MARINE PETROLEUM TRUST Organization
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On
The Trust's Indenture provides that the term of the Trust will expire on
The Trust is not permitted to engage in any business activity because it was
organized for the sole purpose of providing an efficient, orderly and practical
means for the administration and liquidation of rights to payments from certain
oil and natural gas leases in the
The Trust's wholly owned subsidiary,
Marine's rights are generally referred to as overriding royalty interests in the oil and natural gas industry. An overriding royalty interest is created by an assignment by the owner of a working interest in an oil or natural gas lease. The royalty rights associated with an overriding royalty interest terminate when the underlying lease terminates. All production and marketing functions are conducted by the working interest owners of the leases. Income from overriding royalties is paid to Marine either (i) on the basis of the selling price of oil, natural gas and other minerals produced, saved or sold, or (ii) at the value at the wellhead as determined by industry standards, when the selling price does not reflect the value at the wellhead.
The Trustee assumes that some units of beneficial interest are held by
middlemen, as such term is broadly defined in
ArgentTrust Company 2911 Turtle Creek Blvd. , Suite 850Dallas, Texas 75219 Telephone number: (855) 588-7839
Each unitholder should consult its own tax advisor for compliance with
Commodity Prices
The Trust's income and monthly distributions are heavily influenced by commodity prices. Commodity prices may fluctuate widely in response to (i) relatively minor changes in the supply of and demand for oil and natural gas, (ii) market uncertainty and (iii) a variety of additional factors that are beyond the Trustee's control. Factors that may impact future commodity prices, including the price of oil and natural gas, include but are not limited to:
• political conditions in major oil producing regions, especially in the
Middle East , Russia and Ukraine ;
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Table of Contents • worldwide economic conditions; • weather conditions; • trade barriers; • public health concerns; • the supply and price of domestic and foreign crude oil or natural gas; • the level of consumer demand; • the price and availability of alternative fuels; • the proximity to, and capacity of, transportation facilities; • the effect of worldwide energy conservation measures; and • the nature and extent of governmental regulation and taxation.
Although the Trustee cannot predict the occurrence of events that may affect future commodity prices or the degree to which these prices will be affected, gas royalty income for a given period generally relates to production three months prior to the period and crude oil royalty income for a given period generally relates to production two months prior to the period and will generally approximate current market prices in the geographic region of the production at the time of production. When crude oil and natural gas prices decline, the Trust is affected in two ways. First, distributable income from the Trust's royalty properties is reduced. Second, exploration and development activity by operators on the Trust's royalty properties may decline as some projects may become uneconomic and are either delayed or eliminated. It is impossible to predict future crude oil and natural gas price movements, and this reduces the predictability of future cash distributions to unitholders.
Liquidity and Capital Resources
As stated in the Indenture, there is no requirement for capital due to the limited purpose of the Trust. The Trust's only obligation is to distribute the distributable income that is actually collected to unitholders. As an administrator of oil and natural gas royalty interests, the Trust collects royalties monthly, pays administrative expenses and disburses all net royalties that are collected to its unitholders each quarter, subject to the availability of distributable income on the distribution date after the payment of expenses.
The Indenture (and MPC's charter and by-laws) expressly prohibits the operation
of any kind of trade or business. The Trust's oil and natural gas properties are
depleting assets that are not being replaced due to the prohibition against
investments. These restrictions, along with other factors, allow the Trust to be
treated as a grantor trust. As a grantor trust, all income and deductions for
state and
The Leases
Marine relies on public records for information regarding drilling and workover
operations. The public records available up to the date of this report indicate
that there were no new well completions made during the three months ended
Marine holds an overriding royalty interest that is equal to three-fourths of
one percent of the working interest and is calculated on the value at the well
of any oil, natural gas or other minerals produced and sold from 55 leases
covering 199,868 gross acres located in the
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Critical Accounting Policies and Estimates
In accordance with the Staff Accounting Bulletin Topic 12:E, Financial
Statements of Royalty Trusts, Marine uses the modified cash basis method of
accounting. Under this accounting method, royalty income is recorded when
received, and distributions to unitholders are recorded when declared by the
Trustee of the Trust. Expenses of Marine (including accounting, legal, other
professional fees, trustees' fees and out-of-pocket expenses) are recorded on an
actual paid basis. Marine also reports distributable income instead of net
income under the modified cash basis method of accounting. Cash reserves are
permitted to be established by the Trustee for certain contingencies that would
not be recorded under generally accepted accounting principles in
Marine did not have any changes in its critical accounting policies or estimates
during the three and six months ended
New Accounting Pronouncements
Since the Trust financial statements are prepared on a modified-cash basis, most accounting pronouncements are not applicable to the Trust. No new accounting pronouncements have been adopted or issued that would have a significant impact on Marine's financial statements.
