Item 1. Business. --------
(a) General Development of Business. -------------------------------
Registrant (the "Trust") is a grantor trust which, on behalf of the owners of beneficial interest in the Trust (the "unit owners"), holds overriding royalty rights covering gas and oil production in certain concessions or leases in the Federal Republic of Germany. The rights are held under contracts with local German exploration and development subsidiaries of ExxonMobil Corp. ("ExxonMobil") and the Royal Dutch/Shell Group of Companies ("Royal Dutch/Shell Group"). 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. See Item 2 of this Report for descriptions of the relationships of these companies and certain of these contracts.
The royalty rights were received by the Trust from North European Oil Company (the "Company") upon dissolution of the Company in September 1975. The Company was organized in 1957 as the successor to North European Oil Corporation (the "Corporation"). The Trust is administered by trustees (the "Trustees") under an Agreement of Trust dated September 10, 1975, as amended (the "Trust Agreement").
Neither the Trust nor the Trustees on behalf of the Trust conduct any active business activities or operations. The function of the Trustees is to monitor, verify, collect, hold, invest and distribute the royalty payments made to the Trust. Under the Trust Agreement, the Trustees make quarterly distributions of the net funds received by the Trust on behalf of the unit owners. Funds temporarily held by the Trust are invested in interest bearing bank deposits, certificates of deposit, U.S. Treasury Bills or other government obligations.
There has been no significant change in the principal operation or purpose of the Trust during the past fiscal year.
As part of the Sarbanes-Oxley Act of 2002 ("SOX"), the Securities and Exchange Commission (the "SEC") has adopted rules implementing legislation concerning governance matters for publicly held entities. The Trust is complying with the requirements of the SEC and SOX and, at this time, the Trustees have chosen not to request any relief from those provisions based on the passive nature of the Trust. In that connection, the Trustees have directed that certain of the additional statements and disclosures set forth or incorporated by reference in this Report, which the SEC requires of corporations, be made even though some of such statements and disclosures might not now or in the future be required to be made by the Trust.
In addition, the New York Stock Exchange (the "NYSE"), where units of beneficial interest of the Trust are listed for trading, has adopted additional corporate governance rules as set forth in Section 303A of the NYSE Listed Company Manual. Most of the governance requirements promulgated by the NYSE are not applicable to the Trust, which is a passive entity acting as a royalty trust and holds only overriding royalty rights. The Trust does
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not engage in any operating or active business. The Trustees have, however, chosen to constitute an Audit Committee and a Compensation Committee but may not necessarily do so in the future.
(b) Financial Information about Segments. ------------------------------------
Since the Trust conducts no active business operations, an analysis by segments is accordingly not applicable to the Trust. To the extent that royalty income received by the Trust is attributable to sales of different products, to sales from different geographic areas or to sales by different operating companies, this information is set forth in Item 2 of this Report and the Exhibit described in that Item 2.
(c) Narrative Description of Business. ---------------------------------
Under the Trust Agreement, the Trust conducts no active business operations and is restricted to collection of income from royalty rights and distribution to unit owners of the net income after payment of administrative and related expenses.
The overriding royalty rights held by the Trust are derived from contracts and agreements originally entered into by German subsidiaries of the predecessor Corporation during the early 1930s. The Trust's primary royalty rights are based on government granted concessions and remain in effect as long as there are continued production activities and/or exploration efforts by the operating companies. It is generally anticipated that the operating companies will continue production where it remains economically profitable for them to do so. In addition, the Trust holds other royalty rights, which are based on leases which have passed their original expiration dates. These leases remain in effect as long as there is continued production or the lessor does not cancel the lease. Individual lessors will normally not seek termination of the rights originally granted because the leases provide for royalty payments to the lessors if sales of oil or gas result from discoveries made on the leased land. Additionally, termination by individual lessors would result in the escheat of mineral rights to the applicable state.
Royalties are paid to the Trust on sales from production under these leases and concessions by the operating companies on a regular monthly or quarterly basis pursuant to the royalty agreements. The operating companies make royalty payments to the Trust exclusively in Euros. Once deposited in the Trust's bank account in Germany, the Euros are converted into U.S. dollars at the rate in effect on the date of transfer to the Trust's bank account in the U.S. The Trust does not engage in activities to hedge against currency risk and the fluctuations in the conversion rate impact its financial results. The Trust has not experienced any difficulty in effecting the conversion of Euros into U.S. dollars.
As the holder of overriding royalty rights, the Trust has no legal ability, whether by contract or operation of law, to compel production. Moreover, if an operator should determine to terminate production in any concession or lease area and to surrender the concession or lease, the royalty rights for that area would thereby be terminated. Under certain royalty agreements, the operating companies are required to advise the
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Trust of any intention to surrender lease or concession rights. While the Trust itself is precluded from undertaking any production activities, possible residual rights might permit the Trust to take up a surrendered concession or lease and attempt to retain a third party operator to develop such concession or lease.
The exploration for and the production of gas and oil is a speculative business. The Trust has no means of ensuring continued income from its royalty rights at either their present levels or otherwise. The Trust has no role in any of the operating companies' decision making processes, such as gas pricing, gas sales or exploration, which can impact royalty income. In addition, fluctuations in prices and supplies of gas and oil and the effect these fluctuations might have on royalty income to the Trust and on reserves net to the Trust cannot be accurately projected. Given these factors, along with the uncertainty in worldwide and local German economic conditions and the fact that the Trustees have no information beyond that information which is generally available to the public, the Trustees make no projections regarding future royalty income.
While Germany has laws relating to environmental protection, the Trustees have no detailed information concerning the present or possible effect of such laws on operations in areas where the Trust holds royalty rights on production and sale of products from those areas.
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 generally not material to the regular annual income received under the royalty rights.
The Trust, either itself or in cooperation with holders of parallel royalty rights, arranges for periodic examinations of the books and records of the operating companies to verify compliance with the computation provisions of the applicable agreements. From time to time, these examinations disclose computational errors or errors from inappropriate application of existing agreements and appropriate adjustments are requested and made.
(d) Financial Information about Geographic Areas. --------------------------------------------
The Trust does not engage in any active business operations, and its sources of income are the overriding royalty rights covering gas, sulfur and oil production in certain areas in Germany and interest on the funds temporarily invested by the Trustees. In Item 2 of this Report, there is a schedule (by product, geographic area and operating company) showing the royalty income received by the Trust during the fiscal year ended October 31, 2010.
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(e) Trustees and Executive Officers of the Trust. --------------------------------------------
As specified in the Trust Agreement, the affairs of the Trust are managed by not more than five individual Trustees who receive compensation determined under that same agreement. One of the Trustees is designated as Managing Trustee and receives additional compensation in such capacity. Robert P. Adelman has served as Managing Trustee (non-executive) since November 1, 2006. In addition, Samuel M. Eisenstat serves as Chairman for the Audit and Compensation Committees. Lawrence A. Kobrin serves as Clerk to the Trustees, a role similar to that of a corporate secretary. For these services these two individuals receive additional compensation.
Day-to-day matters are handled by the Managing Director, John R. Van Kirk, who also serves as CEO and CFO. John R. Van Kirk has held the position of Managing Director of the Trust since November 1990. The Managing Director provides office space and services at cost to the Trust.
In addition to the Managing Director, the Trust has one administrative employee in the United States, whose title is Administrator. The Trust has retained the services of a consultant in Germany who has broad experience in the petroleum industry and from whom it receives reports on a regular basis. Because the Trust has only two employees, employee relations or labor contracts are not directly material to the business or income of the Trust. The Trustees have no information concerning employee relations of the operating companies.
(f) Available Information. ---------------------
The Trust maintains a website at www.neort.com. The Trust's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and related amendments are available free of charge through the Trust's website as soon as reasonably practicable after such reports are filed with or furnished to the SEC. The Trust's Code of Conduct and Business Ethics, the Trustees' Regulations and the Trust's Audit Committee Charter are also available on the Trust's website. The Trust's website and the information contained in it and connected to it shall not be deemed incorporated by reference into this Form 10-K.
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Item 1A.
Item 1A. Risk Factors. ------------
The results of operations and financial condition of the Trust are subject to various risks. Some of these risks are described below, and you should take such risks into account in evaluating the Trust or any investment decision involving the Trust. This section does not describe all risks that may be applicable to the Trust and it is intended only as a summary of certain material risk factors. More detailed information concerning the risk factors described below is contained in other sections of this Annual Report on Form 10-K.
