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EX-32.1 - EX-32.1 - TIDELANDS ROYALTY TRUST B | d71716exv32w1.htm |
EX-31.1 - EX-31.1 - TIDELANDS ROYALTY TRUST B | d71716exv31w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission file number 000-08677
Tidelands Royalty Trust B
(Exact name of registrant as specified in its charter)
Texas | 75-6007863 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) |
c/o The Corporate Trustee | ||
U.S. Trust, Bank of America Private Wealth Management | ||
P.O. Box 830650, Dallas, Texas | 75283-0650 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code (at the office of the Trustee): (800) 985-0794
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Beneficial Interest
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. YES o NO þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. YES o NO þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
YES þ NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
YES o NO o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer or a smaller reporting company. See definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o
|
Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). YES o NO þ
Aggregate market value of the Units of Beneficial Interest held by non-affiliates of the registrant
at June 30, 2009 (the last business day of the registrants most recently completed second fiscal
quarter) was approximately $17,045,664. (For purposes of determination of the above stated amount,
only directors, executive officers and 10% or greater stockholders have been deemed affiliates).
Number of Units of Beneficial Interest outstanding as of March 23, 2010: 1,386,375 Units.
Documents incorporated by reference: None.
Table of Contents
Part I
Item 1. Business
Organization. Tidelands Royalty Trust B (the Trust) is a royalty trust that was created
on June 1, 1954, under the laws of the State of Texas. 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 interests in certain oil,
natural gas or other mineral leases obtained by Gulf Oil Corporation (Gulf) in a designated area
of the Gulf of Mexico. These rights are evidenced by a contract between the Trusts predecessors
and Gulf dated April 30, 1951 (the 1951 Contract), which is binding upon the assignees of Gulf.
As a result of various transactions that have occurred since 1951, the Gulf interests that were
subject to the 1951 Contract now are held by Chevron U.S.A., Inc. (Chevron), which is a
subsidiary of Chevron Corporation, and its respective assignees.
The Tidelands Royalty Trust B Indenture, effective June 1, 1954, as amended (the
Indenture), provides that the corporate trustee is to distribute all cash in the Trust, excluding
cash retained by its subsidiary, less an amount reserved for the payment of accrued liabilities and
estimated future expenses, to unitholders of record on the last business day of March, June,
September and December of each year. Pursuant to the terms of the Indenture, all distributions
will be sent within 15 calendar days of the record date. U.S. Trust, Bank of America Private
Wealth Management, serves as corporate trustee (the Trustee). The Indenture prohibits the
operation of any kind of trade or business by the Trust.
The Indenture provides that the term of the Trust will expire on April 30, 2021, unless
extended by the vote of the holders of a majority of the outstanding units of beneficial interest.
The Trusts wholly-owned subsidiary, Tidelands Royalty B Corporation (Tidelands
Corporation, collectively with the Trust, Tidelands), holds title to interests in properties
subject to the 1951 Contract that are situated offshore of Louisiana. Ninety-five percent of all
oil, natural gas and other mineral royalties collected by Tidelands Corporation, less the cost of
receiving and collecting, are retained by and delivered to the Trust. Tidelands Corporation
retains the remaining 5% of the overriding royalties along with other items of income and expense
until such time as the board of directors declares a dividend out of retained earnings. Tidelands
Corporation, like the Trust, is prohibited from engaging in a trade or business and does only those
things necessary for the administration and liquidation of its properties.
Tidelands only industry segment or purpose is the administration and collection of royalties.
The 1951 Contract. The 1951 Contract identifies 60 specific tracts (the Tracts) in the Gulf
of Mexico. The Tracts are not all the same size and collectively contain approximately 1,370,000
acres. Prior to the expiration of the 50-year lease acquisition period on April 30, 2001 (the
Acquisition Expiration Date), if Chevron or its assignees had acquired a lease or leases on one
of the Tracts, and if oil or natural gas were produced and sold from any such Tract, then Chevron
or its assignees had to make production payments to Tidelands, in an amount equal to approximately
12.5% of the value at the wellhead of the oil and natural gas subject to such lease until the sum
of $1,500,000 was paid to Tidelands under the lease. Thereafter, Tidelands interest in such
Tracts converted to an overriding royalty as described below. At the Acquisition Expiration Date,
five of the Tracts had leases, as described below, and rights to the other 55 Tracts expired.
As of March 15, 2010, Tidelands had five assigned oil and natural gas leases covering 22,948
gross acres in the Gulf of Mexico in the Galveston, Sabine Pass and West Cameron areas (sometimes
referred to herein as the Royalty Area). As of March 15, 2010, all five of Tidelands assigned
leases contained active wells and have paid out their $1,500,000 production payment. Tidelands
overriding royalty interest on four of the five leases is 4.1662%. On the fifth lease, the
overriding royalty interest is 1.0416%. The overriding royalty interest on the fifth lease is
lower because Chevron only acquired a 25% working interest in the lease.
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Since the Acquisition Expiration Date has passed, Chevron and its assignees are no longer
obligated to assign any interest to Tidelands out of any lease that they acquire on any of the
Tracts. Tidelands will continue to receive payments on the five leases acquired by Chevron or its
assignees prior to the Acquisition Expiration Date, so long as such leases are active properties.
These leases and related overriding royalty interests are identified in the table below (dollars in
thousands):
Lease | Royalty | 2009 | Working Interest | |||||||||||||||||||||
Area | Block | Number | Acres | Interest | Royalties | Operator(s) | Owner(s) | |||||||||||||||||
Galveston
|
303 | 4565 | 5,760 | 4.1662 | % | $ | 206,512 | W&T Offshore Inc. | W&T Offshore Inc. (75.00% Ownership Interest); Sterling Energy, Inc. (15.75% Ownership Interest); Barron Petroleum Company (9.25% Ownership Interest) | |||||||||||||||
Sabine Pass
|
13 | 3959 | 3,438 | 4.1662 | % | $ | 460,777 | NOEX Energy, Inc. | NOEX Energy, Inc. (100.00% Ownership Interest) | |||||||||||||||
West Cameron
|
165 | 758 | 5,000 | 4.1662 | % | $ | 2,178,735 | Devon Energy Production Company LP | Devon Energy Production Company LP (100.00% Ownership Interest) |
|||||||||||||||
West Cameron
|
225 | 900 | 3,750 | 1.0416 | % | $ | 4,131 | ENI US Operating Co. Inc.; Breton Engineering LLC | ENI Petroleum USA LLC (68.00% Ownership Interest); Mariner Energy Resources, Inc. (32.00% Ownership Interest) | |||||||||||||||
West Cameron
|
291 | 4397 | 5,000 | 4.1662 | % | $ | 283,124 | Devon Energy Production Company LP | Devon Energy Production Company LP (100.00% Ownership Interest) |
|||||||||||||||
Total
|
22,948 | $ | 3,133,279 |
In 2009, approximately 12% of Tidelands royalty revenues were attributable to oil and
approximately 88% were attributable to natural gas. The production payments and royalty revenues
received by Tidelands are affected by the producing capability of the wells, seasonal fluctuations
in demand and by changes in the market price for oil and natural gas. During 2009, Tidelands
received the majority of its royalty payments from three working interest owners on its five
leases. The following table presents the approximate percentage of royalties actually received
from each working interest owner for the past three years:
Working Interest Owners | 2009 | 2008 | 2007 | |||||||||
Devon Energy Production Company LP |
78 | % | 77 | % | 74 | % | ||||||
NOEX Energy, Inc. |
15 | % | 8 | % | 7 | % | ||||||
W&T Offshore Inc. |
7 | % | 7 | % | 6 | % | ||||||
ENI Petroleum USA LLC |
* | 1 | % | | ||||||||
Mariner Energy Resources, Inc. |
* | | | |||||||||
Sterling Energy, Inc. |
| | | |||||||||
Barron Petroleum Company |
| 3 | % | 2 | % | |||||||
McMoran Oil & Gas |
| 4 | % | | ||||||||
Dominion Exploration & Production, Inc. |
| | 1 | % | ||||||||
Newfield Exploration Co. |
| | 10 | % | ||||||||
100 | % | 100 | % | 100 | % | |||||||
* | Indicates less than 1% |
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Table of Contents
Tidelands derives no revenues from foreign sources and has no export sales. |
Trust Functions. The Trust is administered by officers and employees of the Trustee. See
Item 10. Directors and Executive Officers and Corporate Governance below.