General
Marine's royalty income is derived from the oil and natural gas production activities of third parties. Marine's royalty income fluctuates from period to period based upon factors beyond Marine's control, including, without limitation, the number of productive wells drilled and maintained on leases that are subject to Marine's interest, the level of production over time from such wells and the prices at which the oil and natural gas from such wells are sold.
Important aspects of Marine's operations are conducted by third parties.
Marine's royalty income is dependent on the operations of the working interest
owners of the leases on which Marine has an overriding royalty interest. The oil
and natural gas companies that lease tracts subject to Marine's interests are
responsible for the production and sale of oil and natural gas and the
calculation of royalty payments to Marine. The only obligation of the working
interest owners to Marine is to make monthly overriding royalty payments that
reflect Marine's interest in the oil and natural gas sold. Marine's
distributions are processed and paid by its transfer agent,
The volume of oil and natural gas produced and the selling prices of such oil and natural gas are the primary factors in calculating overriding royalty payments. Production is affected by the natural production decline of the producing wells, the number of new wells drilled and the number of existing wells that are re-worked and placed back in production on the leases. Production from existing wells is anticipated to decrease in the future due to normal well depletion. The operators do not provide Marine with information regarding future drilling or re-working operations that could impact the oil and natural gas production from the leases for which Marine has an overriding royalty interest.
Summary of Operating Results
During the six months ended
Distributable income per unit for the six months ended
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For the six months ended
The following table presents the net production quantities of oil and natural
gas and distributable income and distributions per unit for the last six
quarters.
Net Production
Quantities (1)
Natural Distributable Distributions
Quarter Ended Oil (bbls) Gas (mcf) Income Per Unit Per Unit
September 30, 2021 3,241 3,808 $ 0.10 $ 0.06
December 31, 2021 3,676 2,967 $ 0.09 $ 0.11
March 31, 2022 4,718 3,681 $ 0.19 $ 0.11
June 30, 2022 4,461 4,764 $ 0.22 $ 0.20
September 30, 2022 5,187 4,417 $ 0.26 $ 0.26
December 31, 2022 4,311 3,321 $ 0.19 $ 0.24
(1) Excludes the Trust's interest in Tidelands prior to its being wound up.
Results of Operations-Three Months Ended
Income from oil and natural gas royalties, increased to
Distributable income increased to
Income from oil royalties, for the three months ended
Income from natural gas royalties (net of expenses), for the three months ended
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Prior to
The following table presents the quantities of oil and natural gas sold and the
average price realized for the three months ended
Three Months Ended December 31,
2022 2021
(unaudited)
Oil
Bbls sold 4,311 3,676
Average price $ 92.18 $ 67.52
Natural gas
Mcf sold 3,321 2,967
Average price, net of expenses $ 8.41 $ 5.56
General and administrative expenses decreased to
Results of Operations-Six Months Ended
Income from oil and natural gas royalties increased to
Distributable income increased to
Income from oil royalties for the six months ended
Income from natural gas royalties (net of expenses) for the six months ended
The following table presents the quantities of oil and natural gas sold and the
average price realized for the six months ended
Six Months Ended December 31,
2022 2021
(unaudited)
Oil
Bbls sold 9,499 6,917
Average price $ 100.65 $ 66.06
Natural gas
Mcf sold 7,738 6,775
Average price, net of expenses $ 8.40 $ 5.46
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General and administrative expenses increased to
Forward-Looking Statements
The statements discussed in this Quarterly Report on Form 10-Q regarding
Marine's future financial performance and results, 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 Exchange Act.
This report uses the words "anticipate," "believe," "budget," "continue,"
"estimate," "expect," "intend," "may," "plan," or other similar words to
identify forward-looking statements. 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: reductions in price or demand for oil and natural gas, which might
then lead to decreased production or impair Marine's ability to make
distributions; the impact of COVID-19 on future production and 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; and the expiration, termination or release of
leases subject to Marine's interests. Additional risks are set forth in Marine's
Annual Report on Form 10-K for the fiscal year ended
Website
Marine makes available, free of charge, its Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to
such reports at its website 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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