The Trust does not conduct any active business activities or operations and - --------------------------------------------------------------------------- has no legal ability to compel production. - -----------------------------------------
The Trust holds overriding royalty rights only. It is a passive entity and conducts no operations. It can exert no influence on the operating companies that conduct exploration, drilling, production and sales activities in the areas covered by the Trust's overriding royalty rights. Thus, the Trust has no means of ensuring continued income from its overriding royalty rights. The failure of an operator to conduct its operations, discharge its obligations, deal with regulatory agencies or comply with laws, rules and regulations, including environmental laws and regulations, in a proper manner could have an adverse effect on the net proceeds payable to the Trust. The Trust also has no right to remove or replace an operator.
The current operating companies are under no obligation to continue operations in the royalty areas. The production and sale of proved producing reserves of natural gas, from which the Trust derives its royalties, reduces the amount of remaining reserves. If the operating companies do not perform additional development projects which replace at least a portion of the current production, the anticipated life of the Trust will not be extended and could be shortened. Absent further additions to the amount of proved producing reserves, production and sales will reach a point in the future where the level of sales will no longer be commercially viable and production will cease.
Trust reserve estimates depend on many assumptions that may prove to be - ----------------------------------------------------------------------- inaccurate, and these inaccuracies may cause errors in the reserve estimates. - ----------------------------------------------------------------------------
The value of Trust units may depend in part on the reserves attributable to the royalty areas. The calculations performed in the process of estimating proved producing reserves are inherently uncertain. The accuracy of any reserve estimate is a function of the quality of available data, engineering interpretation and judgment, and the assumptions used regarding the quantities of recoverable natural gas and the future prices of crude oil and natural gas. The Trust currently receives quarterly reports from the operating companies with respect to production and sales on either a well-by-well or an area-wide basis. The Trust also receives annual reports from the operating companies with respect to current and planned drilling and exploration efforts. These reports are very limited in nature.
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The unified exploration and production venture, ExxonMobil Production Deutschland GmbH ("EMPG"), which provides these reports to the Trust, continues to limit the information flow to that which is required by German law, and the Trust has no legal or contractual right to compel the issuance of additional information. The Trust's inability to compel the delivery of detailed information with respect to individual wells increases the possibility of inaccuracy in the petroleum engineering consultant's estimates of reserves.
Actual production, revenues and expenditures by the operating companies for the royalty areas, and therefore actual net proceeds payable to the Trust, will vary from estimates and those variations could be material.
The effects of fluctuations in prices of gas and oil and changes in worldwide - ----------------------------------------------------------------------------- and local economic conditions on the royalty income paid to the Trust cannot - ---------------------------------------------------------------------------- be accurately projected. - -----------------------
The Trust's distributions are highly dependent upon the prices realized from the sale of natural gas and a decrease in such prices could reduce the amount of cash distributions paid to unit owners.
Oil and natural gas prices and demand for these products can fluctuate widely in response to a variety of factors that are beyond the control of the Trust. Factors that contribute to these fluctuations include, among others: (1) worldwide and German economic conditions and levels of economic activity; (2) political and economic conditions in major oil producing regions, especially in the Middle East and Russia; (3) weather conditions; (4) the price of oil or natural gas imported into Germany; (5) the level of consumer demand in Germany; (6) the increasing role of alternate energy sources along with the German government's and European Union's role in promoting those sources; and (7) German and European Union governmental actions intended to broaden sources of energy supply.
When oil and natural gas prices decline, the Trust is affected in two ways. First, net income from the royalty areas is reduced. Second, exploration and development activity by the operating companies on the royalty areas may decline as some projects may become uneconomic and are either delayed or eliminated. It is impossible to predict future oil and natural gas price movements, and this, along with other factors, make future cash distributions to unit owners impossible to predict.
Changes in the dollar value of the Euro have both an immediate and long term - ---------------------------------------------------------------------------- impact on the Trust. - -------------------
For unit owners, changes in the dollar value of the Euro have both an immediate and long-term impact. The immediate impact is from the exchange rate that is applied at the time the royalties, paid to the Trust in Euros, are converted into U.S. dollars at the time of their transfer from Germany to the United States. In relation to the dollar, a stronger Euro would yield more dollars and a weaker Euro would yield less dollars.
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The long-term impact relates to the mechanism of gas pricing contained in the gas sales contracts negotiated by the operating companies. These gas sales contracts often use the price of German light heating oil as one of the primary pricing factors by which the price of gas is determined. The price of German light heating oil, which is a refined product, is largely determined by the price of the imported crude oil from which it was refined. Oil on the international market is priced in dollars. However, when oil is imported into Germany it is purchased in Euros, and at this point the dollar value of the Euro becomes relevant. A weaker Euro would buy less oil making that oil and the subsequently refined light heating oil more expensive. A stronger Euro would buy more oil making that oil and the subsequently refined light heating oil less expensive. Since changes in the price of German light heating oil are subsequently reflected in the price of gas through the gas sales contracts, the dollar/Euro relationship can make the prices of gas higher or lower. The changes in gas prices that result from changes in the prices of German light heating oil are only reflected after a built-in delay of three to six months as specified in the individual gas sales contracts.
Item 1B.
Item 1B. Unresolved Staff Comments. -------------------------
None.
Item 2.
Item 2. Properties. ----------
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 ExxonMobil, or by Oldenburgische Erdolgesellschaft ("OEG"). As a result of direct and indirect ownership, ExxonMobil owns two- thirds of OEG and the Royal Dutch/Shell Group owns one-third of OEG. The Oldenburg concession (1,398,000 acres), covering virtually the entire former Grand Duchy of Oldenburg and located in the federal state of Lower Saxony, provides nearly 100% of the royalties received by the Trust. BEB Erdgas und Erdol GmbH ("BEB"), a joint venture in which ExxonMobil and the Royal Dutch/Shell Group each own 50%, administers the concession held by OEG. In 2002, Mobil Erdgas and BEB formed EMPG to carry out all exploration, drilling and production activities. All sales activities are still handled by either Mobil Erdgas or BEB.
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 account for approximately 99% of all the royalties under said agreement. 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.
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The Trust is also entitled under the Mobil 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. When the average selling price falls below the indexed base price, no royalties are payable. Up until the second quarter of fiscal 2008, the Trust had not received any royalties from sulfur sales under the Mobil Agreement for over 10 years because the selling price was below the indexed base price. The average selling price for sulfur exceeded the indexed base price, and the Trust received sulfur royalties under the Mobil Agreement, during the second, third and fourth quarters of fiscal 2008, the first quarter of fiscal 2009 and the third quarter of fiscal 2010. Sulfur royalties under the Mobil Agreement totaled $974,691, $244,874 and $78,870 during fiscal 2008, 2009 and 2010, respectively.
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, 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. In 2008, NV Nederlandse Gasunie (the state owned Dutch gas distribution company) completed the purchase of BEB's North German gas distribution and transmission network. As part of its normal biennial examination of the operating companies, the Trust's German accountants, on behalf of the Trust, completed their examination of the royalty payments for 2007-08. While the pipeline sale occurred in the latter half of 2008, the accountants confirmed that transportation costs continued in accordance with the authorized indexed flat rate throughout this period and that the method of royalty calculation has not been affected. The Trust will continue to monitor the situation but, to date, the Trust has not received any indications that this pipeline sale would affect the method of royalty calculations.
In addition to the Oldenburg area, the Trust also holds overriding royalties at various rates on a number of leases of various sizes in other areas of northwest Germany. At the present time, all but one of these leases are in the non-producing category. Due to the low level of income and the intermittent gas production from the single producing lease, Grosses Meer, reserves from this lease are not included in reserve calculations for this report year. In 2008, the German authorities requested that the operating companies conduct a reservoir analysis of the Grosses Meer leasehold area to determine whether the royalties were being properly allocated based on the locations of the gas reserves. Until this analysis was completed and a final accounting could be made, the payment of royalties to the Trust was suspended. The final accounting of royalties was completed in the third quarter of 2010. The period of adjustment covered the years 2005 through 2009 and the first quarter of calendar 2010. Royalties payable to the Trust for this period totaled $61,548, which the Trust received in its third fiscal quarter. With a further negative adjustment covering calendar 2009 and low production during the remainder of the year, royalty income from Grosses Meer for the remainder of fiscal 2010 was minimal.
