Item 2.
Trustees Discussion and Analysis of Financial Condition
and Results of Operations
References to the Trust in this document refer to Whiting USA Trust I.
References to Whiting in this document refer to Whiting Petroleum Corporation and its subsidiaries. References to Whiting Oil and Gas in this document refer to Whiting Oil and Gas Corporation, a 100%-owned subsidiary of
Whiting Petroleum Corporation and the successor to Equity Oil Company. Equity Oil Company was merged into Whiting Oil and Gas Corporation effective September 30, 2009. The merger did not have an effect on the Trust.
The following review of the Trusts financial condition and results of operations should be read in conjunction with the financial
statements and notes thereto, as well as the Trustees discussion and analysis contained in the Trusts 2011 Annual Report on Form 10-K. The Trusts Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K and all amendments to those reports are available on the SECs website
www.sec.gov
.
Note Regarding Forward-Looking
Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including
without limitation the statements under Trustees Discussion and Analysis of Financial Condition and Results of Operations are forward-looking statements. No assurance can be given that such expectations will prove to have been
correct. When used in this document, the words believes, expects, anticipates, projects, intends or similar expressions are intended to identify such forward-looking statements. The
following important factors, in addition to those discussed elsewhere in this Quarterly Report on Form 10-Q, could affect the future results of the energy industry in general, and Whiting and the Trust in particular, and could cause actual results
to differ materially from those expressed in such forward-looking statements:
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the effect of changes in commodity prices and conditions in the capital markets;
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uncertainty of estimates of oil and natural gas reserves and production;
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risks incident to the operation of oil and natural gas wells;
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future production costs;
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the inability to access oil and natural gas markets due to market conditions or operational impediments;
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failure of the underlying properties to yield oil or natural gas in commercially viable quantities;
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the effect of existing and future laws and regulatory actions;
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competition from others in the energy industry;
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risks arising out of the hedge contracts;
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inflation or deflation; and
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other risks described under the caption Risk Factors in the Trusts 2011 Annual Report on Form 10-K.
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All subsequent written and oral forward-looking statements attributable to Whiting or the Trust or persons
acting on behalf of Whiting or the Trust are expressly qualified in their entirety by these factors. The Trust assumes no obligation, and disclaims any duty, to update these forward-looking statements.
Overview and Trust Termination
The Trust does not conduct any operations or activities. The Trusts purpose is, in general, to hold the NPI, to distribute to unitholders cash that the Trust receives in respect of the NPI, and to
perform certain administrative functions in respect of the NPI and the Trust units. The Trust derives substantially all of its income and cash flows from the NPI, which is in turn subject to commodity hedge contracts through December 31, 2012.
The NPI entitles the Trust to receive 90% of the net proceeds from the sale of production from the underlying properties.
10
Oil and gas prices historically have been volatile and may fluctuate widely in the future.
The table below highlights these price trends by listing quarterly average NYMEX crude oil and natural gas prices for the periods indicated through June 30, 2012. The August 2012 NPI distribution is mainly affected, however, by April 2012
through June 2012 oil prices and by March 2012 through May 2012 natural gas prices.
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2010
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2011
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2012
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Q1
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Q2
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Q3
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Q4
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Q1
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Q2
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Q3
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Q4
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Q1
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Q2
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Crude Oil (per Bbl)
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$
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78.79
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$
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77.99
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$
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76.21
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$
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85.18
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$
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94.25
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$
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102.55
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$
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89.81
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$
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94.02
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$
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102.94
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$
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93.51
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Natural Gas (per MMBtu)
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$
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5.30
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$
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4.09
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$
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4.39
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$
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3.81
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$
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4.10
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$
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4.32
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$
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4.20
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$
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3.54
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$
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2.72
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$
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2.21
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Although oil prices fell significantly after reaching highs in the third quarter of 2008, they
experienced a rebound in 2010, 2011 and the first half of 2012. Natural gas prices have likewise fallen significantly since their peak in the third quarter of 2008 but remained low throughout 2009, 2010 and 2011. In addition, natural gas prices
declined during the first half of 2012, but have begun to improve in recent months. The following table highlights the settled NYMEX prices for natural gas for January through November 2012:
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2012
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Jan.
