November 9, 2004, and submitted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).


	NINE MONTHS ENDED			NINE MONTHS ENDED
	September 30, 2004			September 30, 2003
Royalty income (Note 2)	$	11,652,389		$	10,318,848
Interest income		6,309			7,034

Total		11,658,698			10,325,882
General and administrative expenses (Note 4)		(621,385	)		(615,677	)

Distributable income	$	11,037,313		$	9,710,205

Distributable income per unit (9,700,000 units) (Note 2)	$	1.14		$	1.00


WILLIAMS COAL SEAM GAS ROYALTY TRUST

By:	BANK OF AMERICA, N.A., Trustee

	By:	/s/ RON E. HOOPER

		Ron E. Hooper
		Senior Vice President and Administrator

a)		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this quarterly report is being prepared;

b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this quarterly report based on such evaluation;

c)		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 (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


Date: November 9, 2004	By:	/s/ RON E. HOOPER

		Ron E. Hooper
		Senior Vice President and Administrator
		Bank of America, N.A.


Date: November 9, 2004	BANK OF AMERICA, N.A., TRUSTEE FOR
	WILLIAMS COAL SEAM GAS ROYALTY TRUST

	By:	/s/ RON E. HOOPER

		Ron E. Hooper
		Senior Vice President and Administrator
		Bank of America, N.A.

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•		Revenues are recognized in the period in which amounts are received by the Trust. General and administrative expenses are recognized on an accrual basis.

•		Amortization of the Royalty Interests is calculated on a unit-of-production basis and charged directly to trust corpus.

•		Distributions to Unitholders are recorded when declared by the Trustee (See Note 5).

•		Loss contingencies are recognized in the period in which amounts are paid by the Trust.

1.		I have reviewed this quarterly report on Form 10-Q of Williams Coal Seam Gas Royalty Trust, for which Bank of America, N.A., acts as Trustee;

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, distributable income and changes in trust corpus of the registrant as of, and for, the periods presented in this quarterly report.

4.		I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), or for causing such controls and procedures to be established and maintained, for the registrant and I have:

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; and

(1)		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Trust.