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The following is a schedule of royalty income for the fiscal year ended October 31, 2010 by product, geographic area and operating company:
BY PRODUCT: ----------- Product Royalty Income - ------- --------------
Gas Well and Oil Well Gas $ 19,085,490 Sulfur $ 336,016 Oil $ 223,825
BY GEOGRAPHIC AREA: ------------------- Area Royalty Income - ---- --------------
Western Oldenburg $ 16,067,920 Eastern Oldenburg $ 3,515,735 Non-Oldenburg Areas $ 61,676
BY OPERATING COMPANY: --------------------- Company Royalty Income - ------- --------------
Mobil Erdgas (under the Mobil Agreement) $ 13,968,458 BEB (under the OEG Agreement) $ 5,676,873
Exhibit 99.1 to this Report is a report entitled Calculation of Cost Depletion Percentage for the 2010 Calendar Year Based on the Estimate of Remaining Proved Producing Reserves in the Northwest Basin of the Federal Republic of Germany as of October 1, 2010 (the "Cost Depletion Report"). The Cost Depletion Report, dated December 17, 2010, was prepared by Ralph E. Davis Associates, Inc., 1717 St. James Place, Suite 460, Houston, Texas 77056 ("Davis Associates"). Davis Associates is an independent petroleum and natural gas consulting organization specialized in analyzing hydrocarbon reserves.
The Cost Depletion Report provides documentation supporting the calculation of the cost depletion percentage for the 2010 calendar year based on the use of certain production data and the estimated net proved producing reserves as of October 1, 2010 for the primary area in which the Trust holds overriding royalty rights. The cost depletion percentage is prepared for the Trust's unit owners for tax reporting purposes. In order to permit timely filing of the Cost Depletion Report and consistent with the practice of the Trust in prior years, the information has been prepared for the 12-month period ended September 30, 2010, which is one month prior to the end of the fiscal year of the Trust. Unit owners are referred to the full text of the Cost Depletion Report contained herein for further details.
The primary purpose of the Cost Depletion Report is the preparation of the cost depletion percentage for use by unit owners in their own tax reporting. The only information provided to the Trust that can be utilized in the calculation of the cost depletion percentage is current and historical production and sales of proved producing reserves. For the western half of the Oldenburg Concession, the Trust received quarterly production and sales
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information on a well-by-well basis. For the eastern half of the Oldenburg Concession, the Trust receives cumulative quarterly production and sales information on two general areas. These general areas encompass numerous fields with varying numbers of wells. Pursuant to the arrangements under which the Trust holds royalty rights and the fact that the Trust is not considered an operating company within Germany, the Trust has no access to the operating companies' proprietary information concerning producing field reservoir data. The Trustees have been advised by its German counsel that publication of such information is not required under applicable law in Germany and that the royalty rights do not grant the Trust the right to require or compel the release of such information. Past efforts to obtain such information from the operating companies have not been successful. The information made available to the Trust by the operating companies does not include any of the following: reserve estimates, capitalized costs, production cost estimates, revenue projections, producing field reservoir data (including pressure data, permeability, porosity and thickness of producing zone) or other similar information. While the limited information available to the Trust permits the calculation of the cost depletion percentage, it does not change the uncertainty with respect to the estimate of proved producing reserves. In addition, it is impossible for the Trust or its consultant to make estimates of proved undeveloped or probable future net recoverable oil and gas by appropriate geographic areas.
The Trust has the authority to examine, but only for certain limited purposes, the operating companies' sales and production from the royalty areas. The Trust also has access to published materials in Germany from W.E.G.(a German organization equivalent to the American Petroleum Institute or the American Gas Association). The use of such statistical information relating to production and sales necessarily involves extrapolations and projections. Both Davis Associates and the Trustees believe the use of the material available is appropriate and suitable for preparation of the cost depletion percentage and the estimates described in the Cost Depletion Report. Both the Trustees and Davis Associates believe this report and these estimates to be reasonable and appropriate but assume that these estimates may vary from statistical estimates which could be made if reservoir production information (of the kind normally available to producing companies in the United States) were available. The limited information available makes it inappropriate to make projections or estimates of proved or probable reserves of any category or class other than the estimated net proved producing reserves described in the Cost Depletion Report.
Attachment A of the Cost Depletion Report shows a schedule of estimated net proved producing reserves of the Trust's royalty properties, computed as of October 1, 2010 and a five year schedule of gas, sulfur and oil sales for the twelve months ended September 30, 2010, 2009, 2008, 2007 and 2006 computed from quarterly sales reports of operating companies received by the Trust during such periods.
Item 3.
Item 3. Legal Proceedings. -----------------
The Trust is not party to any material pending legal proceeding.
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PART II
Item 5.
Item 5. Market for the Registrant's Units of Beneficial Interest, --------------------------------------------------------- Related Unit Owner Matters and Trust Purchases of Units of ---------------------------------------------------------- Beneficial Interest. -------------------
The Trust's units of beneficial interest are listed for trading on the New York Stock Exchange under the symbol NRT. Under the Trust Agreement, the Trustees distribute to unit owners, on a quarterly basis, the net royalty income after deducting expenses and reserving limited funds for anticipated administrative expenses. As of November 30, 2010, there were 1,024 unit owners of record.
The following table presents the high and low closing prices for the quarterly periods ended in fiscal 2010 and 2009 as reported by the NYSE as well as the cash distributions paid to unit owners by quarter for the past two fiscal years.
FISCAL YEAR 2010 ----------------
Low High Distribution Closing Closing per Quarter Ended Price Price Unit - ------------- --------- --------- ------------
January 31, 2010 $30.45 $33.00 $0.50 April 30, 2010 $28.70 $32.24 $0.51 July 31, 2010 $26.08 $29.97 $0.47 October 31, 2010 $25.49 $28.57 $0.56
FISCAL YEAR 2009 ----------------
Low High Distribution Closing Closing per Quarter Ended Price Price Unit - ------------- --------- --------- ------------
January 31, 2009 $20.00 $33.60 $1.06 April 30, 2009 $21.80 $29.65 $0.99 July 31, 2009 $27.70 $36.70 $0.58 October 31, 2009 $28.27 $35.48 $0.38
The quarterly distributions to unit owners represent their undivided interest in royalty payments from sales of gas, sulfur and oil during the previous quarter. Each unit owner is entitled to recover a portion of his or her investment in these royalty rights through a cost depletion percentage. The calculation of this cost depletion percentage is set forth in detail in Attachment B to the Cost Depletion Report attached as Exhibit 99.1 to this Form 10-K.
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The Cost Depletion Report has been prepared by Davis Associates using the limited information described in Item 2 of this Report to which reference is made. The Trustees believe that the calculations and assumptions used in the Cost Depletion Report are reasonable according to the facts and circumstances of available information. The cost depletion percentage recommended by the Trust's independent petroleum and natural gas consultants for calendar 2010 is 8.1743%. Specific details relative to the Trust's income and expenses and cost depletion percentage as they apply to the calculation of taxable income for the 2010 calendar year are included on a special removable page in the 2010 Annual Report under "Note to Unit Owners." Additionally, the tax reporting information for 2010 is available on the Trust's website, www.neort.com, in the section marked Tax Letters contained within the Tax Information section.
The Trust does not maintain any compensation plans under which units are authorized for issuance. The Trust did not make any repurchases of Trust units during fiscal 2010, 2009 or 2008 and has never made such repurchases.
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Item 6.
Item 6. Selected Financial Data. -----------------------
NORTH EUROPEAN OIL ROYALTY TRUST -------------------------------- SELECTED FINANCIAL DATA (CASH BASIS) ------------------------------------ FOR FIVE FISCAL YEARS ENDED OCTOBER 31, 2010 ----------------------------------------------
2010 2009 2008 2007 2006 ----------- ----------- ----------- ----------- ----------- German gas, sulfur and oil royalties received $19,645,331 $28,724,078 $34,645,159 $27,484,254 $31,079,122 =========== =========== =========== =========== ===========
Net Income $18,720,265 $27,699,228 $33,665,138 $26,739,669 $30,258,944 =========== =========== =========== =========== =========== Net Income per unit(a) $2.04 $3.01 $3.66 $2.91 $3.29 ===== ===== ===== ===== ===== Units of beneficial interest outstanding at end of year(a) 9,190,590 9,190,590 9,190,590 9,190,590 9,190,590
Distributions paid or to be paid:
Dividends and distributions per unit paid to formerly unlocated unit owners .00 .00 .00 .00 .02
Distributions per unit paid or to be paid to unit owners $2.04 $3.01 $3.66 $2.91 $3.28 ===== ===== ===== ===== ===== Total assets at year end $5,211,966 $3,586,198 $9,524,530 $5,912,621 $7,204,251 ========== =========== =========== =========== ==========
(a) Net income per unit was calculated based on the number of units outstanding at the end of the fiscal year.