All aspects of Tidelands operations are conducted by third parties. These operations include
the production and sale of oil and natural gas and the calculation of royalty payments to
Tidelands, which are conducted by oil and natural gas companies that lease Tracts subject to
Tidelands interests. American Stock Transfer and Trust Company, LLC is the transfer agent for
Tidelands and is responsible for reviewing, processing and payment of distributions.
Marine Petroleum Trust (Marine) is a 32.6% unitholder of the Trust. Marine Petroleum
Corporation, a wholly-owned subsidiary of Marine, leases office space in Dallas, Texas to provide
work space and record storage for Marine, Marine Petroleum Corporation, the Trust and Tidelands
Corporation. The cost of this office facility is shared by Marine Petroleum Corporation and
Tidelands Corporation in proportion to each entitys gross income to the total income of both
entities.
The ability of Tidelands to receive revenues is entirely dependent upon its entitlement to its
rights with respect to the five leases held by Chevron and its assignees in the Gulf of Mexico (as
more fully described in Item 2. Properties below).
The royalty interests held by Tidelands are depleting with each barrel of oil and cubic foot
of natural gas produced. No funds are reinvested by Tidelands; thus, these depleting assets are
not being replaced.
Widely Held Fixed Investment Trust Reporting Information. The Trustee assumes that some units
of beneficial interest are held by middlemen, as such term is broadly defined in U.S. Treasury
Regulations (and includes custodians, nominees, certain joint owners, and brokers holding an
interest for a customer in street name). Therefore, the Trustee considers the Trust to be a widely
held fixed investment trust (WHFIT) for U.S. Federal income tax purposes. Accordingly, the Trust
will provide tax information in accordance with applicable U.S. Treasury Regulations governing the
information reporting requirements of the Trust as a WHFIT. The representative of the Trust that
will provide the required information is U.S. Trust, Bank of America Private Wealth Management, and
the contact information for the representative is as follows:
U.S. Trust, Bank of America Private Wealth Management
P.O. Box 830650
Dallas, Texas 75283-0650
Telephone number: (800) 985-0794
P.O. Box 830650
Dallas, Texas 75283-0650
Telephone number: (800) 985-0794
Each unitholder should consult his or her own tax advisor for tax reporting matters.
Item 1A. | Risk Factors |
Although various risk factors and specific cautionary statements are described elsewhere in
this Annual Report on Form 10-K, the following is a summary of the principal risks associated with
an investment in units of the Trust.
Tidelands is unable to acquire royalty interests in any more leases.
Since the Acquisition Expiration Date has passed, Chevron and its assignees are no longer
obligated to assign any interest to Tidelands out of any lease that they acquire on any of the
Tracts. In addition, Tidelands is not permitted to carry on any business, including making
investments in additional oil and gas interests. Tidelands will continue to receive payments on
the five leases acquired by Chevron or its assignees prior to the Acquisition Expiration Date, so
long as the leases exist. Once the leases terminate or expire, any overriding royalties payable to
Tidelands will terminate and Tidelands cannot acquire any additional or replacement royalty
interests.
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Royalty interests are depleting assets and may deplete faster than expected or entirely.
The net proceeds payable to Tidelands are derived from the sale of depleting assets.
Accordingly, the portion of the distributions to unitholders attributable to depletion may be
considered a return of capital as opposed to a return on investment. Distributions that are
considered a return of capital will ultimately diminish the depletion tax benefits available to
unitholders, which could reduce the market value of the units over time.
The reduction in proved reserve quantities is a common measure of depletion. Future
maintenance and development projects in the Royalty Area will likely affect the quantity of proved
reserves. The timing and size of these projects will depend on the market prices of oil and
natural gas. If operators of the Royalty Area do not implement additional maintenance and
development projects, the future rate of production decline of proved reserves may be higher than
the rate currently experienced by Tidelands. Eventually, the properties in the Royalty Area will
stop producing in commercial quantities, and Tidelands will therefore cease to receive any
distributions of net proceeds therefrom.
Oil and natural gas prices are volatile and fluctuate due to a number of factors, and lower prices
will reduce royalty payments to Tidelands and distributions to its unitholders.
Tidelands quarterly distributions are highly dependent upon the prices realized from the sale
of oil and natural gas. A significant downward movement in the prices for oil and natural gas
could have a material adverse effect on Tidelands distributable income, which could decrease the
distributions to unitholders. Recently, prices for oil and natural gas have declined dramatically
from recent high prices. Historically, prices have been volatile and are likely to continue to be
volatile in the future due to factors beyond Tidelands control. These factors include, but are
not limited to:
| political conditions worldwide, in particular political disruption, war or other armed conflicts in oil producing regions; | ||
| worldwide economic conditions; | ||
| weather conditions; | ||
| the supply and price of domestic and foreign oil and natural gas; | ||
| the level of consumer demand; | ||
| the price and availability of alternative fuels; | ||
| the proximity to, and capacity of, transportation facilities; and | ||
| the effect of worldwide energy conservation measures. |
Moreover, government regulations, such as regulation of natural gas transportation and price
controls, can affect product prices in the long term.
Lower prices may reduce the amount of oil and natural gas that is economical to produce and
reduce distributable income available to Tidelands. The volatility of energy prices reduces the
predictability of future cash distributions to unitholders. Substantially all of the oil, natural
gas and natural gas liquids produced from the Royalty Area is being sold under short-term or
multi-month contracts at market clearing prices or on the spot market.
The market price for the units may not reflect the value of the royalty interests held by
Tidelands.
The public trading price for the units tends to be tied to the recent and expected levels of
cash distribution on the units. The amounts available for distribution by Tidelands vary in
response to numerous factors outside the control of Tidelands, including prevailing prices for oil
and natural gas produced from properties in the Royalty Area. The market price of the units is not
necessarily indicative of the value that Tidelands would realize if it sold its interest in the
properties in the Royalty Area to a third party buyer and distributed the net proceeds to its
unitholders. In addition, the market price of the units is not necessarily reflective of the fact
that since the assets of Tidelands are depleting assets, a portion of each cash distribution paid
on the units should be considered by investors as a return of
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capital, with the remainder being considered as a return on investment. There is no guarantee
that distributions made to a unitholder over the life of these depleting assets will equal or
exceed the purchase price paid by the unitholder for the unit.
