THE FOLLOWING ITEMS WERE THE SUBJECT OF A
FORM 12b-25 AND ARE INCLUDED HEREIN:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Fiscal Year ended December 31, 2001
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-10243
BP PRUDHOE BAY ROYALTY TRUST
(Exact name of registrant as specified in its charter)
DELAWARE 13-6943724
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
THE BANK OF NEW YORK, TRUSTEE
5 PENN PLAZA, 13TH FLOOR
NEW YORK, NEW YORK 10001
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 896-7201
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
UNITS OF BENEFICIAL INTEREST NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: NONE
BP PRUDHOE BAY ROYALTY TRUST (THE "REGISTRANT") HEREBY AMENDS ITS ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 AS FOLLOWS:
1. BY INSERTING THE FOLLOWING ITEM 8 IN PART II THEREOF:
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BP PRUDHOE BAY ROYALTY TRUST
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report..................................................2
Statements of Assets, Liabilities and Trust Corpus
As of December 31, 2001 and 2000............................................3
Statement of Cash Earnings and Distributions for the years ended
December 31, 2001, 2000 and 1999..............................................4
Statements of Changes in Trust Corpus for the years ended
December 31 2001, 2000 and 1999...............................................5
Notes to Financial Statements.................................................6
1
INDEPENDENT AUDITORS' REPORT
Trustee and Holders of Trust Units of
BP Prudhoe Bay Royalty Trust:
We have audited the accompanying statements of assets, liabilities and
trust corpus of BP Prudhoe Bay Royalty Trust as of December 31, 2001 and 2000,
and the related statements of cash earnings and distributions and changes in
trust corpus for each of the years in the three-year period ended December 31,
2001. These financial statements are the responsibility of the Trustee. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. 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 the Trustee, 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 2, these financial statements have been prepared on a
modified basis of cash receipts and disbursements, which is a comprehensive
basis of accounting other than accounting principles generally accepted in the
United States of America.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets, liabilities and trust corpus of BP Prudhoe
Bay Royalty Trust as of December 31, 2001 and 2000, and its cash earnings and
distributions and its changes in trust corpus for each of the years in the
three-year period ended December 31, 2001, on the basis of accounting described
in note 2.
/s/KPMG LLP
New York, New York
March 28, 2002
2
BP PRUDHOE BAY ROYALTY TRUST
Statements of Assets, Liabilities and Trust Corpus
Prepared on a modified basis of cash receipts and disbursements
December 31, 2001 and 2000
(In thousands, except unit data)
2001 2000
---- ----
ASSETS
Royalty Interest, net (notes 1,2 and 3) $ 18,077 20,085
Cash equivalents (note 2) 1,009 1,048
--------- ---------
Total assets $ 19,086 21,133
========= =========
LIABILITIES AND TRUST CORPUS
Accrued expenses $ 522 464
Trust Corpus (40,000,000 units of beneficial
interest authorized, 21,400,000 units issued
and outstanding) 18,564 20,669
--------- ---------
Total liabilities and Trust Corpus $ 19,086 21,133
========= =========
See accompanying notes to financial statements.
3
BP PRUDHOE BAY ROYALTY TRUST
Statements of Cash Earnings and Distributions
Prepared on a modified basis of cash receipts and disbursements
For the Years Ended December 31, 2001, 2000 and 1999
(In thousands, except unit data)
2001 2000 1999
---- ---- ----
Royalty revenues $ 59,934 65,026 13,443
Interest Income 70 92 60
Less: Trust administrative expenses (724) (732) (798)
Expense reserve - (500) (500)
------------- ------------- -------------
Cash earnings $ 59,280 63,886 12,205
============= ============= =============
Cash distributions $ 59,319 63,838 12,205
============= ============= =============
Cash distributions per unit $ 2.772 2.983 0.570
============= ============= =============
Units outstanding 21,400,000 21,400,000 21,400,000
============= ============= =============
See accompanying notes to financial statements.