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Item 7.
Item 7. 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 on hand after provision is made for Trust expenses then anticipated.
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 are described in Item 2. Properties of this report. Of particular importance with respect to royalty income are the two royalty agreements, the Mobil Agreement and the OEG Agreement. The Mobil Agreement covers gas sales from the western part of the Oldenburg concession. Under the Mobil Agreement, the Trust has traditionally received the majority of its royalty income due to the higher royalty rate of 4%. The OEG Agreement covers gas sales from the entire Oldenburg concession but the royalty rate of 0.6667% is significantly lower and gas royalties have been correspondingly lower.
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 provides approximately 97% of the total royalties. 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.
Effective with the Trust's third quarter of fiscal 2010, the new royalty payment schedule was fully implemented. At approximately the 25th of the months of January, April, July and October, the operating companies calculate the amount of gas sold during the previous calendar quarter and determine the amount of royalties that were payable to the Trust based on those sales. This amount forms the basis for royalty payments for the Trust's upcoming fiscal quarter and for any adjustment for the prior calendar quarter. For example, on January 25th the operating companies calculate gas sales and attributable royalties payable for the months of October through December. This amount is divided into thirds and forms the monthly royalty payments (payable on the 15th of each month) to the Trust for its fiscal quarter running from February through April. Continuing in this example, at the same time that the operating companies determine the actual amount of royalties that were payable for months of October through December, they look at the actual amount of royalties that were paid to the Trust during that same period and calculate the difference between what was paid and what was payable. Additional amounts payable by the operating companies would be paid immediately in January and any overpayment would be deducted from the February payment. The operating companies continue their calculations through the
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calendar year. In September of each year, the operating companies make the final determination of any necessary royalty adjustments for the prior calendar year.
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. In recent years, sweet gas has assumed the role of swing producer. During periods of high demand, the production of sweet gas is increased as necessary. During the summer months, sweet gas production is reduced due to a general decline in demand. On the other hand, sour gas must be processed at either the Grossenkneten or the Norddeutsche Erdgas-Aufbereitungs GmbH ("NEAG") desulfurization plants before it can be sold. The desulfurization process removes hydrogen sulfide and other contaminants. The hydrogen sulfide in gaseous form is converted to sulfur in a solid form and sold separately. For efficiency purposes, the desulfurization plants are operated at capacity on a continual basis. Any excess production from the plants is stored in underground storage for higher demand periods. As needed, the operators conduct maintenance on the plants, generally during the summer months when demand is lower.
Under the Mobil and OEG Agreements, 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. The Trust itself does not have access to the specific sales contracts under which gas from the Oldenburg concession is sold. Working under a confidentiality agreement with the operating companies, the Trust's German accountant reviews these contracts periodically on behalf of the Trust to verify the correctness of application of the Agreement formulas for the computation of royalty payments. The examination covering the calendar years 2005-2006 resulted in an adjustment payment that is detailed in the first paragraph of the Results: Fiscal 2009 versus Fiscal 2008, which follows. As part of the resolution of these matters, the Trust also agreed to some minor administrative changes to the timing of interim royalty payments made during each quarter and the annual reconciliation computation. None of these changes are expected to have a material effect on payments made to the Trust. The Trust's accountants in Germany have concluded their examination of the operating companies for the 2007-2008 period. The examination brought to light certain minor accounting discrepancies and, in addition, raised certain legal issues with respect to the interpretation of the royalty contracts. The Trust and the operating companies are in discussions in an effort to resolve these legal issues. The Trust does not anticipate that any resolution achieved with regard to these legal matters will be material.
For unit owners, changes in the dollar value of the Euro have both an immediate and long-term impact. The immediate impact is from the exchange rate that is applied at the time the royalties, paid to the Trust in Euros, are converted into U.S. dollars at the time of their transfer from Germany to the United States. In relation to the dollar, a stronger Euro would yield more dollars and a weaker Euro would yield less dollars. The long-term impact relates to the mechanism of gas pricing contained in the gas sales contracts negotiated by the operating companies. These gas sales contracts often use the price of German light heating oil as one of the primary pricing factors by which the price of gas is determined. The price of German light heating oil,
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which is a refined product, is largely determined by the price of the imported crude oil from which it was refined. Oil on the international market is priced in dollars. However, when oil is imported into Germany it is purchased in Euros, and at this point the dollar value of the Euro becomes relevant. A weaker Euro would buy less oil making that oil and the subsequently refined light heating oil more expensive. A stronger Euro would buy more oil making that oil and the subsequently refined light heating oil less expensive. Since changes in the price of German light heating oil are subsequently reflected in the price of gas through the gas sales contracts, the dollar/Euro relationship can make the prices of gas higher or lower. The changes in gas prices that result from changes in the prices of German light heating oil are only reflected after a built-in delay of three to six months as specified in the individual gas sales contracts.
Seasonal demand factors affect the income from the Trust's royalty rights insofar as they relate to energy demands and increases or decreases in prices, but on average they are generally not material to the annual income received under the Trust's royalty rights.
The Trust has no means of ensuring continued income from overriding royalty rights at their present level or otherwise. The Trust's current consultant in Germany provides general information to the Trust on the German and European economies and energy markets. This information provides a context in which to evaluate the actions of the operating companies. In his position as consultant, he receives reports from the operating companies with respect to current and planned drilling and exploration efforts. However, the unified exploration and production venture, EMPG, which provides the reports to the Trust's consultant, continues to limit the information flow to that which is required by German law.
The low level of administrative expenses of the Trust limits the effect of inflation on costs. Sustained price inflation would be reflected in sales prices, which with sales volumes form the basis on which the royalties paid to the Trust are computed. The impact of inflation or deflation on energy prices in Germany is delayed by the use in certain long- term gas sales contracts of a delay factor of three to six months prior to the application of any changes in light heating oil prices to gas prices.
Results: Fiscal 2010 versus Fiscal 2009 - ----------------------------------------
For fiscal 2010, the Trust's gross royalty income decreased 31.61% to $19,645,331 from $28,724,078 in fiscal 2009. The decrease in royalty income is due to declines in gas prices, gas sales and average exchange rates. The decrease in the amount of royalty income resulted in the lower distributions. The total distribution for fiscal 2010 was $2.04 per unit compared to $3.01 per unit for fiscal 2009. As in prior years, the Trust receives adjustments from the operating companies based on their final calculations of royalties payable during the previous calendar year. As an adjustment for the prior calendar year, the Trust received the equivalent of $0.0473 and $0.1090 per unit during fiscal 2010 and 2009, respectively. In addition, the Trust's German accountants discovered calculation errors by the operating companies related to discrepancies in the determination of average gas prices for the 2005-2006 period. Following the required recalculation, the Trust received the equivalent of $0.1013 per unit as an adjustment during fiscal 2009.
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Under the Mobil Agreement, gas sales declined 14.19% to 43.561 Billion cubic feet ("Bcf") in fiscal 2010 from 50.766 Bcf in fiscal 2009. It is possible that worldwide and European economic factors may have contributed to this decline. However, it is impossible to determine to what extent, if any, these factors may have impacted gas sales beyond the natural decline in gas production due to the normal reduction in well pressure experienced over time.
Quarterly and Yearly Gas Sales under the Mobil Agreement in Billion cubic feet - ------------------------------------------------------------------------------ Fiscal Quarter 2010 Gas Sales 2009 Gas Sales Percentage Change - -------------- ---------------- ---------------- ----------------- First 11.861 13.699 -13.42% Second 11.331 12.839 -11.75% Third 11.770 12.290 - 4.23% Fourth 8.599 11.938 -27.97% - -------------- ---------------- ---------------- ----------------- Fiscal Year Total 43.561 50.766 -14.19%
Average prices for gas sold under the Mobil Agreement decreased 18.07% to 1.9099 Eurocents per Kilowatt hour ("Ecents/Kwh") in fiscal 2010 from 2.3310 Ecents/Kwh in fiscal 2009. In comparison to the prior fiscal year, gas prices showed a decline over the prior year in the first and second quarters of fiscal 2010 as well as in average for the year. However, from a low point experienced in the fourth quarter of fiscal 2009, gas prices have steadily improved throughout fiscal 2010 on a quarter over quarter basis since that low point.