In addition, the public stock markets have experienced price and trading volume volatility.
This volatility has had a significant effect on the market prices of securities issued by many
companies for reasons that may or may not be related to operating performance. If the public stock
markets continue to experience price and trading volume volatility in the future, the market price
of the units could be adversely affected. In addition, the units have traded, and may continue to
trade, in low volumes. As a result, sales of small amounts of the units in the public market could
cause the price of the units to fluctuate greatly, including in a materially adverse manner.
Operating risks for the working interest owners interests in the Royalty Area can adversely affect
distributions.
The occurrence of drilling, production or transportation accidents and other natural disasters
in the Royalty Area can reduce distributions. These occurrences include blowouts, cratering,
explosions, environmental and hurricane damage that may result in personal injuries, property
damage, damage to productive formations or equipment and environmental damages. For example, in
September 2008, Hurricanes Gustav and Ike hit the Gulf Coast, which generally caused (i) a
disruption of oil and natural gas production, (ii) damage to offshore production platforms and
(iii) damage to onshore oil and natural gas pipeline facilities.
Failure to collect royalty payments from working interest owners could adversely affect Tidelands
distributions to its unitholders.
A significant portion of Tidelands royalties are attributable a limited number of working
interest owners. During 2009, Devon Energy Production Company LP accounted for 78% of the royalty
payments to Tidelands. Tidelands does not require working interest owners to pledge collateral or
otherwise post security for royalty payments. At any time, Tidelands may encounter collection
issues with one or more of the working interest owners, which could result in Tidelands not
receiving payment for some or all of its royalty interests. Any reduction in royalty payments
would reduce distributable income to Tidelands unitholders.
The owner of any properties in the Royalty Area may transfer any of the properties in the Royalty
Area to another unrelated third party.
The working interest owners may at any time transfer all or part of the properties in the
Royalty Area to another unrelated third party. Unitholders are not entitled to vote on any
transfer, and Tidelands will not receive any proceeds of any such transfer. Following any
transfer, the Royalty Area will continue to be subject to Tidelands royalty interest, but the net
proceeds from the transferred property would be calculated separately and paid by the transferee.
The transferee would be responsible for all of the obligations relating to calculating, reporting
and paying to Tidelands its royalty interest on the transferred portion of the Royalty Area, and
the current owner of the Royalty Area would have no continuing obligation to Tidelands for those
properties. Any such transferee may not be as financially sound as the current working interest
owner.
The owner of any properties in the Royalty Area may abandon any property, terminating the related
royalty interest Tidelands may hold.
The current working interest owners or any transferee may abandon any well or property if it
believes that the well or property can no longer produce in commercially economic quantities or for
any other reason. This would terminate Tidelands royalty interest relating to the abandoned well
or property.
The Trustee, Tidelands and the Trusts unitholders do not control the operation or development of
the properties in the Royalty Area and have little influence over operation or development.
The Trustee, Tidelands and the Trusts unitholders have little, if any, influence or control
over the operation or future development of the underlying properties in the Royalty Area. The
properties in the Royalty Area are owned by independent working interest owners. The working
interest owners manage the underlying properties and handle
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receipt and payment of funds relating to the Royalty Area and payments to Tidelands for its
royalty interests. The current working interest owners are under no obligation to continue
operating the properties. The failure of a working interest owner to conduct its operations,
discharge its obligations, cooperate with regulatory agencies or comply with laws, rules and
regulations in a proper manner could have an adverse effect on net proceeds payable to Tidelands.
The Trustee, Tidelands and the Trusts unitholders do not have the right to replace an operator.
Important reserve and other information with respect to the particular leases subject to Tidelands
royalty interest is difficult to obtain.
The leasehold working interests that are subject to the rights held by Tidelands were owned in
whole or in part by Chevron and have been assigned to other oil and natural gas exploration and
production companies. Certain information with respect to the particular leases subject to
Tidelands interests, including, but not limited to, (i) reserves, (ii) availability of oil and
natural gas, (iii) average production cost (lifting cost) per unit, (iv) undeveloped acreage and
(v) net wells and net acres, lies solely within the knowledge of these working interest owners.
Engineering data, if any, regarding these leaseholds would have been compiled principally by or for
the working interest owners of these leaseholds and Tidelands believes that it will not be provided
access to such information.
Terrorism and continued geopolitical hostilities could adversely affect Tidelands distributions to
its unitholders or the market price of its units.
Terrorist attacks and the threat of terrorist attacks, whether domestic or foreign, as well as
military or other actions taken in response to such attacks or threats, could cause instability in
the global financial and energy markets. Terrorism and other geopolitical hostilities could
adversely affect the Trusts distributions to its unitholders or the market price of its units in
unpredictable ways, including through the disruption of fuel supplies and markets, increased
volatility in oil and natural gas prices, or the possibility that the infrastructure on which the
operators of the underlying properties rely could be a direct target or an indirect casualty of an
act of terror.
Unitholders have limited voting rights.
Voting rights as a unitholder are more limited than those of stockholders of most public
corporations. For example, there is no requirement for annual meetings of unitholders or for an
annual or other periodic re-election of the Trustee. Unlike corporations, which are generally
governed by boards of directors elected by their equity holders, the Trust is administered by a
corporate trustee in accordance with the Indenture and other organizational documents. The Trustee
has extremely limited discretion in its administration of the Trust.
The limited liability of the unitholders is uncertain.
The unitholders are not protected from the liabilities of the Trust to the same extent that a
shareholder would be protected from a corporations liabilities. The structure of the Trust as a
trust does not include the interposition of a limited liability entity such as a corporation or
limited partnership, which would provide further limited liability protection to unitholders.
While the Trust is liable for any excess liabilities incurred if the Trustee fails to ensure that
such liabilities are to be satisfied only out of the Trusts assets, under the laws of the State of
Texas, which are unsettled on this point, a unitholder may be jointly and severally liable for any
liability of the Trust if the satisfaction of such liabilities was not contractually limited to the
assets of the Trust and the assets of the Trust and the Trustee are not adequate to satisfy such
liability. As a result, unitholders may be exposed to personal liability.
Tidelands royalty interest can be sold and the Trust can be terminated.
The Trust may be terminated and the Trustee may sell Tidelands royalty interests if holders
of 80% of the units approve the sale and vote to terminate the Trust. Following any such
termination and liquidation, the net proceeds of any sale will be distributed to the unitholders
and unitholders will receive no further distributions from the Trust. Any such sale may not be on
terms acceptable to all unitholders.
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The operators of the working interest owner are subject to extensive governmental regulation.
Oil and gas operations have been, and in the future will be, affected by Federal, state and
local laws and regulations and other political developments, such as price or gathering rate
controls and environmental protection regulations. Although Tidelands is unable to predict changes
to existing laws and regulations, such changes could significantly impact royalty interests.
Cash held by the Trustee is not insured by the Federal Deposit Insurance Corporation.
Currently, cash held by Tidelands reserved for the payment of accrued liabilities and
estimated future expenses and distributions to unitholders is typically held in cash deposits, U.S.