4
BP PRUDHOE BAY ROYALTY TRUST
Statements of Changes in Trust Corpus
Prepared on a modified basis of cash receipts and disbursements
For the Years Ended December 31, 2001, 2000 and 1999
(In thousands)
2001 2000 1999
---- ---- ----
Trust Corpus at beginning of year $ 20,669 22,626 25,008
Cash earnings 59,280 63,886 12,205
Increase in cash reserve - 500 487
Decrease (increase) in accrued expenses (58) 6 (367)
Cash distributions (59,319) (63,838) (12,205)
Amortization of Royalty Interest (2,008) (2,511) (2,502)
---------- ---------- ----------
Trust Corpus at end of year $ 18,564 20,669 22,626
========== ========== ==========
See accompanying notes to financial statements.
5
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements
Prepared on a modified basis of cash receipts and disbursements
December 31, 2001, 2000 and 1999
(1) FORMATION OF THE TRUST AND ORGANIZATION
BP Prudhoe Bay Royalty Trust (the "Trust"), a grantor trust, was created as
a Delaware business trust pursuant to a Trust Agreement dated February 28,
1989 among The Standard Oil Company ("Standard Oil"), BP Exploration
(Alaska) Inc. (the "Company"), The Bank of New York (The "Trustee") and The
Bank of New York (Delaware), as co-trustee. Standard Oil and the Company
are indirect wholly owned subsidiaries of the British Petroleum Company
p.l.c. ("BP").
In 2000, the Company and certain other Prudhoe Bay working interest owners
cross-assigned interests in the Prudhoe Bay Field pursuant to the Prudhoe
Bay Unit Alignment Agreement. The Company retained all rights, obligations,
and liabilities associated with the Trust. This transaction is not expected
to have a material effect on the Turst's operation.
On February 28, 1989, Standard Oil conveyed an overriding royalty interest
(the "Royalty Interest") to the Trust. The Trust was formed for the sole
purpose of owning and administering the Royalty Interest. The Royalty
Interest represents the right to receive, effective February 28, 1989, a
per barrel royalty (the "Per Barrel Royalty") of 16.4246% on the lesser of
(a) the first 90,000 barrels of the average actual daily net production of
oil and condensate per quarter or (b) the average actual daily net
production of oil and condensate per quarter from the Company's working
interest in the Prudhoe Bay Field (the "Field") as of February 28, 1989,
located on the North Slope of Alaska. Trust Unit holders will remain
subject at all times to the risk that production will be interrupted or
discontinued or fall, on average, below 90,000 barrels per day in any
quarter. BP has guaranteed the performance by the Company of its payment
obligations with respect to the Royalty Interest.
The trustees of the Trust are The Bank of New York, a New York corporation
authorized to do a banking business, and The Bank of New York (Delaware), a
Delaware banking corporation. The Bank of New York (Delaware) serves as
co-trustee in order to satisfy certain requirements of the Delaware Trust
Act. The Bank of New York alone is able to exercise the rights and powers
granted to the Trustee in the Trust Agreement.
The Per Barrel Royalty in effect for any day is equal to the price of West
Texas Intermediate crude oil (the "WTI Price") for that day less scheduled
Chargeable Costs (adjusted in certain situations for inflation) and
Production Taxes (based on statutory rates then in existence). For years
subsequent to 2006, Chargeable Costs will be reduced up to a maximum amount
of $1.20 per barrel in each year if additions to the Field's proved
reserves do not meet certain specific levels.
The Trust is passive, with the Trustee having only such powers as are
necessary for the collection and distribution of revenues, the payment of
Trust liabilities and the protection of the Royalty Interest. The Trustee,
subject to certain conditions, is obligated to establish cash reserves and
borrow funds to pay liabilities of the Trust when they become due. The
Trustee may sell Trust properties only (a) as authorized by a vote of the
Trust Unit holders, (b) when necessary to provide for the payment of
specific liabilities of the Trust then due (subject to certain conditions)
or (c) upon termination of the Trust. Each Trust Unit issued and
outstanding represents an equal undivided share of beneficial interest in
the Trust. Royalty payments are received by the Trust and distributed to
Trust Unit holders, net of Trust expenses, in the month succeeding the end
6
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements (Continued)
(1), Continued
of each calendar quarter. The Trust will terminate upon the first to occur
of the following events:
(a) On or prior to December 31, 2010: upon a vote of Trust Unit holders of
not less than 70% of the outstanding Trust Units.
