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 wholly-owned subsidiaries. References to Whiting Oil and Gas in this document refer to Whiting Oil and Gas Corporation, a wholly-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 2013 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, of 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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inflation or deflation; and
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other risks described under the caption Risk Factors in the Trusts 2013 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 Trustee 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, and 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, 2014. The May 2014 distribution in the second quarter of 2014 was mainly affected, however,
by January 2014 through March 2014 oil prices and December 2013 through February 2014 natural gas prices.
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2012
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2013
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2014
|
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|
Q1
|
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Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
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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102.94
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|
|
$
|
93.51
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|
|
$
|
92.19
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|
|
$
|
88.20
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|
|
$
|
94.34
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|
|
$
|
94.23
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|
|
$
|
105.82
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|
|
$
|
97.50
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|
|
$
|
98.62
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|
|
$
|
102.98
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|
Natural gas (per MMBtu)
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|
$
|
2.72
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|
|
$
|
2.21
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|
|
$
|
2.81
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|
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$
|
3.41
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|
|
$
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3.34
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|
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$
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4.10
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|
|
$
|
3.58
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$
|
3.60
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|
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$
|
4.93
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|
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$
|
4.68
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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; and (ii) a reduction in the amount of oil, natural gas and natural gas liquids that is economic to produce from the underlying properties causing an extension of the length
of time required to produce 9.11 MMBOE (8.20 MMBOE at the 90% NPI). All costless collar hedge contracts Whiting entered into, and in turn conveyed to the Trust, terminated as of December 31, 2012 (which hedging effects impacted the February
2013 distribution to unitholders and ceased thereafter) and no additional hedges are allowed to be placed on the Trust assets. Consequently, for production applicable to quarterly payment periods after the February 2013 distribution, there has been
and will be no cash settlement gains or losses on commodity derivatives, and the Trust has had and will have increased exposure to oil and natural gas price volatility since the February 2013 distribution.
Trust Termination.
The NPI will terminate when 9.11 MMBOE (8.20 MMBOE at the 90% NPI) have been produced and sold from the underlying
properties, which is estimated to occur by March 31, 2015 based on the reserve report for the underlying properties as of December 31, 2013. The Trust will soon thereafter wind up its affairs and terminate, after which it will pay no
further distributions. As a result, the market price of the Trust units will decline to zero at termination of the Trust. Therefore, 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 or yield. For a description of certain risks relating to the market price of the Trust units, see the Trusts Annual Report
on Form 10-K for the fiscal year ended December 31, 2013, Item 1A. Risk Factors The market price for the Trust units may not reflect the value of the NPI held by the Trust and, in addition, over time will decline to zero shortly
after the NPI termination date, currently estimated to be March 31, 2015. If the Trust units are trading at a price substantially in excess of the aggregate distributions that may reasonably be expected to be made prior to the termination of
the Trust, the price decline is likely to include one or more abrupt substantial decreases.
As of June 30, 2014 on a
cumulative accrual basis, 7.60 MMBOE (93%) of the Trusts total 8.20 MMBOE have been produced and sold (of which proceeds from the sale of 243 MBOE, which is 90% of 270 MBOE, will be distributed to unitholders in the Trusts
forthcoming August 2014 distribution) and 0.02 MMBOE have been divested. The remaining reserve quantities are projected to be produced by March 31, 2015, based on the reserve report for the underlying properties as of December 31, 2013.
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 2013 Annual Report on Form 10-K.
Establishment of Reserves.
The Trust agreement authorizes the Trustee to establish a cash reserve for the payment of any liability that
is contingent or uncertain in amount or that is not otherwise currently due and payable. In preparation for the termination of the Trust, the Trustee expects to establish a cash reserve for the payment of expenses after the final distribution to
unitholders. The reserve may be funded from time to time beginning with distributions expected to be made in 2014, or may be funded largely or entirely from the final distribution to be made to unitholders. In any case, however, any final
distribution to unitholders will be subject to the prior payment of all expenses and liabilities of the Trust, and to the establishment and funding of any reserves the Trustee deems appropriate for contingent liabilities.