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Feb.
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Mar.
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Apr.
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May
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June
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July
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Aug.
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Sept.
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Oct.
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Nov.
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Natural Gas (per MMBtu)
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$
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3.08
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$
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2.68
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$
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2.41
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$
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2.19
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$
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2.03
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$
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2.42
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$
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2.77
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$
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3.01
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$
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2.63
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$
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3.06
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$
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3.47
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Lower oil and gas prices on production from the underlying properties could cause the following:
(i) a reduction in the amount of net proceeds to which the Trust is entitled; (ii) a reduction in the amount of oil, natural gas and natural gas liquids that is economic to produce from the underlying properties; and (iii) an
extension of the length of time required to produce 9.11 MMBOE (8.20 MMBOE at the 90% NPI) due to some wells thereby reaching their economic limits sooner. Alternatively, higher oil and natural gas prices may potentially result in the following:
(i) an increase in the amount of oil, natural gas and natural gas liquids that is economic to produce from the underlying properties; (ii) a decrease in the Trusts cash settlement gains on commodity derivatives; and (iii) cash
settlement losses on commodity derivatives.
Trust termination.
The NPI will terminate when 9.11 MMBOE have been
produced and sold from the underlying properties (which amount is equivalent to 8.20 MMBOE attributable to the NPI), and the Trust will soon thereafter wind up its affairs and terminate, after which it will pay no further distributions. Since the
assets of the Trust are depleting assets, a portion of each cash distribution paid on the Trust units should be considered by investors as a return of capital, with the remainder being considered as a return on investment. As a result, the market
price of the Trust units will decline to zero at termination of the Trust. As of September 30, 2012 on a cumulative accrual basis, 5.83 MMBOE (71%) of the Trusts total 8.20 MMBOE have been produced and sold (of which proceeds from
the sale of 271 MBOE, which is 90% of 302 MBOE, will be distributed to the unitholders in the Trusts forthcoming November 29, 2012 distribution) and a cumulative reserve quantity of 0.02 MMBOE have been divested. For additional discussion
relating to, and of the assumptions underlying, the estimated date when 9.11 MMBOE (8.20 MMBOE at the 90% NPI) will be produced and sold from the underlying properties, after which the Trust will soon thereafter wind up its affairs and terminate,
see Description of the Underlying Properties in Item 2 of the Trusts 2011 Annual Report on Form 10-K.
Results of
Trust Operations
Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011
The following is a summary of income from net profits interest received by the Trust for the nine months ended
September 30, 2012 and 2011, consisting of the February, May and August distributions for each respective year (dollars in thousands, except per Bbl, per Mcf and per BOE amounts):
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Nine Months
Ended
September 30,
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2012
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2011
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Sales volumes:
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Oil from underlying properties (MBbl)
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572
(a)
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566
(b)
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Natural gas from underlying properties (MMcf)
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2,132
(a)
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2,196
(b)
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Total production (MBOE)
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928
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932
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11
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Nine Months
Ended
September 30,
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2012
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2011
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Average sales prices:
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Oil (per Bbl)
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$
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82.61
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$
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80.21
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Effect of oil hedges on average price (per Bbl)
(c)
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-
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-
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Oil net of hedging (per Bbl)
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$
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82.61
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$
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80.21
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Natural gas (per Mcf)
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$
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3.31
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$
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4.00
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Effect of natural gas hedges on average price (per Mcf)
(c)
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2.21
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1.66
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Natural gas net of hedging (per Mcf)