Treasury and agency bonds and money market accounts. Tidelands places such reserve cash with
financial institutions that Tidelands considers creditworthy and limits the amount of credit
exposure from any one financial institution. However, none of these accounts are insured by the
Federal Deposit Insurance Corporation. In the event that any such financial institution becomes
insolvent, Tidelands may be unable to recover any or all such cash from the insolvent financial
institution. Any loss of such cash may have a material adverse effect on Tidelands cash balances
and any distributions to unitholders.
Financial information of Tidelands is not prepared in accordance with accounting principles
generally accepted in the United States, or GAAP.
The financial statements of Tidelands are prepared on a modified cash basis of accounting,
which is a comprehensive basis of accounting other than accounting principles generally accepted in
the United States (GAAP). Although this basis of accounting is permitted for royalty trusts by
the Securities and Exchange Commission (SEC), the financial statements of Tidelands differ from
GAAP financial statements because royalty income is recognized in the month received rather than in
the month of production and reserves may be established for contingencies that would not be
recorded under GAAP.
If it is determined that the Trust is subject to the Texas franchise tax, the Trustee may have to
withhold an amount from future distributions to pay the tax liability.
In May 2006, the State of Texas enacted legislation, as amended in June 2007 and again in June
2009, to implement a new franchise or margin tax. Certain entities that were previously exempt
from the franchise tax, including many trusts, may now be subject to the tax. Trusts, however,
other than business trusts (as defined in U.S. Treasury Regulation section 301.7701-4(b)), that
meet certain statutory requirements are exempt from the franchise tax as passive entities.
The Trustee does not expect that the Trust will be required to pay any amounts under the Texas
state franchise tax for tax year 2009, based on the Trustees belief that the Trust is exempt from
the franchise tax as a passive entity (i.e., the Trust is not a business trust, it receives at
least 90% of its Federal gross income from certain passive sources, and no more than 10% of its
income is derived from an active trade or business). If it is subsequently determined that the
Trust is not exempt from the franchise tax, the Trust will be required to deduct and withhold from
future distributions the amount required to satisfy and pay the Trusts franchise tax liability for
tax year 2009. In addition, the Trust would be required to timely pay franchise tax liability due
with respect to current and future years.
Assuming the Trust is exempt from the Texas state franchise tax as a passive entity, each
unitholder that is subject to the Texas franchise tax as a taxable entity under the Texas Tax Code
would generally include its share of the Trusts revenue in its franchise tax computation. The
Texas Tax Code does not apply to natural persons. Each unitholder is urged to consult his or her
own tax advisor regarding his or her possible Texas state franchise tax liability.
Item 1B. | Unresolved Staff Comments |
None.
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Item 2. | Properties |
General. Tidelands is not engaged in oil and natural gas operations. Its income is based on
the oil and natural gas operations of others. Tidelands income is derived from overriding royalty
payments made to Tidelands based on oil and natural gas sales from certain leases in the Gulf of
Mexico. Tidelands does not own or directly lease any physical properties.
Reserves. As indicated above, Tidelands is not engaged in the production of oil or natural
gas, and its income is derived from overriding royalty payments that are carved out of working
interests in oil and natural gas leases in the Gulf of Mexico pursuant to the 1951 Contract.
Tidelands does not have the engineering data necessary to make an estimate of the proved oil and
natural gas reserves attributable thereto (nor the present value of future net cash flows from such
reserves), and is not entitled to receive such data from the owners of the working interests from
which Tidelands interests are derived. See also Difficulty in Obtaining Certain Data below.
Since Tidelands does not have access to this reserve information, Tidelands is unable to
compute the standardized measure of discounted future net cash flows therefrom.
Tidelands did not file any reports on oil and natural gas reserves with any Federal authority
or agency during 2009. Due to the nature of Tidelands business, it does not have any delivery
commitments.
Production. Information regarding the net quantities of oil and natural gas produced with
respect to Tidelands overriding royalty interests for each of the last three fiscal years, as well
as the average sales price per unit of oil and natural gas produced upon which payments to
Tidelands are based, is set forth below in the following table:
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Quantity of oil and natural gas sold: |
||||||||||||
Oil (in barrels (bbls)) |
6,662 | 4,603 | 7,071 | |||||||||
Natural gas (in thousand cubic feet (mcf)) |
513,880 | 428,728 | 515,260 | |||||||||
Weighted average sales price for oil and natural gas sold: |
||||||||||||
Oil (per bbl) (1) |
$ | 57.00 | $ | 107.98 | $ | 66.19 | ||||||
Natural gas (per mcf) (1). |
$ | 5.36 | $ | 9.51 | $ | 7.29 |
(1) | The weighted average sales price is calculated from data provided by the operators. |
Information about average production cost (lifting cost) per unit of production has been
omitted due to its unavailability and inapplicability to Tidelands. For more information regarding
oil sales prices, see Item 7. Trustees Discussion and Analysis of Financial Condition and
Results of Operations below.
Interests in Properties. Tidelands properties consist of overriding royalty interests in
five oil and natural gas leases covering 22,948 gross acres located in the Gulf of Mexico in the
Galveston, Sabine Pass and West Cameron areas.
Productive Properties. Set forth in the table below is information as of December 31, 2009
regarding gross productive oil and natural gas wells and gross leased acres in which Tidelands owns
interests:
Gross Productive Wells: |
||||
Oil. |
3 | |||
Natural Gas |
15 | |||
Total Wells |
18 | |||
Gross Leased Acres: |
||||
Productive |
22,948 | |||
Non-Productive |
| |||
Total Leased Acres |
22,948 | |||
9
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Information regarding net wells or acres is not included since Tidelands does not own any
working interests.
Present Activities. Tidelands currently receives royalties from oil and natural gas sold from
five leases in the Royalty Area, although delivery quantities are subject to the producing
capability of the wells and seasonal demand.
Tidelands is not obligated to provide any fixed and determinable quantities of oil or natural
gas in the future under any existing contracts or agreements.
Galveston Block 303 Field: The Minerals Management Service (MMS) records show that
this field has three active wells but that there were no drilling or workovers reported during the
fiscal year ended December 31, 2009. The last year that wells were drilled and worked over was
2006.
Sabine Pass Block 13: In 2008, Nippon Oil Exploration USA Ltd. (NOEX) filed a plan
of development with the MMS to drill five wells from an existing platform on Sabine Pass Block 13.
The MMS records show that no permit for these wells has been issued. Tidelands has been advised by
NOEX that NOEX has performed work over operations on three wells during the past two years. The
MMS records show Wells A004 and A006 are active wells and currently producing, but Well A007 was
worked over but never completed and was temporarily abandoned in 2009. Tidelands has not received
any further updates regarding these wells.
West Cameron Blocks 165 and 291: These two blocks are in the West Cameron Block 165
Field. In 2008, Devon Energy Production Co. LP (Devon) filed a plan of development with the MMS
for West Cameron Block 291. The plan called for one gas well to be drilled with expected
completion in the fourth quarter of 2008. However, the permit for that well was cancelled. Devon
has announced that it intends to sell all of its leases in the Gulf of Mexico, which will include
the leases in West Cameron Block 165 Field. Tidelands has been informed that no buyer exists at
the present time. Because Tidelands interest runs with the lease, any new owner of the leases
would be required to make payments to Tidelands for its interest in oil and natural gas sold.