11
Results of Trust Operations
Six Months Ended June 30, 2014 Compared to Six Months Ended June 30, 2013
The following is a summary of income from net profits interest and distributable income received by the Trust for the six months ended
June 30, 2014 and 2013, consisting of the February and May distributions for each respective period (dollars in thousands, except per Bbl, per Mcf and per BOE amounts):
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Six Months Ended
June 30,
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2014
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2013
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Sales volumes:
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|
|
|
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Oil from underlying properties (Bbl)
(a)
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360,263
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(b)
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351,789
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(c)
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Natural gas from underlying properties (Mcf)
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1,218,464
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(b)
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1,280,770
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(c)
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|
|
|
|
|
|
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Total production (BOE)
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563,340
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565,251
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Average sales prices:
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Oil (per Bbl)
(a)
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$
|
81.59
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$
|
78.80
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|
Effect of oil hedges on average price (per Bbl)
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|
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|
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|
Oil net of hedging (per Bbl)
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|
$
|
81.59
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|
|
$
|
78.80
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|
|
|
|
|
|
|
|
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|
Natural gas (per Mcf)
|
|
$
|
3.93
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|
|
$
|
3.29
|
|
Effect of natural gas hedges on average price (per Mcf)
|
|
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|
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|
1.08
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(d)
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|
|
|
|
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Natural gas net of hedging (per Mcf)
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|
$
|
3.93
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|
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$
|
4.37
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|
|
|
|
|
|
|
|
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|
Costs (per BOE):
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|
|
|
|
|
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Lease operating expenses
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|
$
|
26.87
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|
|
$
|
25.85
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|
Production taxes
|
|
$
|
4.35
|
|
|
$
|
3.99
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Oil sales
(a)
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|
$
|
29,393
|
(b)
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|
$
|
27,721
|
(c)
|
Natural gas sales
|
|
|
4,789
|
(b)
|
|
|
4,211
|
(c)
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
34,182
|
|
|
$
|
31,932
|
|
|
|
|
|
|
|
|
|
|
Costs:
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
$
|
15,136
|
|
|
$
|
14,610
|
|
Production taxes
|
|
|
2,449
|
|
|
|
2,255
|
|
Cash settlement gains received on commodity derivatives
|
|
|
|
|
|
|
(1,381
|
)
(d)
|
|
|
|
|
|
|
|
|
|
Total costs
|
|
$
|
17,585
|
|
|
$
|
15,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds
|
|
$
|
16,597
|
|
|
$
|
16,448
|
|
Net profits percentage
|
|
|
90
|
%
|
|
|
90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from net profits interest
|
|
$
|
14,937
|
|
|
$
|
14,803
|
|
|
|
|
|
|
|
|
|
|
Provision for estimated Trust expenses
|
|
|
(620
|
)
|
|
|
(400
|
)
|
Montana state income tax withheld
|
|
|
(99
|
)
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
Distributable Income
|
|
$
|
14,218
|
|
|
$
|
14,292
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Oil includes natural gas liquids.
|
(b)
|
Oil and gas sales volumes and related revenues for the six months ended June 30, 2014 (consisting of Whitings February 2014 and May 2014
distributions to the Trust) generally represent crude oil production from October 2013 through March 2014 and natural gas production from September 2013 through February 2014.
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(c)
|
Oil and gas sales volumes and related revenues for the six months ended June 30, 2013 (consisting of Whitings February 2013 and May 2013
distributions to the Trust) generally represent crude oil production from October 2012 through March 2013 and natural gas production from September 2012 through February 2013.
|
(d)
|
As discussed below, all hedges terminated as of December 31, 2012 and thereby ceased to affect distributions after the February 2013
distribution. Final derivative contract settlements pertaining to the months of October through December 2012 provided cash receipts of $1.4 million ($1.2 million to the 90% NPI) and were included in the February 2013 distribution to Trust
unitholders.
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12
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 $2.3 million or 7% for the six months ended June 30, 2014 compared
to the same period in 2013. Sales revenue is a function of average commodity prices realized and oil and gas volumes sold. The increase in revenue between periods was due to higher sales prices realized for oil and natural gas, as well as higher oil
production volumes during the first half of 2014 as compared to the same 2013 period. These increases were partially offset, however, by lower natural gas production volumes between periods. The average sales price realized before the effects of
hedging increased for oil by 4% and for gas by 19% during the first half of 2014 as compared to the same 2013 period. Oil sales volumes increased 8.5 MBbls (or 2%), while gas sales volumes decreased 62.3 MMcf (or 5%) during the first six months of
2014 compared to the same period in 2013. The oil volume increase was primarily related to i) five new wells that came online during the last twelve months, and ii) differences in timing associated with revenues received from non-operated
properties. These oil volume increases were partially offset by normal field production decline. The gas volume decrease was primarily related to normal field production decline, partially offset by new wells that came online during the last twelve
months. In the December 31, 2013 reserve report, production attributable to the underlying properties is estimated to decline at an approximate annualized rate of 11% for crude oil and 15% for natural gas from 2014 through the estimated NPI
termination date.
Lease Operating Expenses. LOE increased $0.5 million or 4% during the first six months of 2014 compared
to the same 2013 period, primarily due to $0.2 million in higher plug and abandonment charges and a $0.3 million increase in the cost of oilfield goods and services between periods. The increase in overall LOE coupled with the decrease in overall
production volumes between periods resulted in an increase in LOE on a per BOE basis of 4%, from $25.85 during the first half of 2013 to $26.87 for the same period in 2014.