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$
|
5.52
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$
|
5.66
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Costs (per BOE):
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Lease operating expenses
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$
|
23.28
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$
|
20.21
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Production taxes
|
|
$
|
3.99
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$
|
4.23
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Revenues:
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Oil sales
|
|
$
|
47,285
(a)
|
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|
$
|
45,439
(b)
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|
Natural gas sales
|
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|
7,066
(a)
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8,776
(b)
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Total revenues
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|
$
|
54,351
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|
|
$
|
54,215
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Costs:
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Lease operating expenses
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|
$
|
21,597
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|
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$
|
18,842
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|
Production taxes
|
|
|
3,701
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|
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3,946
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Cash settlement gains received on commodity derivatives
(c)
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|
(4,699)
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|
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(3,643)
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Total costs
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|
$
|
20,599
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|
|
$
|
19,145
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|
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Net proceeds
|
|
$
|
33,752
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$
|
35,070
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Net profits percentage
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90%
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90%
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Income from net profits interest
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|
$
|
30,376
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$
|
31,563
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(a)
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Oil and gas sales volumes and related revenues for the nine months ended September 30, 2012 (consisting of Whitings February, May and
August 2012 NPI distributions to the Trust) generally represent crude oil production from October 2011 through June 2012 and natural gas production from September 2011 through May 2012.
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(b)
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Oil and gas sales volumes and related revenues for the nine months ended September 30, 2011 (consisting of Whitings February, May and
August 2011 NPI distributions to the Trust) generally represent crude oil production from October 2010 through June 2011 and natural gas production from September 2010 through May 2011.
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(c)
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As discussed below, all hedges terminate as of December 31, 2012.
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Income from Net Profits Interest.
Income from net profits interest is recorded on a cash basis when NPI proceeds are received by
the Trust from Whiting. NPI proceeds that Whiting remits to the Trust are based on the oil and gas production Whiting has received payment for within one month following the end of the most recent fiscal quarter. Whiting receives payment for its
crude oil sales generally within 30 days following the month in which it is produced, and Whiting receives payment for its natural gas sales generally within 60 days following the month in which it is produced. Income from net profits interest is
generally a function of oil and gas revenues, lease operating expenses, production taxes and cash settlements on commodity derivatives as follows:
Revenues.
Oil and natural gas revenues increased $0.1 million or 0.3% for the nine months ended September 30, 2012 as compared to the same period in 2011. Revenues are a function of oil and
natural gas sales prices and production volumes sold. The increase in revenue between periods was due to higher market prices for oil and higher oil sales volumes during the first nine months of 2012 as compared to the first nine months of 2011,
which effect was partially offset by lower market prices for natural gas and lower natural gas sales volumes between periods. The average price for oil before the effects of hedging increased 3%, while the average price for natural gas before the
effects of hedging decreased 17%. Oil sales volumes increased 1% or 6 MBbl, and gas sales volumes decreased 3% or 64 MMcf during the first nine months of 2012 compared to the same period in 2011. Oil sales volumes increased between periods primarily
due to three recently drilled oil wells that came on line during the last twelve months, as well as well workover activity that resulted in increased production. These oil volume increases were partially offset by normal field production decline.
Gas sales volume decreases were primarily related to normal field production decline. Partially offsetting this gas volume decline were production increases related to (i) the resolution of pressure issues at a gas pipeline sales point in
Oklahoma which negatively impacted gas production during the first nine months of 2011, (ii) recovery from Mississippi River flooding which hampered gas production in Louisiana during the third quarter of 2011 and (iii) two recently
drilled gas wells that came on line during the last twelve months.
12
Lease Operating Expenses.
Lease operating expenses (LOE)
increased $2.8 million or 15% during the first nine months of 2012 compared to the first nine months of 2011, primarily due to an increase of $2.6 million in the cost of oilfield goods and services, a $0.5 million increase in operating costs charged
to wells that are not operated by Whiting, and $0.4 million in higher labor costs on Whiting-operated properties. These increases were partially offset by a $0.7 million decrease in plug and abandonment charges between periods. The increase in
overall lease operating expenses coupled with the decrease in overall production volumes between periods resulted in an increase in LOE on a per BOE basis of 15%,from $20.21 during the first nine months of 2011 to $23.28 for the same period in 2012.