West Cameron Block 225:
In January 2008, Dominion Exploration & Production, Inc.
assigned the lease on West Cameron Block 225 to ENI Petroleum LLC and Mariner Energy Resources,
Inc. ENI US Operating Co. Inc. and Breton Engineering LLC has now been designated as the operator of the lease. Two new
wells, Well No. 7 and Well No. 8, were drilled and
commenced producing in June 2008. As of March 15, 2010,
all wells on
this lease were shut in.
Difficulty in Obtaining Certain Data. Tidelands only activities are the collection and
distribution of revenues from overriding royalties on certain oil and natural gas leases in the
Gulf of Mexico, pursuant to the 1951 Contract. The leasehold working interests that are subject to
the rights held by Tidelands were owned in whole or in part by Chevron and have been assigned to
other oil and natural gas exploration and production companies. Certain information with respect
to the particular leases subject to Tidelands interests, including, but not limited to, (i)
reserves, (ii) availability of oil and natural gas, (iii) average production cost (lifting cost)
per unit, (iv) undeveloped acreage and (v) net wells and net acres, lies solely within the
knowledge of these working interest owners. Engineering data, if any, regarding these leaseholds
would have been compiled principally by or for the working interest owners of these leaseholds and
Tidelands believes that it will not be provided access to such information. As a result, the
Trustee believes that unreasonable effort and expense would be involved in seeking to obtain all of
the information required under Item 102 of Regulation S-K and Subpart 1200 of Regulation S-K.
Item 3. | Legal Proceedings |
Neither the Trust nor Tidelands Corporation, nor any of their respective properties, is a
party to or subject to any material pending litigation as of the date hereof.
Item 4. | Reserved |
10
Table of Contents
Part II
Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
The Trust is authorized to issue 1,386,525 units of beneficial interest. As of March 23,
2010, 1,386,375 units were held by 265 unitholders of record. The remaining 150 units are reserved
to be issued to specific parties if and when they decide to transfer their rights under the 1951
Contract to the Trust. There were no changes in the number of outstanding units of beneficial
interest during 2009.
The units of beneficial interest in the Trust trade in the over-the-counter market and are
listed on the OTC Bulletin Board under the symbol TIRTZ.OB. There is limited trading in the
Trusts units of beneficial interest. The following table presents information obtained from
public Internet sources for 2009 and 2008 as to the high and low bid prices and includes
distributions to unitholders, by quarter, for the past two years:
Bid Quotation | Distributions | |||||||||||
Year Ended December 31, | High | Low | (Per Unit) | |||||||||
2008 |
||||||||||||
First quarter |
$ | 25.24 | $ | 19.00 | $ | 0.69 | ||||||
Second quarter |
29.50 | 22.86 | 0.63 | |||||||||
Third quarter |
29.95 | 16.00 | 0.76 | |||||||||
Fourth quarter |
18.90 | 8.50 | 0.89 | |||||||||
2009 |
||||||||||||
First quarter |
$ | 15.49 | $ | 8.60 | $ | 0.85 | ||||||
Second quarter |
22.74 | 12.00 | 0.55 | |||||||||
Third quarter |
18.75 | 13.75 | 0.41 | |||||||||
Fourth quarter |
19.00 | 15.34 | 0.44 |
Such over-the-counter market quotations reflect interdealer prices without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
The Trust must distribute to its unitholders all cash accumulated each quarter, less an amount
reserved for accrued liabilities and estimated future expenses. The amount reserved varies from
quarter to quarter and amounted to $66,500 for the distribution paid to holders of record on
December 31, 2009. Such distributions have been made since the third quarter of 1977 and will
continue so long as the income from oil and natural gas royalties exceeds administrative costs.
Distributions fluctuate from quarter to quarter due to changes in oil and natural gas prices and
production quantities. Distributions are determined by the cash available to the Trust on or
before ten days prior to the record date provided in the Indenture.
Tidelands does not maintain any equity compensation plans.
Tidelands did not repurchase any units of beneficial interest during the period covered by
this report.
While Tidelands complete Annual Report on Form 10-K (excluding exhibits) for the year ended
December 31, 2009 is distributed to unitholders, a copy of such Form 10-K (excluding exhibits) is
available without charge to interested parties. There will be copying and mailing charges for
copies of any exhibits requested. Written requests should be directed to Mr. Ron E. Hooper, U.S.
Trust, Bank of America Private Wealth Management, P.O. Box 830650, Dallas, Texas 75283-0650.
Item 6. | Selected Financial Data |
The following table summarizes selected financial information that has been derived from
Tidelands audited consolidated financial statements. You should read the information set forth
below in conjunction with
11
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Item 7. Trustees Discussion and Analysis of Financial Condition and Results of Operations
and the consolidated financial statements and notes thereto included elsewhere in this Annual
Report on Form 10-K.
Year Ended December 31, | ||||||||||||||||||||
(In Thousands, Except Per Unit Amounts) | ||||||||||||||||||||
2009 | 2008 | 2007 | 2006 | 2005 | ||||||||||||||||
(Audited) | (Audited) | (Audited) | (Audited) | (Audited) | ||||||||||||||||
Statement of Distributable Income
Selected Data: |
||||||||||||||||||||
Income oil and natural gas royalties |
$ | 3,133 | $ | 4,575 | $ | 4,226 | $ | 1,329 | $ | 2,624 | ||||||||||
Expense General and administrative
expenses |
$ | 289 | $ | 326 | $ | 172 | $ | 136 | $ | 141 | ||||||||||
Expense Federal income taxes of
subsidiary |
$ | 13 | $ | 46 | $ | 52 | $ | 19 | $ | 18 | ||||||||||
Distributable income |
$ | 2,831 | $ | 4,230 | $ | 4,068 | $ | 1,216 | $ | 2,504 | ||||||||||
Distributable income per unit |
$ | 2.04 | $ | 3.05 | $ | 2.93 | $ | 0.88 | $ | 1.81 | ||||||||||
Distributions to unitholders |
$ | 3,127 | $ | 4,115 | $ | 4,028 | $ | 1,039 | $ | 2,663 | ||||||||||
Distributions per unit |
$ | 2.26 | $ | 2.97 | $ | 2.91 | $ | 0.75 | $ | 1.92 | ||||||||||
2009 (Audited) |
2008 (Audited) |
2007 (Audited) |
2006 (Audited) |
2005 (Unaudited) |
||||||||||||||||
Statement of Assets, Liabilities and Trust Corpus Selected Data: | ||||||||||||||||||||
Total assets |
$ | 1,532 | $ | 2,470 | $ | 2,034 | $ | 1,835 | $ | 1,662 | ||||||||||
Trust corpus |
$ | 938 | $ | 1,233 | $ | 1,118 | $ | 1,079 | $ | 903 |
Item 7. | Trustees Discussion and Analysis of Financial Condition and Results of Operations |
Critical Accounting Policies. As of June 30, 2008, the financial statements of Tidelands are
prepared on the modified cash basis method and are not intended to present financial position and
results of operations in conformity with GAAP. Under the modified cash basis method:
| Royalty income is recognized when received by Tidelands. | ||
| Tidelands expenses (which include accounting, legal, and other professional fees, trustees fees and out-of-pocket expenses) are recorded on an accrual 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 Tidelands 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 contingencies that would not be recorded under GAAP. |
This comprehensive basis of accounting corresponds to the accounting principles permitted for
royalty trusts by the SEC, as specified by Staff Accounting Bulletin Topic 12:E, Financial
Statements of Royalty Trusts.