Production Taxes.
Production taxes are typically calculated as a percentage of oil and natural gas revenues before the
effects of hedging, and production taxes as a percent of revenues remained relatively consistent at 7.2% and 7.1% for the first half of 2014 and 2013, respectively. Overall production taxes during the first six months of 2014 increased, however, by
$0.2 million (or 9%) compared to the same period in 2013, primarily due to higher oil and natural gas sales revenue between periods.
Cash Settlements on Commodity Derivatives.
In connection with Whitings original 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 market prices were lower than a collars price floor when the cash settlement
amount was calculated, Whiting received cash proceeds from the contract counterparty, which proceeds were in turn included in NPI distributions to the Trust. Conversely, if market prices were higher than a collars price ceiling when the cash
settlement amount was calculated, Whiting was required to pay the contract counterparty, which payments were included as reductions of net proceeds in NPI distributions to the Trust.
All such conveyed hedges terminated as of December 31, 2012, and all hedge related pricing impacts ceased after the
February 2013 distribution. Thus, there were no hedges in effect or related cash settlements during the first six months of 2014. Cash settlements relating to these hedges resulted in a gain of $1.4 million for the six months ended June 30,
2013, which had the effect of increasing the average realized price of natural gas by $1.08 per Mcf for that period. As a result, the total net price of natural gas of $4.37 per Mcf that the Trust received for the six months ended June 30,
2013, included a premium of 25% related to the effects of hedging for that same period. The hedges terminated as of the February 2013 distribution; however, the Trusts oil and gas reserves are currently projected to terminate by March 31,
2015 based on the Trusts December 31, 2013 reserve report. Therefore, no commodity price hedges will impact future Trust distributions through Trust termination, which has the effect of increasing the Trusts exposure to oil and
natural gas price volatility.
Provision for Estimated Trust Expenses.
The provision for estimated Trust expenses in the first six
months of 2014 increased $0.2 million as compared to the same period in 2013 primarily due to an increase in cash reserves withheld for future Trust expenses of $0.2 million between periods.
Distributable Income.
For the six months ended June 30, 2014, the Trusts distributable income was $14.2 million and was
based on income from net profits interest of $14.9 million, reduced by Trust general and administrative costs of $0.5 million and Montana state income tax withholdings of $99,373, and adjusted for changes in Trust cash reserves. This compares to
distributable income of $14.3 million for the first six months of 2013, which was based on income from net profits interest of $14.8 million, reduced by $0.5 million of Trust general and administrative expenses and $110,797 in Montana state income
tax withholdings, and adjusted for changes in Trust cash reserves.
13
Three Months Ended June 30, 2014 Compared to Three Months Ended June 30, 2013
The following is a summary of income from net profits interest and distributable income received by the Trust for the three months ended
June 30, 2014 and 2013, consisting of the May distributions for each respective period (dollars in thousands, except per Bbl, per Mcf and per BOE amounts):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
|
|
2014
|
|
|
2013
|
|
Sales volumes:
|
|
|
|
|
|
|
|
|
Oil from underlying properties (Bbl)
(a)
|
|
|
166,891
|
(b)
|
|
|
167,532
|
(c)
|
Natural gas from underlying properties (Mcf)
|
|
|
558,563
|
(b)
|
|
|
633,426
|
(c)
|
|
|
|
|
|
|
|
|
|
Total production (BOE)
|
|
|
259,985
|
|
|
|
273,103
|
|
Average sales prices:
|
|
|
|
|
|
|
|
|
Oil (per Bbl)
(a)
|
|
$
|
81.92
|
|
|
$
|
79.83
|
|
Natural (per Mcf)
|
|
$
|
4.44
|
|
|
$
|
3.50
|
|
Costs (per BOE):
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
$
|
28.36
|
|
|
$
|
26.14
|
|
Production taxes
|
|
$
|
4.27
|
|
|
$
|
3.99
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Oil sales
(a)
|
|
$
|
13,672
|
(b)
|
|
$
|
13,374
|
(c)
|
Natural gas sales
|
|
|
2,481
|
(b)
|
|
|
2,219
|
(c)
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
16,153
|
|
|
$
|
15,593
|
|
|
|
|
|
|
|
|
|
|
Costs:
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
$
|
7,373
|
|
|
$
|
7,138
|
|
Production taxes
|
|
|
1,109
|
|
|
|
1,089
|
|
Cash settlement gains received on commodity derivatives
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs
|
|
$
|
8,482
|
|
|
$
|
8,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds
|
|
$
|
7,671
|
|
|
$
|
7,366
|
|
Net profits percentage
|
|
|
90
|
%
|
|
|
90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from net profits interest
|
|
$
|
6,904
|
|
|
$
|
6,629
|
|
|
|
|
|
|
|
|
|
|
Provision for estimated Trust expenses
|
|
|
(370
|
)
|
|
|
(300
|
)
|
Montana state income tax withheld
|
|
|
(40
|
)
|
|
|
(45
|
)
|
|
|
|
|
|
|
|
|
|
Distributable Income
|
|
$
|
6,494
|
|
|
$
|
6,284
|
|
|
|
|
|
|
|
|
|
|
(a)
|
Oil includes natural gas liquids.