Production Taxes.
Production taxes are typically calculated as a percentage of oil and natural gas
revenues before the effects of hedging. Tax credits and exemptions allowed in the various taxing jurisdictions are generally utilized to their potential. Production taxes for the nine months ended September 30, 2012 decreased $0.2 million or 6%
compared to the same period in 2011, and production taxes as a percent of oil and gas revenues also declined between periods, from 7.3% for the first nine months of 2011 to 6.8% for the first nine months of 2012. This decrease was primarily related
to certain production tax refunds received in the third quarter of 2012.
Cash Settlements on Commodity
Derivatives.
In connection with Whitings conveyance of the net profits interest to the Trust, Whiting entered into certain costless collar hedge contracts in order to reduce the Trusts exposure to commodity price volatility. If
current market prices are lower than a collars price floor when the cash settlement amount is calculated, Whiting receives cash proceeds from the contract counterparty. Conversely, if current market prices are higher than a collars price
ceiling when the cash settlement amount is calculated, Whiting is required to pay the contract counterparty.
Cash settlements relating to these hedges resulted in a gain of $4.7 million for the nine months ended September 30,
2012, which had the effect of increasing the average price of natural gas by $2.21 per Mcf for that period, and cash settlements relating to these hedges resulted in a gain of $3.6 million for the nine months ended September 30, 2011, which had
the effect of increasing the average price of natural gas by $1.66 per Mcf for that 2011 period. As a result, the total net price of natural gas of $5.52 per Mcf and $5.66 per Mcf that the Trust received for the nine months ended September 30,
2012 and 2011, respectively, included premiums of 40% and 29%, respectively, related to the effects of hedging for those same periods. However, all hedges and their related pricing impacts terminate as of December 31, 2012, while the
Trusts oil and gas reserves are currently projected to terminate in August 2015 based on the Trusts 2011 reserve report. Therefore, no commodity price hedges will be in effect beginning January 1, 2013 through Trust termination to
reduce the Trusts exposure to oil and natural gas price volatility.
General and Administrative
Expenses.
During the first nine months of 2012, the Trusts general and administrative expenses increased by $0.1 million as compared to the same period in 2011 due to differences in timing as to when certain
administrative invoices were received and paid by the Trustee. Certain invoices for annual services provided by auditors and tax consultants were paid during the nine months ended September 30, 2012, and these recurring invoices were not
similarly paid during the same 2011 reporting period.
Distributable Income.
For the nine months ended
September 30, 2012, the Trusts distributable income was $29.6 million and was based on income from net profits interest of $30.4 million, which has been reduced by Trust general and administrative costs of $0.7 million and Montana
state income tax withholdings of $0.2 million, and adjusted for changes in Trust cash reserves. This compares to distributable income of $30.8 million for the first nine months of 2011, which was based on income from net profits interest of $31.6
million that has been reduced by $0.6 million of Trust administrative expenses and $0.2 million in Montana state income tax withholdings, and adjusted for changes in Trust cash reserves.