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.
12
Table of Contents
Results of Operations. Tidelands revenues are derived from the oil and natural gas production
activities of unrelated parties. Tidelands revenues and distributions fluctuate from period to
period based upon factors beyond Tidelands control, including, without limitation, the number of
leases subject to Tidelands interests, the number of productive wells drilled on leases subject to
Tidelands 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. Tidelands believes that it will continue to have
revenues sufficient to permit distributions to be made to unitholders for the foreseeable future,
although no assurance can be made regarding the amounts thereof. Actual results may differ from
expected results because of reductions in prices or demand for oil and natural gas, which might
then lead to decreased production; reductions in production due to 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; and
the expiration or release of leases subject to Tidelands interests.
Tidelands results of operations are significantly impacted by oil and natural gas commodity
prices and the quantity of oil and natural gas production. Oil and natural gas prices have
historically experienced significant volatility. Tidelands is not permitted to manage its
commodity price risk through the use of fixed price contracts or financial derivatives.
Tidelands income consists primarily of oil and natural gas royalties and is based on the
value at the well of Tidelands percentage interest in oil and natural gas sold without reduction
for production expenses. Value at the well for oil is the purchasers posted price at its
receiving point onshore, less the cost of transportation from the offshore lease to the onshore
receiving point. 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.
In general, Tidelands receives royalties two months after oil production and three months
after natural gas production. Based upon royalty receipts received in December 2009 and January
and February 2010 from natural gas production in September, October and November of 2009 and oil
production in October, November and December 2009, the distribution to be paid in April 2010 will
be $0.447002 per unit, an increase of 1.6% from the distribution paid in January 2010. The
distribution to be paid in July 2010 will be based on production in December 2009 and January,
February and March 2010.
Hurricane Damage. In September 2008, Hurricanes Gustav and Ike hit the Gulf Coast, which
generally caused (i) a disruption of oil and natural gas production, (ii) damage to offshore
production platforms and (iii) damage to onshore oil and natural gas pipeline facilities. Based on
information available to Tidelands, there was no major damage to any of the offshore production
platforms on leases in which Tidelands has an overriding royalty interest. However, Tidelands
believes there was minor damage to the onshore pipeline facilities that transport oil and gas
produced from wells on the leases in which Tidelands has an overriding royalty interest, which
caused minor disruption in oil and natural gas production. Tidelands was advised that the
disruption in production was generally only for a short period of time and production was
substantially restored by late September 2008. Tidelands was further advised that all wells were in
production during first quarter 2009.
Summary. Tidelands distributable income in 2009 was $2,831,787 or $2.04 per unit as compared
to $4,230,208 or $3.05 per unit per unit in 2008 and $4,067,644 or $2.93 per unit in 2007.
Oil and natural gas prices fluctuated during 2009 and 2008, with the average prices realized
in 2009 generally below the prices realized in 2008. Recently, average prices have increased from
the average prices realized in late 2009. For example, in February 2010, the average price quoted
for crude oil delivered onshore in Louisiana had increased 9% to $77.44 per barrel from $70.98 per
barrel in September 2009. In addition, in February 2010, natural gas prices were up 67% to $4.89
per mcf from $2.92 per mcf in September 2009.
2009 as Compared to 2008. 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 2009 and 2008 and the percentage change from 2008 to 2009:
13
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For Year Ended December 31, | ||||||||||||
2009 | 2008 | %Change | ||||||||||
Income: |
||||||||||||
Oil royalties . |
$ | 379,750 | $ | 497,023 | (23.6 | )% | ||||||
Natural gas royalties |
2,753,529 | 4,077,687 | (32.5 | )% | ||||||||
$ | 3,133,279 | $ | 4,574,710 | (31.5 | )% | |||||||
Net production quantities: |
||||||||||||
Oil (bbls) |
6,662 | 4,603 | 44.7 | % | ||||||||
Natural gas (mcf) |
513,880 | 428,728 | 19.9 | % | ||||||||
Average net prices: |
||||||||||||
Oil (per bbl)(1) |
$ | 57.00 | $ | 107.98 | (47.2 | )% | ||||||
Natural gas (per mcf)(1) |
$ | 5.36 | $ | 9.51 | (43.6 | )% |
(1) | These amounts are net of the cost of transportation from offshore leases to onshore receiving points. |
During 2009, Tidelands received approximately 12.1% of its royalty income from the sale of oil
and 87.9% from the sale of natural gas. Income from oil and natural gas royalties in 2009
decreased 31.5% from 2008, primarily due to a decrease in oil and natural gas prices partially
offset by increased production in both oil and natural gas.
Revenue from oil royalties amounted to $379,750 in 2009, a decrease of 23.6% as compared to
the $497,023 realized in 2008. The decrease in revenue was due to a 47.2% decrease in the price of
oil realized partially offset by a 44.7% increase in production.
Revenue from natural gas royalties amounted to $2,753,529 in 2009, a decrease of 32.5% as
compared to the $4,077,687 realized in 2008. The decrease in revenue was due to a 43.6% decrease
in the price of natural gas realized partially offset by a 19.9% increase in production.
General and administrative expenses were $289,261 in 2009, a decrease of $36,609 from 2008.
This decrease is primarily due to a decrease in professional services related to the organizational
structure of the Trust.
2008 as Compared to 2007. 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 2008 and 2007 and the percentage change from 2007 to 2008:
For Year Ended December 31, | ||||||||||||
2008 | 2007 | %Change | ||||||||||
Income: |
||||||||||||
Oil royalties |
$ | 497,023 | $ | 468,042 | 6.2 | % | ||||||
Natural gas royalties |
4,077,687 | 3,757,570 | 8.5 | % | ||||||||
$ | 4,574,710 | $ | 4,225,612 | 8.3 | % | |||||||
Net production quantities: |
||||||||||||
Oil (bbls) |
4,603 | 7,071 | (34.9 | )% | ||||||||
Natural gas (mcf) |
428,728 | 515,260 | (16.8 | )% | ||||||||
Average net prices: |
||||||||||||
Oil (per bbl)(1) |
$ | 107.98 | $ | 66.19 | 63.1 | % | ||||||
Natural gas (per mcf)(1) |
$ | 9.51 | $ | 7.29 | 30.5 | % |
(1) | These amounts are net of the cost of transportation from offshore leases to onshore receiving points. |
During 2008, Tidelands received approximately 10.9% of its royalty income from the sale of oil
and 89.1% from the sale of natural gas. Income from oil and natural gas royalties in 2008
increased 8.3% from 2007, primarily due to increased oil and natural gas prices offset by a
decrease in production in both oil and natural gas. Because of
14
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Hurricanes Gustav and Ike, Tidelands was advised that production was disrupted during September
2008, which resulted in a decrease in royalties for that period. However, Tidelands was advised
that production was substantially restored by late September 2008, and a subsequent increase in
price offset any loss. Tidelands was further advised that all wells were in production during the
first quarter of 2009.
Revenue from oil royalties amounted to $497,023 in 2008, an increase of 6.2% as compared to
the $468,042 realized in 2007. The increase was due to a 34.9% decrease in production and a 63.1%
increase in the price realized.
Revenue from natural gas royalties amounted to $4,077,687 in 2008, an increase of 8.5% as
compared to the $3,757,570 realized in 2007. The increase was due to a 16.8% decrease in
production and a 30.5% increase in the price realized.