|
(b)
|
Oil and gas sales volumes and related revenues for the three months ended June 30, 2014 (consisting of Whitings May 2014 distribution to
the Trust) generally represent crude oil production from January 2014 through March 2014 and natural gas production from December 2013 through February 2014.
|
(c)
|
Oil and gas sales volumes and related revenues for the three months ended June 30, 2013 (consisting of Whitings May 2013 distribution to
the Trust) generally represent crude oil production from January 2013 through March 2013 and natural gas production from December 2012 through February 2013.
|
(d)
|
As discussed above, all hedges terminated as of December 31, 2012 and thereby ceased to affect distributions after the February 2013
distribution. Therefore, no commodity price hedges will impact future Trust distributions through Trust termination, which has the effect of increasing the Trusts exposure to oil and natural gas price volatility.
|
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 and production taxes as follows:
Revenues.
Oil and natural gas revenues increased $0.6 million or 4% for the three months ended June 30, 2014 compared to the same period in 2013. Sales revenue is a function of average commodity prices realized and oil and gas volumes sold. The
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increase in revenue between periods was due to higher sales prices realized for oil and natural gas, partially offset by lower oil and natural gas production volumes during the second quarter of
2014 as compared to the same 2013 period. The average sales price realized increased for oil by 3% and for gas by 27% between periods. Oil sales volumes decreased 0.6 MBbls (or 0.4%), and gas sales volumes decreased 74.9 MMcf (or 12%) during the
second quarter of 2014 compared to the same period in 2013. Both of these volume decreases were primarily related to normal field production decline, partially offset by i) five new wells that came online during the last twelve months, and ii)
differences in timing associated with revenues received from non-operated properties. In the December 31, 2013 reserve report, production attributable to the underlying properties is estimated to decline at an approximate annualized rate of 11%
for crude oil and 15% for natural gas from 2014 through the estimated NPI termination date.
Lease Operating
Expenses
. LOE increased $0.2 million or 3% during the second quarter of 2014 compared to the second quarter of 2013 period, primarily due to $0.3 million in higher plug and abandonment charges between periods. The increase in overall LOE coupled
with the decrease in overall production volumes between periods resulted in an increase in LOE on a per BOE basis of 8%, from $26.14 during the second quarter of 2013 to $28.36 for the same period in 2014.
Production Taxes.
Production taxes are typically calculated as a percentage of oil and natural gas revenues before the
effects of hedging, and production taxes as a percent of revenues remained relatively consistent at 6.9% and 7.0% for the second quarter of 2014 and 2013, respectively. Overall production taxes during the three months ended June 30, 2014 and
2013 remained consistent at $1.1 million for each respective period.
Provision for Estimated Trust Expenses.
The provision for
estimated Trust expenses in the second quarter of 2014 increased $0.1 million as compared to the same period in 2013 primarily due to an increase in cash reserves withheld for future Trust expenses of $0.1 million between periods.
Distributable Income.
For the three months ended June 30, 2014, the Trusts distributable income was $6.5 million and was
based on income from net profits interest of $6.9 million, reduced by Trust general and administrative costs of $0.2 million and Montana state income tax withholdings of $39,889, and adjusted for changes in Trust cash reserves. This compares to
distributable income of $6.3 million for the second quarter of 2013, which was based on income from net profits interest of $6.6 million, reduced by $0.3 million of Trust general and administrative expenses and $45,042 in Montana state income tax
withholdings, and adjusted for changes in Trust cash reserves.
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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
paid 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 filed 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 $2.8 million on the underlying properties during the six months ended June 30, 2014.
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.
In February 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. If the Trustee were to draw on the letter of credit or borrow funds from Whiting or otherwise, no further distributions would be made to unitholders until all such amounts have been repaid by 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 August 7, 2014, the Trustee announced the Trust distribution of net profits for the second quarterly payment period in 2014.
Unitholders of record on August 19, 2014 are expected to receive a distribution of $0.560534 per Trust unit, which is payable on or before August 29, 2014. This aggregate distribution to all Trust unitholders is expected to consist of net
cash proceeds of $8.1 million paid by Whiting to the Trust, less a provision of $250,000 for estimated Trust expenses and $49,694 for Montana state income tax withholdings.
New Accounting Pronouncements
There were
no accounting pronouncements issued during the six months ended June 30, 2014 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, 2013. There have been no significant changes to the critical accounting
policies during the six months ended June 30, 2014.
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