Average Gas Prices under the Mobil Agreement in Euro cents per Kilowatt Hour - ------------------------------------------------------------------------------ Fiscal Quarter 2010 Gas Prices 2009 Gas Prices Percentage Change - -------------- ----------------- ----------------- ----------------- First 1.6491 3.1861 -48.24% Second 1.9035 2.7105 -29.77% Third 1.9666 1.8579 + 5.85% Fourth 2.2021 1.4274 +54.27% - -------------- ----------------- ----------------- ----------------- Fiscal Year Avg. 1.9099 2.3310 -18.07%
Converting gas prices into more familiar terms, using the average exchange rate, yielded a price of $7.37 per thousand cubic feet ("Mcf"), a 19.37% decrease over fiscal 2009's average price of $9.14/Mcf. For fiscal 2010, royalties paid under the Mobil Agreement were transferred at an average Euro/dollar exchange rate of $1.3421, a decrease of 1.28% from the average Euro/dollar exchange rate of $1.3595 for fiscal 2009.
Average Euro Exchange Rate under the Mobil Agreement - ---------------------------------------------------------------------------- 2010 Average 2009 Average Fiscal Quarter Euro Exchange Rate Euro Exchange Rate Percentage Change - -------------- ------------------ ------------------ ----------------- First 1.4499 1.3388 + 8.30% Second 1.3586 1.3151 + 3.31% Third 1.2522 1.4061 -10.95% Fourth 1.3262 1.4620 - 9.29% - -------------- ------------------ ------------------ ----------------- Fiscal Year Avg. 1.3421 1.3595 - 1.28%
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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 fiscal 2010, gas sales from western Oldenburg accounted for only 38.24% of all gas sales. However, western Oldenburg gas royalties provided approximately 82.54% or $15,703,321 out of a total of $19,023,814 in overall Oldenburg gas royalties.
Under the OEG Agreement, gas sales decreased 11.53% to 113.924 Bcf in fiscal 2010 from 128.776 Bcf in fiscal 2009. It is possible that worldwide and European economic factors may have contributed to this decline. However, as noted above, it is impossible to determine to what extent, if any, these factors may have impacted gas sales beyond the natural decline in gas production due to the normal reduction in well pressure experienced over time.
Quarterly and Yearly Gas Sales under the OEG Agreement in Billion cubic feet - ---------------------------------------------------------------------------- Fiscal Quarter 2010 Gas Sales 2009 Gas Sales Percentage Change - -------------- ---------------- ---------------- ----------------- First 30.616 34.350 -10.87% Second 30.083 32.416 - 7.20% Third 30.131 31.205 - 3.44% Fourth 23.094 30.805 -25.03% - -------------- ---------------- ---------------- ----------------- Fiscal Year Total 113.924 128.776 -11.53%
Average gas prices for gas sold under the OEG Agreement decreased 20.44% to 2.0996 Ecents/Kwh in fiscal 2010 from 2.6389 Ecents/Kwh in fiscal 2009. In comparison to the prior fiscal year, gas prices showed a decline over the prior year in the first through third quarters of fiscal 2010 as well as in the average for the year. However, from a low point experienced in the fourth quarter of fiscal 2009, gas prices have steadily improved throughout fiscal 2010 on a quarter over quarter basis since that low point.
Average Gas Prices under the OEG Agreement in Euro cents per Kilowatt Hour - ---------------------------------------------------------------------------- Fiscal Quarter 2010 Gas Prices 2009 Gas Prices Percentage Change - -------------- ----------------- ----------------- ----------------- First 1.9151 3.4411 -44.35% Second 2.0857 3.1818 -34.45% Third 2.1186 2.1681 - 2.28% Fourth 2.3395 1.6487 +41.90% - -------------- ----------------- ----------------- ----------------- Fiscal Year Avg. 2.0996 2.6389 -20.44%
Converting gas prices into more familiar terms, using the average exchange rate, yielded a price of $7.88/Mcf, a 21.36% decrease over fiscal 2009's average price of $10.02/Mcf. For fiscal 2010, royalties paid under the OEG Agreement were transferred at an average Euro/dollar exchange rate of $1.3479, an increase of 0.26% from the average Euro/dollar exchange rate of $1.3444 for fiscal 2009.
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Average Euro Exchange Rate under the OEG Agreement - ---------------------------------------------------------------------------- 2010 Average 2009 Average Fiscal Quarter Euro Exchange Rate Euro Exchange Rate Percentage Change - -------------- ------------------ ------------------ ----------------- First 1.4405 1.3382 + 7.64% Second 1.3403 1.2987 + 3.20% Third 1.2596 1.3946 - 9.68% Fourth 1.3305 1.4544 - 8.52% - -------------- ------------------ ------------------ ----------------- Fiscal Year Avg. 1.3479 1.3444 + 0.26%
Reflecting both the reduction in funds available for short-term investment and the significantly lower interest rates in effect, interest income for fiscal 2010 decreased to $7,359 from $11,471 for fiscal 2009. Trust expenses decreased 10.03% to $932,425 in fiscal 2010 from $1,036,321 in fiscal 2009, primarily due to reduced Trustees' fees as specified according to the provisions of the Trust Agreement.
Results: Fiscal 2009 versus Fiscal 2008 - ----------------------------------------
For fiscal 2009, the Trust' gross royalty income decreased 17.09% to $28,724,078 from $34,645,159 in fiscal 2008. The decrease in royalty income is due to declines in both gas prices and gas sales, which were only partially offset by an increase in the average exchange rates. The decrease in the amount of royalty income resulted in the lower distributions. The total distribution for fiscal 2009 was $3.01 per unit compared to $3.66 per unit for fiscal 2008. As in prior years, the Trust receives adjustments from the operating companies based on their final calculations of royalties payable during the previous calendar year. As an adjustment for the prior calendar year, the Trust received the equivalent of $0.1090 and $0.0862 per unit during fiscal 2009 and 2008, respectively. In addition, the Trust's German accountants discovered calculation errors by the operating companies related to discrepancies in the determination of average gas prices for the 2005-2006 period. Following the required recalculation, the Trust received the equivalent of $0.1013 per unit as an adjustment during fiscal 2009.
Under the Mobil Agreement, gas sales decreased 6.19% to 50.766 Bcf in fiscal 2009 from 54.114 Bcf in fiscal 2008. The worldwide economic disruption may have contributed to the decline in gas sales. However, it is impossible to determine to what extent this and other factors may have impacted gas sales beyond the natural decline in gas production due to the normal reduction in well pressure experienced over time.
Quarterly and Yearly Gas Sales under the Mobil Agreement in Billion cubic feet - ------------------------------------------------------------------------------ Fiscal Quarter 2009 Gas Sales 2008 Gas Sales Percentage Change - -------------- ---------------- ---------------- ----------------- First 13.699 14.251 - 3.87% Second 12.839 14.004 - 8.32% Third 12.290 12.314 - 0.19% Fourth 11.938 13.545 -11.86% - -------------- ---------------- ---------------- ----------------- Fiscal Year Total 50.766 54.114 - 6.19%
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Average gas prices for gas sold under the Mobil Agreement decreased 2.56% to 2.3310 Ecents/Kwh in fiscal 2009 from 2.3922 Ecents/Kwh in fiscal 2008. For the first half of fiscal 2009 gas prices increased significantly reflecting the impact of the very high oil prices experienced in the prior year. The second half of fiscal 2009, however, reflected the impact of the substantial decline in oil prices following the peak prices experienced in the summer of 2008.
Average Gas Prices under the Mobil Agreement in Euro cents per Kilowatt Hour ---------------------------------------------------------------------------- Fiscal Quarter 2009 Gas Prices 2008 Gas Prices Percentage Change - -------------- ----------------- ----------------- ----------------- First 3.1861 2.0876 +52.62% Second 2.7105 2.2876 +18.49% Third 1.8579 2.4704 -24.79% Fourth 1.4274 2.7510 -48.11% - -------------- ----------------- ----------------- ----------------- Fiscal Year Avg. 2.3310 2.3922 - 2.56%
Converting gas prices into more familiar terms, using the average exchange rate, yielded a price of $9.14/Mcf, a 10.74% decrease over fiscal 2008's average price of $10.24/Mcf. For fiscal 2009, royalties paid under the Mobil Agreement were transferred at an average Euro/dollar exchange rate of $1.3621, a decrease of 8.48% from the average Euro/dollar exchange rate of $1.4883 for fiscal 2008.