13
Three Months Ended September 30, 2012 Compared to Three Months Ended
September 30, 2011
The following is a summary of income from net profits interest received by the Trust for the
three months ended September 30, 2012 and 2011, consisting of the August distribution for each respective year (dollars in thousands, except per Bbl, per Mcf and per BOE amounts):
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Three Months
Ended
September 30,
|
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2012
|
|
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2011
|
|
Sales volumes:
|
|
|
|
|
|
|
|
|
Oil from underlying properties (MBbl)
|
|
|
200
(a)
|
|
|
|
184
(b
)
|
|
Natural gas from underlying properties (MMcf)
|
|
|
747
(a)
|
|
|
|
676
(b
)
|
|
|
|
|
|
|
|
|
|
|
Total production (MBOE)
|
|
|
325
|
|
|
|
297
|
|
Average sales prices:
|
|
|
|
|
|
|
|
|
Oil (per Bbl)
|
|
$
|
79.47
|
|
|
$
|
91.40
|
|
Effect of oil hedges on average price (per Bbl)
(c)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Oil net of hedging (per Bbl)
|
|
$
|
79.47
|
|
|
$
|
91.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas (per Mcf)
|
|
$
|
2.68
|
|
|
$
|
4.19
|
|
Effect of natural gas hedges on average price (per Mcf)
(c)
|
|
|
2.00
|
|
|
|
1.10
|
|
|
|
|
|
|
|
|
|
|
Natural gas net of hedging (per Mcf)
|
|
$
|
4.68
|
|
|
$
|
5.29
|
|
|
|
|
|
|
|
|
|
|
Costs (per BOE):
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
$
|
22.62
|
|
|
$
|
20.15
|
|
Production taxes
|
|
$
|
3.48
|
|
|
$
|
4.81
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Oil sales
|
|
$
|
15,917
(a)
|
|
|
$
|
16,807
(b
)
|
|
Natural gas sales
|
|
|
2,001
(a)
|
|
|
|
2,832
(b
)
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
17,918
|
|
|
$
|
19,639
|
|
|
|
|
|
|
|
|
|
|
Costs:
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
$
|
7,347
|
|
|
$
|
5,974
|
|
Production taxes
|
|
|
1,130
|
|
|
|
1,425
|
|
Cash settlement gains received on commodity derivatives
(c)
|
|
|
(1,497)
|
|
|
|
(742)
|
|
|
|
|
|
|
|
|
|
|
Total costs
|
|
$
|
6,980
|
|
|
$
|
6,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds
|
|
$
|
10,938
|
|
|
$
|
12,982
|
|
Net profits percentage
|
|
|
90%
|
|
|
|
90%
|
|
|
|
|
|
|
|
|
|
|
Income from net profits interest
|
|
$
|
9,844
|
|
|
$
|
11,684
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Oil and gas sales volumes and related revenues for the quarter ended September 30, 2012 (consisting of Whitings August 2012 NPI
distribution to the Trust) generally represent crude oil production from April 2012 through June 2012 and natural gas production from March 2012 through May 2012.
|
(b)
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Oil and gas sales volumes and related revenues for the quarter ended September 30, 2011 (consisting of Whitings August 2011 NPI
distribution to the Trust) generally represent crude oil production from April 2011 through June 2011 and natural gas production from March 2011 through May 2011.
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(c)
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As discussed below, all hedges terminate as of December 31, 2012.
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Income from Net Profits Interest.
Income from net profits interest is recorded on a cash basis when NPI
proceeds are received by the Trust from Whiting. NPI proceeds that Whiting remits to the Trust are based on the oil and gas production Whiting has received payment for within one month following the end of the most recent fiscal quarter. Whiting
receives payment for its crude oil sales generally within 30 days following the month in which it is produced, and Whiting receives payment for its natural gas sales generally within 60 days following the month in which it is produced. Income from
net profits interest is generally a function of oil and gas revenues, lease operating expenses, production taxes and cash settlements on commodity derivatives as follows:
14
Revenues.