(b) After December 31, 2010: (i) upon a vote of Trust Unit holders of not
less than 60% of the outstanding Trust Units, or (ii) at such time the
net revenues from the Royalty Interest for two successive years
commencing after 2010 are less than $1,000,000 per year (unless the
net revenues during such period are materially and adversely affected
by certain events).
In order to ensure the Trust has the ability to pay future expenses, the
Trust established a cash reserve account which management believes is
sufficient to pay approximately one year's current and expected
liabilities and expenses of the Trust.
(2) BASIS OF ACCOUNTING
The financial statements of the Trust are prepared on a modified cash basis
and reflect the Trust's assets, liabilities, Corpus, earnings and
distributions as follows:
(a) Revenues are recorded when received (generally within 15 days of the
end of the preceding quarter) and distributions to Trust Unit holders
are recorded when paid.
(b) Trust expenses (which include accounting, engineering, legal, and
other professional fees, trustees' fees and out-of-pocket expenses)
are recorded on an accrual basis.
(c) Amortization of the Royalty Interest is calculated based on the units
of production attributable to the Trust over the production of
estimated proves reserves attributable to the Trust at the beginning
of the fiscal year (approximately 94,000,000, 0 and 65,000,000 barrels
of estimated proved reserves were used to calculated the amortization
of the Royalty Interest for the years ended December 31, 2001, 2000
and 1999 respectively). Such amortization is charged directly to the
Trust Corpus, and does not affect cash earnings. The daily rate for
amortization per net equivalent barrel of oil for the years ended
December 31, 2001, 2000 and 1999 was $0.37, $0.47 and $0.47
respectively. The Trust evaluates impairment of the Royalty Interest
by comparing the undiscounted cash flows expected to be realized from
the Royalty Interest to the carrying value, pursuant to Statement of
Financial Accounting Standards No. 121 ("SFAS 121") "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of". If the expected future undiscounted cash flows are less
than the carrying value, the Trust recognizes an impairment loss for
the difference between the carrying value and the estimated fair value
of the Royalty Interest (see note 3).
While these statements differ from financial statements prepared in
accordance with accounting principles generally accepted in the United
States of America, the cash basis of reporting revenues and distributions
is considered to be the most meaningful because quarterly distributions to
the Unit holders are based on net cash receipts.
As of December 31, 2001 and 2000, cash equivalents consist of US treasury
bills with an initial term of less than three months. All interest income
earned on the treasury bills are reinvested.
7
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements (Continued)
(2), Continued
Estimates and assumptions are required to be made regarding assets,
liabilities and changes in Trust Corpus resulting from operations when
financial statements are prepared. Changes in the economic environment,
financial markets and any other parameters used in determining these
estimates could cause actual results to differ.
(3) ROYALTY INTEREST
The Royalty Interest is comprised of the following at December 31, 2001 and
2000 (in thousands):
2001 2000
---- ----
Royalty Interest $ 535,000 535,000
Less: Accumulated amortization (343,405) (341,397)
Impairment write-down (173,518) (173,518)
---------- ----------
$ 18,077 20,085
========== ==========
(4) INCOME TAXES
The Trust files its federal tax return as a grantor trust subject to the
provisions of subpart E of Part I of Subchapter J of the Internal Revenue
Code of 1986, as amended, rather than as an association taxable as a
corporation. The Unit holders are treated as the owners of Trust income and
Corpus, and the entire taxable income of the Trust will be reported by the
Unit holders on their respective tax returns.
If the Trust were determined to be an association taxable as a corporation,
it would be treated as an entity taxable as a corporation on the taxable
income from the Royalty Interest, the Trust Unit holders would be treated
as shareholders, and distributions to Trust Unit holders would not be
deductible in computing the Trust's tax liability as an association.