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 fiscal 2009, gas sales from western Oldenburg accounted for only 39.42% of all gas sales. However, royalties on these gas sales provided approximately 82.52% or $23,048,569 out of a total of $27,929,320 in Oldenburg royalties attributable to gas.
Under the OEG Agreement, gas sales decreased 2.89% to 128.776 Bcf in fiscal 2009 from 132.611 Bcf in fiscal 2008. A combination of reduced demand caused by the economic disruption as well as the normal production decline may account for the decline in gas sales.
Quarterly and Yearly Gas Sales under the OEG Agreement in Billion cubic feet - ---------------------------------------------------------------------------- Fiscal Quarter 2009 Gas Sales 2008 Gas Sales Percentage Change - -------------- ---------------- ---------------- ----------------- First 34.350 34.716 - 1.05% Second 32.416 33.680 - 3.75% Third 31.205 31.045 + 0.51% Fourth 30.805 33.170 - 7.13% - -------------- ---------------- ---------------- ----------------- Fiscal Year Total 128.776 132.611 - 2.89%
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Average gas prices for gas sold under the OEG Agreement increased 5.28% to 2.6389 Ecents/Kwh in fiscal 2009 from 2.5066 Ecents/Kwh in fiscal 2008. The impact of higher gas prices during the first half of fiscal 2009 more than offset the decline in gas prices during the latter half and resulted in the higher yearly average.
Average Gas Prices under the OEG Agreement in Euro cents per Kilowatt Hour - ---------------------------------------------------------------------------- Fiscal Quarter 2009 Gas Prices 2008 Gas Prices Percentage Change - -------------- ----------------- ----------------- ----------------- First 3.4411 2.1921 +56.98% Second 3.1818 2.3809 +33.64% Third 2.1681 2.5699 -15.63% Fourth 1.6487 2.9060 -43.27% - -------------- ----------------- ----------------- ----------------- Fiscal Year Avg. 2.6389 2.5066 + 5.28%
Converting gas prices into more familiar terms, using the average exchange rate, yielded a price of $10.02/Mcf, a 3.56% decrease over fiscal 2008's average price of $10.39/Mcf. For fiscal 2009, royalties paid under the OEG Agreement were transferred at an average Euro/dollar exchange rate of $1.3534, a decrease of 8.32% from the average Euro/dollar exchange rate of $1.4762 for fiscal 2008.
Reflecting both the reduction in funds available for short term investment and the significantly lower interest rates in effect, interest income for fiscal 2009 decreased by 88.03% to $11,471 for fiscal 2009 from $95,802 for fiscal 2008. Trust expenses decreased 3.67% to $1,036,321 in fiscal 2009 from $1,075,823 in fiscal 2008 due to the earlier resolution of various legal matters raised in the examination of the royalty payments during the 2005-06 calendar years and cost savings realized through the elimination of the Trust's quarterly mailings to unit owners.
Report on Exploration and Drilling - ----------------------------------
The Trust's German consultant meets periodically with representatives of the operating companies to inquire about their planned and proposed drilling and geophysical work and other general matters. The following is a summary of his account of the operating companies' responses to his inquiries. The Trust is not able to confirm the accuracy of any of these responses. In addition, the operating companies are not required 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. According to the Trust's consultant, as a result of their geological studies and re-interpretation of the seismic data, the operating companies have significantly revised their drilling program in both the Carboniferous and Zechstein reservoirs. The following represents a summary of the Trust's German consultant's conversation with representatives of EMPG.
Goldenstedt Z-10a, which is the fourth well to explore the "tight" gas Carboniferous zone in eastern Oldenburg, began production in February 2010 with higher than expected results and consistent production levels since entering production. Goldenstedt Z-23, which is the fifth well exploring the Carboniferous zone in eastern Oldenburg, received planned individual hydraulic fracturing
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("frac") treatments in July 2010 and entered production in the fall of 2010 as a success. Cappeln Z-3a, which is the sixth well exploring the Carboniferous zone (but in western Oldenburg not eastern Oldenburg) completed drilling in October 2010. Individual hydraulic frac treatments will take place in the near future. In April 2010, Goldenstedt Z-16a became the second well in western Oldenburg to enter production. This well served to further develop the sour gas Zechstein zone. In addition, two Zechstein wells, Hengstlage-N Z-8 and Z-5a, were re-drilled following casing collapses and re-entered production in February and April 2010, respectively.
The operating companies have scheduled six wells for the 2011- 2012 period. Two wells exploring the Carboniferous zone will bring the total Carboniferous wells to eight. Oythe Z-4, the seventh Carboniferous well, will begin drilling in early 2011. As a result of technological and geological analysis of the previous Carboniferous well, the operators have concluded that slanted or even vertically drilled wells will have more successful results in the Carboniferous zone than horizontally drilled wells. Oythe Z-4 will be followed in 2012 by Goldenstedt Z-24, the eighth Carboniferous well.
Four additional wells, one in western Oldenburg, will further explore and develop the Zechstein zone. Goldenstedt Z-21 is scheduled to start drilling in 2011. This well will be followed in 2012 by Goldenstedt Z-25 and two horizontal deviations from existing wells Quaadmoor Z-4 and western well Kneheim Z-5.
We had previously mentioned other wells that were under discussion but with no firm start dates. These wells have been put off to a possible start time beyond 2012. In this group, there are two western wells, Hemmelte NW T-1, sweet gas Bunter zone and Visbek Z-16a, Zechstein, as well as three eastern Zechstein wells, Rechterfeld Z-5, Sagermeer Z-9a and Brinkholz Z-5. All these wells present various difficulties, and it is by no means certain they will be drilled.
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Critical Accounting Policies - ----------------------------
The financial statements, appearing subsequently in this Report, present financial statement balances and financial results 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"). Cash basis accounting is an accepted accounting method for royalty trusts such as the Trust. GAAP basis financial statements disclose income as earned and expenses as incurred, without regard to receipts or payments. The use of GAAP would require the Trust to accrue for expected royalty payments. This is exceedingly difficult since the Trust has very limited information on such payments until they are received and cannot accurately project such amounts. The Trust's cash basis financial statements disclose revenue when cash is received and expenses when cash is paid. The one modification of the cash basis of accounting is that the Trust accrues 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 provides a more meaningful presentation to unit owners of the results of operations of the Trust and presents to the unit owners a more accurate calculation of income and expenses for tax reporting purposes.
Off-Balance Sheet Arrangements - ------------------------------
The Trust has no off-balance sheet arrangements.
Contractual Obligations - -----------------------
As shown below, the Trust had no contractual obligations as of October 31, 2010 other than the distribution announced on October 28, 2010 and payable to unit owners on November 24, 2010, as reflected in the statement of assets, liabilities and trust corpus.
Payments Due by Period ----------------------
Less than 1-3 3-5 More than Total 1 Year Years Years 5 Years ------------- ------------- ------- ------- --------- Distributions payable to unit owners $5,146,731 $5,146,731 $0 $0 $0
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-----------------------------------
This Report on Form 10-K 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 sale prices, general economic conditions and currency exchange rates, as well as those factors set forth above under Item 1A of this Report. Actual results and events may vary significantly from those discussed in the forward looking statements.
Item 7A.
Item 7A. 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 the Trust's German bank require the bank to process conversions and transfers of royalty payments as soon as possible following their receipt. The Trust does not engage in any trading activities with respect to commodity price fluctuations.
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Item 8.
