MARINE PETROLEUM TRUST Critical Accounting Policies. The financial statements of Marine have been prepared on the modified cash basis method and are not intended to present Marine's financial position and results of operations in conformity with GAAP. Under the modified cash basis method:
• Royalty income is recognized when received by Marine.
• Marine's expenses (which include accounting, legal, and other
professional fees, Trustees' fees and out-of-pocket expenses) are
recorded on an actual paid basis. Reserves for liabilities that are
contingent or uncertain in amount may also be established if considered
necessary.
• Distributions to unitholders are recognized when declared by the Trustee
of the Trust.
The financial statements of Marine differ from financial statements prepared in conformity with GAAP because of the following:
• Royalty income is recognized in the month received rather than in the
month of production.
• Reserves may be established for certain contingencies that would not be
recorded under GAAP.
• Expenses are recorded in the month paid rather than in the month incurred.
• Depletion is not recorded.
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This comprehensive basis of accounting corresponds to the accounting principles
permitted for royalty trusts by the
The preparation of financial statements in conformity with the modified cash basis method of accounting requires the Trustee to make various estimates and assumptions that affect the reported amount of liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. Actual results may differ from such estimates.
Revenue Recognition. In
Effective
Results of Operations. Marine's revenues are derived from the oil and natural gas production activities of third parties. Marine's revenues and distributions fluctuate from period to period based upon factors beyond Marine's control, including, without limitation, the number of leases subject to Marine's interests, the number of productive wells drilled on leases subject to Marine's interests, the level of production over time from such wells and the prices at which the oil and natural gas from such wells are sold.
Marine's results of operations are significantly impacted by oil and natural gas prices and the quantity of oil and natural gas production. Oil and natural gas prices have historically experienced significant volatility. Marine is not permitted to manage its commodity price risk through the use of fixed price contracts or financial derivatives.
Marine's income consists primarily of oil and natural gas royalties and is based on the value at the well of its percentage interest in oil and natural gas sold without reduction for any of the expenses of production. "Value at the well" for oil means the sellers' selling price at its receiving point onshore, less the cost of transportation from the offshore lease to the onshore receiving point. "Value at the well" for natural gas means the selling price less the cost of compression, dehydration and transportation from the lease to the delivery point of the pipeline transporting the product to market. In general, value at the well is determined on the basis of the selling price of oil, natural gas and other minerals produced, saved and sold, or at wellhead prices determined by industry standards, where the selling price does not reflect value at the well. In the event an agreement is not arms-length in nature, the value is based upon current market prices.
Summary Review.In general, Marine receives royalties two months after oil
production and three months after natural gas production. The
Marine's distributable income for fiscal 2022 amounted to
There was no income from the Trust's interest in Tidelands for fiscal years 2021
and 2020. However, Marine received
The following table shows the number of wells drilled or recompleted on leases in which Marine has an interest and the number of active wells at the end of each of the past three fiscal years.
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Fiscal Year Ended June 30,
2022 2021 2020
Wells Drilled or Recompleted (Gross) - - -
Active Wells (Gross) 201 201 201
The following table and related discussion and analysis shows the royalty income, the net quantities sold, and the average price received for oil and natural gas during fiscal 2022, 2021 and 2020.
Fiscal Year Ended June 30,
2022 2021 2020
Income from:
Oil royalties $ 1,259,133 $ 362,751 $ 691,915
Natural gas royalties $ 89,121 $ 23,905 $ 81,913
Totals $ 1,348,254 $ 386,656 $ 773,828
Net quantities sold:
Oil (bbls) 16,096 9,085 12,628
Natural gas (mcf) 15,221 8,539 33,639
Average price:
Oil (per bbl) (1) $ 78.23 $ 39.93 $ 54.79
Natural gas, net of expenses (per mcf) (1) $ 5.86 $ 2.80 $ 2.44 (1) These amounts are net of the cost of transportation from offshore leases to
onshore receiving points.