8
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements (Continued)
(5) SUMMARY OF QUARTERLY RESULTS (UNAUDITED)
A summary of selected quarterly financial information for the years ended
December 31, 2001 and 2000 is as follows (in thousands, except unit data):
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
----------- ----------- ----------- -----------
2001
Royalty revenues $ 19,932 14,418 13,269 12,315
Interest income 19 17 23 11
Trust administrative expenses (158) (253) (269) (44)
--------- --------- --------- ---------
Cash earnings 19,793 14,182 13,023 12,282
Cash distributions 19,777 14,167 13,096 12,279
Cash distributions per unit 0.924 0.662 0.612 0.574
2000
Royalty revenues $ 12,105 16,841 16,425 19,655
Interest income - 16 11 65
Trust administrative expenses (164) (274) (232) (62)
Expenses reserve (250) (250) - -
--------- --------- --------- ---------
Cash earnings 11,691 16,333 16,204 19,658
Cash distributions 11,691 16,333 16,204 19,610
Cash distributions per unit 0.546 0.763 0.757 0.917
(6) SUPPLEMENTAL RESERVE INFORMATION AND STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOW RELATING TO PROVED RESERVES (UNAUDITED)
Pursuant to Statement of Financial Accounting Standards No. 69 -
"Disclosures About Oil and Gas Producing Activities" ("FASB 69"), the Trust
is required to include in its financial statements supplementary
information regarding estimates of quantities of proved reserves
attributable to the Trust and future net cash flows.
Estimates of proved reserves are inherently imprecise and subjective and
are revised over time as additional data becomes available. Such revisions
may often be substantial. Information regarding estimates of proved
reserves attributable to the combined interests of the Company and the
Trust were based on Company-prepared reserve estimates. The Company's
reserve estimates are believed to be reasonable and consistent with
presently known physical data concerning the size and character of the
Field.
There is no precise method of allocating estimates of physical quantities
of reserve volumes between the Company and the Trust, since the Royalty
Interest is not a working interest and the Trust does not own and is not
entitled to receive any specific volume of reserves from the Field. Reserve
volumes attributable to the Trust were estimated by allocating to the Trust
its share of estimated future production from the Field, based on the WTI
Price on December 31, 2001 ($19.78 per barrel), December 31, 2000 ($26.83
per barrel), and December 31, 1999 ($25.60 per barrel). Because the reserve
volumes attributable to the Trust are estimated using an allocation of
reserve volumes based on estimated future production and on the current WTI
Price, a change in the timing of estimated production or a change in the
WTI price will result in a change in the Trust's estimated reserve volumes.
Therefore, the estimated reserve volumes attributable to the Trust will
vary if different production estimates and prices are used.
9
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements (Continued)
(6), Continued
In addition to production estimates and prices, reserve volumes
attributable to the Trust are affected by the amount of Chargeable Costs
that will be deducted in determining the Per Barrel Royalty. The Royalty
Interest includes a provision under which, in years subsequent to 2006, if
additions to the Field's proved reserves from January 1, 1988 (after
certain adjustments) do not meet certain specified levels, Chargeable Costs
will be reduced up to a maximum amount of $1.20 per barrel in each year.
Under the provisions of FASB 69, no consideration can be given to reserves
not considered proved at the present time. Accordingly, in estimating the
reserve volumes attributable to the Trust, Chargeable Costs were reduced by
the maximum amount in years subsequent to 1998, after considering the
amount of reserves that have been added to the Field's proved reserves from
January 1, 1988.
Net proved reserves of oil and condensate attributable to the Trust as of
December 31, 2001, 2000 and 1999 based on the Company's latest reserve
estimate at such time, the WTI Prices on December 31, 2001, 2000, and 1999
and a reduction in Chargeable Costs in years subsequent to 1998, were
estimated to be 43, 91 and 94 million barrels, respectively (of which 43,
84, and 89 million barrels, respectively, are proved developed).