General and administrative expenses were $325,871 in 2008, an increase of $154,064 from 2007.
This increase is primarily due to an increase in professional services due to the accounting change
to the modified cash basis method.
Capital Resources and Liquidity. The Trusts Indenture (and the charter and by-laws of
Tidelands Corporation) expressly prohibits the operation of any kind of trade or business. Due to
the limited purpose of the Trust as stated in the Trusts 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, Tidelands collects income
monthly, pays expenses of administration and disburses all distributable income collected to its
unitholders each quarter. Because all of Tidelands revenues are invested in liquid funds pending
distribution, Tidelands does not experience liquidity problems.
The Trusts 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 grantor trust. All income and deductions, for tax purposes, should
flow through to each individual unitholder. The Trust is not a taxable entity. Tidelands
Corporation will owe state and Federal income taxes with respect to its income after deducting statutory depletion. Tidelands Corporations income specifically excludes 95% of oil
and natural gas royalties collected by Tidelands Corporation, which are retained by and delivered
to the Trust in respect of the Trusts net profits interest.
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
promulgated by the SEC.
Forward-Looking Statements. The statements discussed in this Annual Report on Form 10-K
regarding Tidelands 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. Tidelands uses the words may, expect, anticipate,
estimate, believe, continue, intend, plan, budget, 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 Tidelands 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; 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; and the expiration or
release of leases subject to Tidelands interests. Events may occur in the future that Tidelands
is unable to accurately predict, or over which it has no control. If one or more of these
uncertainties 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.
15
Table of Contents
Website
Tidelands 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 Securities Exchange Act of 1934, as amended
(the Exchange Act), at
www.tirtz-tidelandsroyaltytrust.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 SEC.
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
As described elsewhere herein, Tidelands only function is to collect overriding royalties
from leases operated by others and distribute those royalties to its unitholders after paying the
cost of collection and administration. Tidelands income is highly dependent on the prices
realized from the sale of oil and natural gas and the quantities of production from wells in which
it has a royalty interest. Oil and natural gas prices have historically experienced significant
volatility. Tidelands is not permitted to manage its commodity price risk though the use of fixed
price contracts or financial derivatives.
Due to the short span of time between receipts and disbursements, cash held by Tidelands is
held in a non-interest bearing trust account.
Oil and natural gas royalties received by Tidelands Corporation prior to delivery of the 95%
net profits interest to the Trust are held in money market accounts that invest in U.S. Treasury
securities and are considered not at risk.
The corpus of Tidelands Corporation is held in either money market accounts or U.S. Treasury
or agency securities to be held to maturity. Funds held in money market accounts and U.S. Treasury
securities that mature in less than one year are considered not at risk.
Item 8. | Financial Statements and Supplementary Data |
Tidelands consolidated financial statements listed in the following index, together with the
related notes and the report of KPMG LLP, independent registered public accounting firm, are
presented on pages 20 through 28 hereof:
Page | ||||
20 | ||||
21 | ||||
22 | ||||
23 | ||||
24 |
See also Item 15. Exhibits and Financial Statement Schedules of this Annual Report on Form
10-K for further information concerning the financial statements of Tidelands. All schedules have
been omitted because they are not required or because the required information is shown in the
consolidated financial statements or notes thereto.
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
During 2009 and 2008, there have been no disagreements between Tidelands and its independent
registered public accounting firm on accounting or financial disclosure matters which would warrant
disclosure under Item 304 of Regulation S-K.
16
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Item 9A(T). | Controls and Procedures |
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Trustee carried out an evaluation of
the effectiveness of the design and operation of Tidelands disclosure controls and procedures
pursuant to Rules 13a-15 and 15d-15 of the Exchange Act. Based upon that evaluation, the Trustee
concluded that Tidelands disclosure controls and procedures were effective as of the end of the
period covered by this Annual Report on Form 10-K.
Changes in Internal Control Over Financial Reporting
There has not been any change in Tidelands internal control over financial reporting during
the period covered by this report that has materially affected, or is reasonably likely to
materially affect, Tidelands internal control over financial reporting.
Trustees Report on Internal Control Over Financial Reporting
The Trustee is responsible for establishing and maintaining adequate internal control over
financial reporting, as such term is defined in Rule 13a-15(f) promulgated under the Exchange Act.
The Trustee conducted an evaluation of the effectiveness of the Trusts internal control over
financial reporting based on the criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on the
Trustees evaluation under the framework in Internal Control-Integrated Framework, the Trustee
concluded that Tidelands internal control over financial reporting was effective as of December
31, 2009. This Annual Report does not include an attestation report of Tidelands registered
public accounting firm regarding internal control over financial reporting. The Trustees report
was not subject to attestation by Tidelands registered public accounting firm pursuant to
temporary rules of the SEC that permit Tidelands to provide only the Trustees report in this
Annual Report on Form 10-K.
Item 9B. | Other Information |
None.
Part III
Item 10. | Directors and Executive Officers and Corporate Governance |
Directors and Officers. The Trust is a trust created under the laws of the State of Texas.
The Trusts Indenture does not provide for directors or officers or the election of directors or
officers. Under the Indenture, U.S. Trust, Bank of America Private Wealth Management serves as the
Trustee.
Section 16(a) Beneficial Ownership Reporting Compliance. The Trust has no directors or
officers and Marine is the only unitholder that is a beneficial owner of more than 10% of the
outstanding units. The Trust is not aware of any person that failed to report on a timely basis
reports required by Section 16(a) of the Exchange Act.
Code of Ethics. Because the Trust has no employees, it does not have a code of ethics.
Employees of the Trustee must comply with the code of ethics of U.S. Trust, Bank of America Private
Wealth Management, a copy of which will be made available to unitholders without charge, upon
request at Bank of America Plaza, 17th Floor, 901 Main Street, Dallas, Texas, 75202.
Committees. The Trust has no directors and therefore has no audit committee or audit
committee financial expert and no nominating committee or compensation committee.
Item 11. | Executive Compensation |
The Trust has no directors or officers and is administered by the Trustee. Accordingly, the
Trust does not have a compensation committee or maintain any equity compensation plans, and there
are no units reserved for
17
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issuance under any such plans. During the past three years, the Trust paid or accrued fees to the
Trustee, as set forth below.
Other Annual | ||||||||
Name of Individual or Entity | Year | Compensation(1) | ||||||
U.S. Trust, Bank of America Private Wealth Management, the Trustee
|
2009 | $ | 20,666 | |||||
2008 | $ | 20,560 | ||||||
2007 | $ | 20,611 |
(1) | Under the Indenture, the Trustee is entitled to reasonable and customary fees and compensation for its services. |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
The following table sets forth the persons known to the Trust who own beneficially more than
5% of its outstanding units of beneficial interest:
Amount Beneficially | ||||||||||
Name and Address of | Owned as of | Percent | ||||||||
Title of Class | Beneficial Owner | December 31, 2009 | of Class | |||||||
Units of Beneficial
Interest
|
Marine Petroleum Trust
P.O. Box 830650 Dallas, Texas 75283-0650 |
452,366 | 32.6 | % |
There are no executive officers or directors of the Trust. The Trustee does not beneficially
own any units of beneficial interest. The Trust does not maintain any equity compensation plans
and the Trust has not repurchased any units during the period covered. The Trustee knows of no
arrangements the operation of which may at a subsequent date result in a change of control of the
Trust.