Item 8. Financial Statements and Supplementary Data. -------------------------------------------
NORTH EUROPEAN OIL ROYALTY TRUST -------------------------------- ------------------------------
Page Number -----------
Report of Independent Registered Public Accounting Firm
Financial Statements:
Statements of Assets, Liabilities and Trust Corpus as of October 31, 2010 and 2009
Statements of Revenue Collected and Expenses Paid for the Fiscal Years Ended October 31, 2010, 2009 and 2008
Statements of Undistributed Earnings for the Fiscal Years Ended October 31, 2010, 2009 and 2008
Statements of Changes in Cash and Cash Equivalents for the Fiscal Years Ended October 31, 2010, 2009 and 2008
Notes to Financial Statements -
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Report of Independent Registered Public Accounting Firm
To the Board of Trustees and Unit Owners of North European Oil Royalty Trust
We have audited the accompanying statements of assets, liabilities and trust corpus of North European Oil Royalty Trust (the "Trust") as of October 31, 2010 and 2009, and the related statements of revenue collected and expenses paid, undistributed earnings, and changes in cash and cash equivalents for each of the years in the three-year period ended October 31, 2010. The Trust's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, these financial statements have been prepared on the modified cash basis of accounting, which is a comprehensive basis of accounting other than U.S. generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in all material respects, the assets, liabilities and trust corpus of the Trust as of October 31, 2010 and 2009, its revenue collected and expenses paid, its undistributed earnings, and changes in its cash and cash equivalents for each of the years in the three-year period ended October 31, 2010, on the basis of accounting described in Note 1.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Trust's internal control over financial reporting as of October 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated December 29, 2010 expressed an unqualified opinion.
WeiserMazars LLP New York, NY December 29, 2010
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NORTH EUROPEAN OIL ROYALTY TRUST --------------------------------
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1) ----------------------------------------------------------- OCTOBER 31, 2010 AND 2009 -------------------------
ASSETS 2010 2009 ------ ------------ ------------
Current Assets -- Cash and cash equivalents $5,211,965 $3,586,197
Producing gas and oil royalty rights, net of amortization (Notes 1 and 2) 1 1 ------------ ------------ Total Assets $5,211,966 $3,586,198 ============ ============
LIABILITIES AND TRUST CORPUS ----------------------------
Current liabilities -- Distributions to be paid to unit owners, paid November 2010 and 2009 $5,146,731 $3,492,424
Trust corpus (Notes 1 and 2) 1 1
Undistributed earnings 65,234 93,773 ------------ ------------ Total Liabilities and Trust Corpus $5,211,966 $3,586,198 ============ ============
The accompanying notes are an integral part of these financial statements.
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NORTH EUROPEAN OIL ROYALTY TRUST --------------------------------
STATEMENTS OF REVENUE COLLECTED AND EXPENSES PAID (NOTE 1) ---------------------------------------------------------- FOR THE FISCAL YEARS ENDED OCTOBER 31, 2010, 2009 AND 2008 ----------------------------------------------------------
2010 2009 2008 ------------ ------------ ------------ German gas, sulfur and oil royalties received $19,645,331 $28,724,078 $34,645,159
Interest income 7,359 11,471 95,802
Trust expenses (932,425) (1,036,321) (1,075,823) ------------ ------------ ------------
Net income $18,720,265 $27,699,228 $33,665,138 ============ ============= ============
Net income per unit $2.04 $3.01 $3.66 ======= ======= =======
Distributions per unit paid or to be paid to unit owners $2.04 $3.01 $3.66 ======= ======= =======
The accompanying notes are an integral part of these financial statements.
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NORTH EUROPEAN OIL ROYALTY TRUST --------------------------------
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1) --------------------------------------------- FOR THE FISCAL YEARS ENDED OCTOBER 31, 2010, 2009 AND 2008 ----------------------------------------------------------
2010 2009 2008 ------------ ------------ ------------
Balance, beginning of year $ 93,773 $ 58,221 $ 30,642
Net income 18,720,265 27,699,228 33,665,138 ------------ ------------ ------------ 18,814,038 27,757,449 33,695,780
Less:
Current year distributions paid or to be paid to unit owners 18,748,804 27,663,676 33,637,559 ------------ ----------- ------------
Balance, end of year $ 65,234 $ 93,773 $ 58,221 ============ ============ ============
The accompanying notes are an integral part of these financial statements.
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NORTH EUROPEAN OIL ROYALTY TRUST --------------------------------
STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS (NOTE 1) ----------------------------------------------------------- FOR THE FISCAL YEARS ENDED OCTOBER 31, 2010, 2009 AND 2008 ----------------------------------------------------------
2010 2009 2008 ------------ ------------ ------------ Sources of cash and cash equivalents:
German gas, sulfur and oil royalties received $19,645,331 $28,724,078 $34,645,159
Interest income 7,359 11,471 95,802 ------------ ------------ ------------ 19,652,690 28,735,549 34,740,961 ------------ ------------ ------------
Uses of cash and cash equivalents:
Payment of Trust expenses 932,425 1,036,321 1,075,823
Distributions paid 17,094,497 33,637,560 30,053,229 ------------ ------------ ------------ 18,026,922 34,673,881 31,129,052 ------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents during the year 1,625,768 (5,938,332) 3,611,909
Cash and cash equivalents, beginning of year 3,586,197 9,524,529 5,912,620 ------------ ------------ ------------ Cash and cash equivalents, end of year $ 5,211,965 $ 3,586,197 $ 9,524,529 ============ ============ ============
The accompanying notes are an integral part of these financial statements.
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NORTH EUROPEAN OIL ROYALTY TRUST --------------------------------
NOTES TO FINANCIAL STATEMENTS ----------------------------- OCTOBER 31, 2010, 2009 AND 2008 -------------------------------
(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 modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States ("GAAP basis"). 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.
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.
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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 original maturities of approximately 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 October 31, 2010, the uninsured amounts held in the Trust's U.S. bank accounts were approximately $4,850,000. In addition, approximately $6,993 was held in the Trust's German account at October 31, 2010.
Net income per unit - ---------------------
Net income per unit is based upon the number of units outstanding at the end of the period. As of October 31, 2010, 2009 and 2008, there were 9,190,590 units of beneficial interest outstanding.
New accounting pronouncements - -------------------------------
In May 2009, the FASB issued authoritative guidance relating to subsequent events, which is effective June 15, 2009. It provides guidance for disclosing events that occur after the balance sheet date, but prior to the issuance of the financial statements. The Trust adopted this authoritative guidance on July 31, 2009. The adoption of this authoritative guidance did not have a significant impact on the Trust's financial position or operating results other than additional disclosures included in the notes to financial statements. In February 2010, FASB issued an update to this authoritative guidance, which was effective upon the issuance of the update. The Trust adopted this authoritative guidance on April 30, 2010. The update to the authoritative guidance relating to subsequent events removes the requirement for issuers to disclose the date through which subsequent events have been evaluated in both issued and revised financial statements. The adoption of this update to the authoritative guidance relating to subsequent events did not have a significant impact on the Trust's financial position or operating results other than removing the disclosure.
(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. 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.
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(3) Related Party Transactions: ---------------------------
John R. Van Kirk, the Managing Director of the Trust, provides office space and services to the Trust at cost. For such office space and services, the Trust reimbursed the Managing Director $24,067, $27,470 and $28,939 in fiscal 2010, 2009 and 2008, 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. Mr. Kobrin is no longer a partner with Cahill Gordon & Reindel LLP. For legal services, the Trust paid Cahill Gordon & Reindel LLP $97,677, $94,191 and $122,218 in fiscal 2010, 2009 and 2008, respectively.
As of November 1, 2006, John H. Van Kirk, the former Managing Trustee of the Trust and the father of John R. Van Kirk, was named to the position of Founding Trustee Emeritus. For his service in such capacity, he earned $0, $5,000 and $10,000 in fiscal 2010, 2009 and 2008, respectively. John H. Van Kirk, who served as President of North European Oil Corporation and North European Oil Company from 1954-1975 and as Managing Trustee of the Trust from 1975-2006, passed away on February 25, 2009.
(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 authorized the making of contributions by the Trust to the accounts of employees, on a matching basis, of up to 3% of cash compensation paid to each such employee for the 2008, 2009 and 2010 calendar years.
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(6) Quarterly results (unaudited): ------------------------------
The table below summarizes the quarterly results and distributions of the Trust for the fiscal years ended October 31, 2010 and 2009.