The standardized measure of discounted future net cash flow relating to
proved reserves disclosure required by FASB 69 assigns monetary amounts to
proved reserves based on current prices. This discounted future net cash
flow should not be construed as the current market value of the Royalty
Interest. A market valuation determination would include, among other
things, anticipated price increases and the value of additional reserves
not considered proved at the present time or reserves that may be produced
after the currently anticipated end of field life. At December 31, 2001,
2000, and 1999 the standardized measure of discounted future net cash flow
relating to proved reserves attributable to the Trust (estimated in
accordance with the provisions of FASB 69), based on the WTI Prices on
those dates of $19.78, $26.83, and $25.60, respectively, were as follows
(in thousands):
December 31, December 31, December 31,
2001 2000 1999
---- ---- ----
Future net cash flows $ 64,584 520,980 522,231
10% annual discount for
estimated timing of
cash flows (17,543) (214,733) (217,504)
---------- ---------- ----------
Standardized measure of
discounted future net
cash flow relating to
proved reserves (a) $ 47,041 306,247 304,727
========== ========== ==========
10
BP PRUDHOE BAY ROYALTY TRUST
Notes to Financial Statements (Continued)
(6), Continued
(a) The standardized measure of discounted future net cash flow relating
to proved reserves, estimated without reducing Chargeable Costs in
years subsequent to 1998, would be $47,041,000, $306,247,000, and
$304,727,000 at December 31, 2001, 2000 and 1999, respectively. The
following are the principal sources of the change in the standardized
measure of discounted future net cash flows (in thousands):
2001 2000 1999
---- ---- ----
Revisions of prior estimates:
Reserve volumes $ 47,566 2,913 330,031
WTI price (314,380) 80,047 -
Chargeable costs - inflation (24,397) (26,302) -
Production taxes 47,995 (10,571) -
Other 956 (2,187) 2
------------ ------------ ------------
(242,260) 43,900 330,033
Royalty income received (b) (44,842) (72,853) (25,306)
Accretion of discount 27,896 30,473 -
------------ ------------ ------------
Net (decrease) increase
during the year $ (259,206) 1,520 304,727
============ ============ ============
(b) Royalty income received for 2001, 2000 and 1999 includes the
following:
Period October 1, 2001 through December 31, 2001 $4,840
Period October 1, 2000 through December 31, 2000 $19,932
Period October 1, 1999 through December 31, 1999 $12,105
The above royalty income was received by the Trust in January 2002,
2001 and 2000, respectively.
The changes in quantities of proved oil and condensate were as follows
(thousands of barrels):
Estimated net proved reserves of oil
and condensate at December 31, 1999 93,582
Production (5,410)
Reserve estimate revisions 2,539
Change caused by prices/costs -
--------
Estimated net proved reserves of oil
and condensate at December 31, 2000 90,711
Production (5,395)
Reserve estimate revisions 1,055
Change caused by prices/costs (43,178)
--------
11
Estimated net proved reserves of oil
and condensate at December 31, 2001 43,193
========
Proved reserves:
December 31, 1999 93,582
========
December 31, 2000 90,711
========
December 31, 2001 43,193
========
12
2. BY AMENDING ITEM 14 IN PART III THEREOF TO READ AS FOLLOWS:
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS
The following financial statements of the Trust are included in Part II,
Item 8:
Independent Auditors' Report
Statements of Assets, Liabilities and Trust Corpus as of December 31, 2001
and 2000
Statements of Cash Earnings and Distributions for the years ended December
31, 2001, 2000 and 1999
Statements of Changes in Trust Corpus for the years ended December 31,
2001, 2000 and 1999
Notes to Financial Statements
(b) FINANCIAL STATEMENT SCHEDULES
All financial statement schedules have been omitted because they are either
not applicable, not required or the information is set forth in the financial
statements or notes thereto.
(c) EXHIBITS
4.1 BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among
The Standard Oil Company, BP Exploration (Alaska) Inc., The Bank of
New York, Trustee, and F. James Hutchinson, Co-Trustee.
4.2 Overriding Royalty Conveyance dated February 27, 1989 between BP
Exploration (Alaska) Inc. and The Standard Oil Company.
4.3 Trust Conveyance dated February 28, 1989 between The Standard Oil
Company and BP Prudhoe Bay Royalty Trust.
4.4 Support Agreement dated as of February 28, 1989 among The British
Petroleum Company p.l.c., BP Exploration (Alaska) Inc., The Standard
Oil Company and BP Prudhoe Bay Royalty Trust.
(d) REPORTS ON FORM 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission by the Trust during the quarter ended December 31, 2001.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
BP PRUDHOE BAY ROYALTY TRUST
By: THE BANK OF NEW YORK, as Trustee
By: /s/Ming Shiang
----------------------
Ming J. Shiang
Vice President
April 11, 2002
The Registrant is a trust and has no officers, directors, or persons
performing similar functions. No additional signatures are available and none
have been provided.
14