Oil and natural gas revenues decreased $1.7 million or 9%
for the three months ended September 30, 2012 as compared to the same period in 2011. Revenues are a function of oil and natural gas sales prices and production volumes sold. The decrease in revenue between periods was due to lower market
prices for oil and natural gas during the third quarter of 2012 as compared to the third quarter of 2011, which effect was partially offset by higher oil and natural gas sales volumes between periods. The average price for oil before the effects of
hedging decreased 13%, and the average price for natural gas before the effects of hedging decreased 36%. Oil sales volumes increased 9% or 16 MBbl, and gas sales volumes increased 11% or 71 MMcf during the third quarter 2012 compared to the same
period in 2011. These sales volumes increased between periods primarily due to three recently drilled wells that came on line during the last twelve months, as well as well workover activity that resulted in increased production. These oil volume
increases were partially offset by normal field production decline. Gas sales volume increases were primarily related to the resolution of pressure issues at a gas pipeline sales point in Oklahoma which negatively impacted gas production during the
third quarter of 2011, and recovery from Mississippi River flooding which hampered gas production in Louisiana during the third quarter of 2011. These gas volume increases were partially offset by normal field production decline.
Lease Operating Expenses
. Lease operating expenses (LOE) increased $1.4 million or 23% during the
third quarter of 2012 compared to the third quarter of 2011, primarily due to an increase of $1.0 million in the cost of oilfield goods and services and $0.4 million in higher operating costs charged to wells that are not operated by Whiting. LOE on
a per BOE basis also increased during the third quarter of 2012 from $20.15 during the third quarter of 2011 to $22.62 for the same period in 2012, a 12% increase. This higher LOE rate was mainly due to the increases in lease operating expenses
discussed above, partially offset by higher overall production volumes between periods.
Production Taxes.
Production taxes are typically calculated as a percentage of oil and natural gas revenues before the effects of hedging. Tax credits and exemptions allowed in the various taxing jurisdictions are generally utilized to their potential. Production
taxes for the three months ended September 30, 2012 decreased $0.3 million or 21% compared to the same period in 2011, primarily due to lower oil and natural gas sales between periods. Production taxes as a percent of oil and gas revenues
declined between periods from 7.3% for the first three months of 2011 to 6.3% for the first three months of 2012. This decrease was primarily related to certain production tax refunds received in the third quarter of 2012.
Cash Settlements on Commodity Derivatives.
In connection with Whitings conveyance of the net profits
interest to the Trust, Whiting entered into certain costless collar hedge contracts in order to reduce the Trusts exposure to commodity price volatility. If current market prices are lower than a collars price floor when the cash
settlement amount is calculated, Whiting receives cash proceeds from the contract counterparty. Conversely, if current market prices are higher than a collars price ceiling when the cash settlement amount is calculated, Whiting is required to
pay the contract counterparty.
Cash settlements relating to these hedges resulted in a gain of $1.5 million
for the third quarter of 2012, which had the effect of increasing the average price of natural gas by $2.00 per Mcf for that period, and cash settlements relating to these hedges resulted in a gain of $0.7 million for the third quarter of 2011,
which had the effect of increasing the average price of natural gas by $1.10 per Mcf for that 2011 period. As a result, the total net price of natural gas of $4.68 per Mcf and $5.29 per Mcf that the Trust received for the three months ended
September 30, 2012 and 2011, respectively, included premiums of 43% and 21%, respectively, related to the effects of hedging for those same periods. However, all hedges and their related pricing impacts terminate as of December 31, 2012,
while the Trusts oil and gas reserves are currently projected to terminate in August 2015 based on the Trusts 2011 reserve report. Therefore, no commodity price hedges will be in effect beginning January 1, 2013 through Trust
termination to reduce the Trusts exposure to oil and natural gas price volatility.
General and Administrative
Expenses.
The Trusts general and administrative expenses typically fluctuate between reporting periods due to differences in timing as to when administrative invoices are received and then paid by the Trustee. For the three
months ended September 30, 2012 and 2011, however, the Trusts general and administrative costs remained consistent at $0.2 million for each respective period.
Distributable Income.