Fiscal 2010 by Quarter and Year ------------------------------------------------------------- First Second Third Fourth Year ---------- ---------- ---------- ---------- ------------- Royalties received $4,894,409 $4,926,049 $4,482,847 $5,342,026 $19,645,331
Net income $4,616,291 $4,618,701 $4,316,443 $5,168,830 $18,720,265
Net income per unit $0.50 $0.50 $0.47 $0.56 $2.04
Distributions paid or to be paid $4,595,295 $4,687,201 $4,319,577 $5,146,731 $18,748,804
Distributions per unit paid or to be paid to unit owners $0.50 $0.51 $0.47 $0.56 $2.04
Fiscal 2009 by Quarter and Year -------------------------------------------------------------- First Second Third Fourth Year ----------- ---------- ---------- ---------- ------------- Royalties received $10,180,979 $9,424,837 $5,466,337 $3,651,925 $28,724,078
Net income $ 9,846,469 $9,122,900 $5,243,544 $3,486,315 $27,699,228
Net income per unit $1.07 $0.99 $0.57 $0.38 $3.01
Distributions paid or to be paid $ 9,742,025 $9,098,684 $5,330,543 $3,492,424 $27,663,676
Distributions per unit paid or to be paid to unit owners $1.06 $0.99 $0.58 $0.38 $3.01
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Item 9.
Item 9. Changes in and Disagreements with Accountants --------------------------------------------- on Accounting and Financial Disclosure. --------------------------------------
None.
Item 9A.
Item 9A. Controls and Procedures. -----------------------
Disclosure 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 October 31, 2010. Based on that evaluation, the Managing Director concluded that the Trust's disclosure controls and procedures were effective as of October 31, 2010.
Internal Control over Financial Reporting - -----------------------------------------
Part A. Management's Report on Internal Control over Financial ------------------------------------------------------ Reporting ---------
The Trust's management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) for the Trust. There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time. Management has evaluated the Trust's internal control over financial reporting as of October 31, 2010. This assessment was based on criteria for effective internal control over financial reporting described in the standards promulgated by the Public Company Accounting Oversight Board and in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Trust's internal control over financial reporting was effective as of October 31, 2010. Management's assessment of the effectiveness of our internal control over financial reporting as of October 31, 2010 has been audited by WeiserMazars LLP, the Trust's independent auditor, as stated in their report which follows.
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Part B. Attestation Report of Independent Registered Public --------------------------------------------------- Accounting Firm ---------------
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
To the Board of Trustees and Unit Owners of North European Oil Royalty Trust
We have audited North European Oil Royalty Trust's (the "Trust") internal control over financial reporting as of October 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). The Trust's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Trust's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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In our opinion, the Trust maintained, in all material respects, effective internal control over financial reporting as of October 31, 2010, based on criteria established in Internal Control-Integrated Framework issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statements of assets, liabilities and trust corpus as of October 31, 2010, and the related statements of revenue collected and expenses paid, undistributed earnings, and changes in cash and cash equivalents for the year ended October 31, 2010 of the Trust and our report dated December 29, 2010 expressed an unqualified opinion thereon.
WeiserMazars LLP New York, NY December 29, 2009
Part C. Changes in Internal Control over Financial Reporting ----------------------------------------------------
There have been no changes in the Trust's internal control over financial reporting that occurred during the fourth quarter of fiscal 2010 that have materially affected, or are reasonably likely to materially affect, the Trust's internal control over financial reporting.
Item 9B.
Item 9B. Other Information. -----------------
None.
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PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance. ------------------------------------------------------
Except as set forth below, the information required by this item will be contained in the Trust's definitive Proxy Statement for its Annual Meeting of Unit Owners to be held on February 15, 2011, to be filed pursuant to Section 14 of the Securities Exchange Act of 1934, and is incorporated herein by reference.
Code of Ethics - --------------
The Trustees have adopted a Code of Conduct and Business Ethics (the "Code") for the Trust's trustees and employees, including the Managing Director. The Managing Director serves the roles of principal executive officer and principal financial and accounting officer. A copy of the Code is available without charge on request by writing to the Managing Director at the office of the Trust. The Code is also available at the Trust's website, www.neort.com.
All trustees and employees of the Trust are required to read and sign a copy of the Code annually. No waivers or exceptions to the Code have been granted since the adoption of the Code. Any amendments or waivers to the Code, to the extent required, will be disclosed in a Form 8-K filing of the Trust after such amendment or waiver.
Item 11.
Item 11. Executive Compensation. ----------------------
The information required by this item will be contained in the Trust's definitive Proxy Statement for its Annual Meeting of Unit Owners to be held on February 15, 2011, to be filed pursuant to Section 14 of the Securities Exchange Act of 1934, and is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management -------------------------------------------------------------- and Related Stockholder Matters. -------------------------------
The information required by this item will be contained in the Trust's definitive Proxy Statement for its Annual Meeting of Unit Owners to be held on February 15, 2011, to be filed pursuant to Section 14 of the Securities Exchange Act of 1934, and is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director ------------------------------------------------------------ Independence. ------------
The information required by this item will be contained in the Trust's definitive Proxy Statement for its Annual Meeting of Unit Owners to be held on February 15, 2011, to be filed pursuant to Section 14 of the Securities Exchange Act of 1934, and is incorporated herein by reference.
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Item 14.
Item 14. Principal Accountant Fees and Services. --------------------------------------
The information required by this item will be contained in the Trust's definitive Proxy Statement for its Annual Meeting of Unit Owners to be held on February 15, 2011, to be filed pursuant to Section 14 of the Securities Exchange Act of 1934, and is incorporated herein by reference.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules. ------------------------------------------
(a) The following is a list of the documents filed as part of this Report:
1. Financial Statements
Index to Financial Statements for the Fiscal Years Ended October 31, 2010, 2009 and 2008
Reports of Independent Registered Public Accounting Firm
Statements of Assets, Liabilities and Trust Corpus as of October 31, 2010 and 2009
Statements of Revenue Collected and Expenses Paid for the Fiscal Years Ended October 31, 2010, 2009 and 2008
Statements of Undistributed Earnings for the Fiscal Years Ended October 31, 2010, 2009 and 2008
Statements of Changes in Cash and Cash Equivalents for the Fiscal Years Ended October 31, 2010, 2009 and 2008
Notes to Financial Statements
2. Exhibits
The Exhibit Index following the signature page lists all exhibits filed with this Report or incorporated by reference.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Trust has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
NORTH EUROPEAN OIL ROYALTY TRUST
Dated: December 30, 2010 By: /s/ John R. Van Kirk ------------------------- John R. Van Kirk, Managing Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Dated: December 30, 2010 /s/ Robert P. Adelman -------------------------------- Robert P. Adelman, Managing Trustee
Dated: December 30, 2010 /s/ Samuel M. Eisenstat -------------------------------- Samuel M. Eisenstat, Trustee
Dated: December 30, 2010 /s/ Lawrence A. Kobrin -------------------------------- Lawrence A. Kobrin, Trustee
Dated: December 30, 2010 /s/ Willard B. Taylor -------------------------------- Willard B. Taylor, Trustee
Dated: December 30, 2010 /s/ Rosalie J. Wolf -------------------------------- Rosalie J. Wolf, Trustee
Dated: December 30, 2010 /s/ John R. Van Kirk -------------------------------- John R. Van Kirk, Managing Director
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Exhibit Index -------------
Exhibit Page - ------- ----
(3.1) North European Oil Royalty Trust Agreement, dated September 10, 1975, as amended through February 13, 2008(incorporated by reference as Exhibit 3.1 to Current Report on Form 8-K, filed February 15, 2008. (File No. 0-8378)).
(3.2) Amended and Restated Trustees' Regulations, amended and restated as of October 31, 2007 (incorporated by reference to Exhibit 3.1 to Current Report on Form 8-K, filed November 2, 2007 (File No. 0-8378))
(10.1) Agreement with OEG, dated April 2, 1979, exhibit to Current Report on Form 8-K filed May 11, 1979 (incorporated by reference as Exhibit 1 to Current Report on Form 8-K, filed May 11, 1979 (File No. 0-8378)).
(10.2) Agreement with Mobil Oil, A.G. concerning sulfur royalty payment, dated March 30, 1979, (incorporated by reference to Exhibit 3 to Current Report on Form 8-K, filed May 11, 1979 (File No. 0-8378)).
(21) There are no subsidiaries of the Trust.
(31) Certification of Chief Executive Officer and Chief 45 Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(32) Certification of Chief Executive Officer and 47 Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(99.1) Calculation of Cost Depletion Percentage 48 for the 2010 Calendar Year Based on the Estimate of Remaining Proved Producing Reserves in the Northwest Basin of the Federal Republic of Germany as of October 1, 2010 prepared by Ralph E. Davis Associates, Inc.
(99.2) Order Approving Settlement signed by Vice Chancellor Jack Jacobs of the Delaware Court of Chancery (incorporated by reference as Exhibit 99.2 to Current Report on Form 8-K, filed February 26, 1996).