Fiscal Year 2022 Compared to Fiscal Year 2021. During fiscal 2022, Marine received approximately 93% of its royalty income from the sale of oil and 7% of its royalty income from the sale of natural gas, as compared to approximately 94% of its royalty income from the sale of oil and 6% of its royalty income from the sale of natural gas in fiscal year 2021. Income from oil and natural gas royalties in fiscal 2022 increased approximately 249% from fiscal 2021, primarily due to an increase in prices realized for oil and natural gas in addition to an increase in production of oil and natural gas resulting from an opening up of production.
Revenue from oil royalties amounted to
Revenue from natural gas royalties amounted to
General and administrative expenses for fiscal 2022 amounted to
Fiscal Year 2021 Compared to Fiscal Year 2020. During fiscal 2021, Marine received approximately 94% of its royalty income from the sale of oil and 6% of its royalty income from the sale of natural gas, as compared to approximately 89% of its royalty income from the sale of oil and 11% of its royalty income from the sale of natural gas in fiscal year 2020. Income from oil and natural gas royalties in fiscal 2021 decreased approximately 50% from fiscal 2020, primarily due to a decrease in prices realized for oil in addition to a decrease in production of oil and natural gas resulting from a shutdown of production.
Revenue from oil royalties amounted to
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Revenue from natural gas royalties amounted to
General and administrative expenses for fiscal 2021 amounted to
Capital Resources and Liquidity. The Trust's Indenture (and the charter and by-laws of MPC) expressly prohibits the operation of any kind of trade or business. Due to the limited purpose of the Trust as stated in the Trust's Indenture, there is no requirement for capital. Its only obligation is to distribute to unitholders the distributable income actually collected.
As an administrator of oil and natural gas royalty properties, the Trust collects income monthly, pays expenses of administration and disburses all distributable income collected to its unitholders each quarter, less an amount reserved for accrued liabilities and estimated future expenses. Because all of Marine's revenues are invested in liquid funds pending distribution, Marine does not experience liquidity problems.
Marine's oil and natural gas properties are depleting assets and are not being
replaced due to the prohibition against these investments. These restrictions,
along with other factors, allow the Trust to be treated as a non-taxable grantor
trust for
The Trust does not currently have any long-term contractual obligations, other than the obligation to make distributions to unitholders pursuant to the Indenture. The Trust does not maintain any off-balance sheet arrangements within the meaning of Item 303 of Regulation S-K.
Forward-Looking Statements. The statements discussed in this Annual Report on Form 10-K regarding Marine's future financial performance and results of operations, and other statements that are not historical facts, are forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Marine uses the words "may," "expect," "anticipate," "estimate," "believe," "continue," "intend," "plan," "budget," or other similar words to identify forward-looking statements. All forward-looking statements speak only as of the date on which they are made. You should read statements that contain these words carefully because they discuss future expectations, contain projections of Marine's financial condition, and/or state other "forward-looking" information. Actual results may differ from expected results because of factors, risks and uncertainties including, but not limited to, the following: reductions in prices or demand for oil and natural gas, due to, for example, the COVID-19 pandemic, which might then lead to decreased production or impair Marine's ability to make distributions; reductions in production due to the depletion of existing wells or disruptions in service, which may be caused by storm damage to production facilities, blowouts or other production accidents, or geological changes such as cratering of productive formations; changes in regulations; general economic conditions; actions and policies of petroleum producing nations; other changes in domestic and international energy markets; the resignation of the Trustee; and the expiration, termination or release of leases subject to Marine's interests. Events may occur in the future that Marine is unable to accurately predict, or over which it has no control. If one or more of these uncertainties as well as other risks of which we are not aware materialize, or if underlying assumptions prove incorrect, actual outcomes may vary materially from those contained in the forward-looking statements included in this Annual Report on Form 10-K. Except as required by applicable securities laws, Marine does not undertake any obligation to update or revise any forward-looking statements.
Website. Marine has an Internet website and has made available its Annual
Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, and amendments to such reports, filed or furnished pursuant to
Section 13(a) or 15(d) of the Exchange Act, at www.marps-marine.com. Each of
these reports will be posted on this website as soon as reasonably practicable
after such report is electronically filed with or furnished to the
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