For the three months ended September 30, 2012, the Trusts distributable income was $9.6 million and was based on income from net profits interest of $9.8 million,
which has been reduced by Trust general and administrative costs of $0.2 million and Montana state income tax withholdings of $0.05 million, and adjusted for changes in Trust cash reserves. This compares to distributable income of $11.4 million
during the third quarter of 2011, which was based on income from net profits interest of $11.7 million that has been reduced by $0.2 million of Trust administrative expenses and $0.1 million in Montana state income tax withholdings, and adjusted for
changes in Trust cash reserves.
15
Liquidity and Capital Resources
The Trust has no source of liquidity or capital resources other than cash flows from the NPI. Other than Trust administrative expenses,
including any reserves established by the Trustee for future liabilities, the Trusts only use of cash is for distributions to Trust unitholders. Administrative expenses include payments to the Trustee and the Delaware Trustee, a quarterly fee
to Whiting pursuant to an administrative services agreement, and expenses in connection with the discharge of the Trustees duties, including third party engineering, audit, accounting and legal fees. Each quarter, the Trustee determines the
amount of funds available for distribution to unitholders. Available funds are the excess cash, if any, received by the Trust from the NPI and other sources (such as interest earned on any amounts reserved by the Trustee) that quarter, over the
Trusts expenses for that quarter. Available funds are reduced by any cash the Trustee decides to hold as a reserve against future liabilities. The Trustee may borrow funds required to pay liabilities if the Trustee determines that the cash on
hand and the cash to be received are insufficient to cover the Trusts liabilities. If the Trustee borrows funds, the Trust unitholders will not receive distributions until the borrowed funds are repaid.
Income to the Trust from the NPI is based on the calculation and definitions of gross proceeds and net proceeds
contained in the conveyance agreement, which is listed as an exhibit to this report, and reference is hereby made to such conveyance agreement for the actual definitions of gross proceeds and net proceeds.
Although capital expenditures for the testing, drilling, completion, equipping, plugging back or recompletion of any well that is a part
of the underlying properties cannot be deducted from gross proceeds pursuant to the terms of the conveyance agreement, Whiting incurred capital expenditures of $3.9 million on the underlying properties during the nine months ended September 30,
2012. Such expenditures were not deducted from gross proceeds or Trust distributions, but they may have the effect of ultimately accelerating the receipt of NPI net proceeds and thereby benefiting the Trust unitholders by accelerating their return
on investment. The Trust cannot provide any assurance that this will continue to occur or that future capital expenditures will be consistent with historical levels.
On February 8, 2011, Whiting established a $1.0 million letter of credit for the Trustee in order to provide a mechanism for the Trustee to pay the operating expenses of the Trust, in the event that
Whiting should fail to lend funds to the Trust if requested to do so by the Trustee. This letter of credit will not be used to fund NPI distributions to unitholders, and Whiting has no obligation to lend funds to the Trust.
The Trust does not have any transactions, arrangements or other relationships with unconsolidated entities or persons that could
materially affect the Trusts liquidity or the availability of capital resources.
Future Trust Distributions to Unitholders
On November 9, 2012, the Trustee announced the Trust distribution of net profits for the third quarterly payment
period in 2012. Unitholders of record on November 19, 2012 are expected to receive a distribution amounting to $7.1 million or $0.512336 per Trust unit, which is payable on or before November 29, 2012. This distribution is expected to
consist of net cash proceeds of $7.5 million paid by Whiting to the Trust, which is inclusive of cash receipts totaling $1.1 million (90% of $1.2 million) for commodity derivative contracts settled from July through September 2012, less a provision
of $325,000 for estimated Trust expenses and $51,144 for Montana state income tax withholdings.
New Accounting Pronouncements
There were no accounting pronouncements issued during the nine months ended September 30, 2012 applicable to the
Trust or its financial statements.
Critical Accounting Policies and Estimates
A disclosure of critical accounting policies and the more significant judgments and estimates used in the preparation of the Trusts
financial statements is included in Item 7 of the Trusts Annual Report on Form 10-K for the year ended December 31, 2011. There have been no significant changes to the critical accounting policies during the nine months ended
September 30, 2012.