Item 13. | Certain Relationships and Related Transactions, and Director Independence |
Pursuant to an arrangement with Marine Petroleum Corporation to share certain administrative
expenses related to the use of office space, Tidelands Corporation paid the following amounts to
Marine Petroleum Corporation during the past three years. The arrangement provides that
administrative expenses are shared in the ratio of each of Marine Petroleum Corporations and
Tidelands Corporations gross income to the total gross income of both entities.
Name of Individual or Entity | Year | Amount Paid | ||||||
Marine Petroleum Corporation |
2009 | $ | 48,900 | |||||
2008 | $ | 47,901 | ||||||
2007 | $ | 50,363 |
Item 14. | Principal Accountant Fees and Services |
Fees for services performed by KPMG LLP for the years ended December 31, 2009 and 2008 were:
2009 | 2008 | |||||||
Audit Fees |
$ | 85,242 | $ | 100,242 | ||||
Audit-Related Fees |
| | ||||||
Tax Fees |
| | ||||||
All Other Fees |
| |
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As referenced in Item 10. Directors and Executive Officers and Corporate Governance above,
the Trust has no audit committee, and as a result, has no audit committee pre-approval policy with
respect to fees paid to KPMG LLP.
Part IV
Item 15. | Exhibits and Financial Statement Schedules |
(a) | Financial Statements See Financial Statements and Supplementary Data above. | |
(b) | Exhibits |
4.1 | Indenture of Trust dated June 1, 1954, as amended, filed as an Exhibit to the Trusts Quarterly Report on Form 10-Q for the period ended September 30, 2001, filed with the Securities and Exchange Commission on November 14, 2001, and incorporated herein by reference. | ||
21.1 | Subsidiaries of the Trust, filed as Exhibit 21.1 to the Trusts Annual Report on Form 10-K of for the fiscal year ended December 31, 2006, filed with the Securities and Exchange Commission on April 2, 2007, and incorporated herein by reference. | ||
31.1* | Certification of the Corporate Trustee pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32.1* | Certification of the Corporate Trustee pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
* | Filed herewith. |
(c) Financial Statement Schedules All required schedules are included in the financial
statements included in this Annual Report on Form 10-K.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Trustee and Holders of Trust Units of
Tidelands Royalty Trust B:
Tidelands Royalty Trust B:
We have audited the accompanying consolidated statements of assets, liabilities, and trust corpus
of Tidelands Royalty Trust B (the Trust) as of December 31, 2009 and 2008, and the related
consolidated statements of distributable income and changes in trust corpus for each of the years
in the three-year period ended December 31, 2009. These consolidated financial statements are the
responsibility of the Trustee. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. The
Trust is not required to have, nor were we engaged to perform, an audit of its internal control
over financial reporting. Our audit included consideration of internal control over financial
reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Trusts internal control over financial reporting. Accordingly,
we express no such opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
As described in note 2 to the consolidated financial statements, these consolidated financial
statements were prepared on the modified cash basis of accounting, which is a comprehensive basis
of accounting other than accounting principles generally accepted in the United States of America.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the assets, liabilities, and trust corpus of Tidelands Royalty Trust B as of
December 31, 2009 and 2008 and its distributable income and changes in trust corpus for each of the
years in the three-year period ended December 31, 2009 in conformity with the modified cash basis
of accounting described in note 2.
/s/ KPMG LLP
Dallas, Texas
March 25, 2010
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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
As of December 31, 2009 and 2008
(Audited)
As of December 31, 2009 and 2008
(Audited)
Assets
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 1,531,808 | $ | 2,468,920 | ||||
Oil, gas and other mineral properties |
2 | 2 | ||||||
Federal income tax refundable |
15,934 | 1,433 | ||||||
Total assets |
$ | 1,547,744 | $ | 2,470,355 | ||||
Liabilities and Trust Corpus |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | | $ | | ||||
Federal income taxes payable |
| | ||||||
Income distributable to unitholders |
609,840 | 1,236,980 | ||||||
Total current liabilities |
$ | 609,840 | $ | 1,236,980 | ||||
Trust corpus authorized 1,386,525 units of
beneficial interest, issued 1,386,375
at nominal value |
937,904 | 1,233,375 | ||||||
$ | 1,547,744 | $ | 2,470,355 | |||||
See accompanying notes to consolidated financial statements.
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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF DISTRIBUTABLE INCOME
For the Three Years Ended December 31, 2009
(Audited)
For the Three Years Ended December 31, 2009
(Audited)
2009 | 2008 | 2007 | ||||||||||||
Income: |
||||||||||||||
Oil and gas royalties |
$ | 3,133,279 | $ | 4,574,710 | $ | 4,225,612 | ||||||||
Interest income |
769 | 27,039 | 65,439 | |||||||||||
Total income |
$ | 3,134,048 | $ | 4,601,749 | $ | 4,291,051 | ||||||||
Expenses: |
||||||||||||||
General and administrative expenses |
$ | 289,261 | $ | 325,871 | $ | 171,807 | ||||||||
Distributable income before Federal
income taxes |
2,844,787 | 4,275,878 | 4,119,244 | |||||||||||
Federal income taxes of subsidiary |
13,000 | 45,670 | 51,600 | |||||||||||
Distributable income |
$ | 2,831,787 | $ | 4,230,208 | $ | 4,067,644 | ||||||||
Distributable income per unit |
$ | 2.04 | $ | 3.05 | $ | 2.93 | ||||||||
Distributions per unit |
$ | 2.26 | $ | 2.97 | $ | 2.91 | ||||||||
Units outstanding |
1,386,375 | 1,386,375 | 1,386,375 |
See accompanying notes to consolidated financial statements.
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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN TRUST CORPUS
For the Three Years Ended December 31, 2009
(Audited)
For the Three Years Ended December 31, 2009
(Audited)
2009 | 2008 | 2007 | ||||||||||
Trust corpus, beginning of period |
$ | 1,233,375 | $ | 1,118,498 | $ | 1,078,721 | ||||||
Distributable income |
2,831,787 | 4,230,208 | 4,067,644 | |||||||||
Distributions to unitholders |
(3,127,258 | ) | (4,115,331 | ) | (4,027,867 | ) | ||||||
Trust corpus, end of period |
$ | 937,904 | $ | 1,233,375 | $ | 1,118,498 | ||||||
See accompanying notes to consolidated financial statements.
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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2009
DECEMBER 31, 2009
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
(a) | General |
Tidelands Royalty Trust B (the Trust) was established on June 1, 1954 with a transfer of
contract rights to certain properties to the Trust in exchange for units of beneficial interest.
The contract rights enable the Trust to receive an interest in any oil, natural gas or other
mineral leases obtained by Gulf Oil Corporation, now Chevron U.S.A., Inc. (Chevron), which is a
subsidiary of Chevron Corporation and its assignees in a designated area of the Gulf of Mexico
during a 50-year period that expired on April 30, 2001.
The Trust is required under its Indenture to distribute all income, after paying its
liabilities and obligations, to the unitholders quarterly. The Trust cannot invest any of its
money for any purpose and cannot engage in a trade or business.
The Trusts wholly-owned subsidiary, Tidelands Royalty B Corporation (Tidelands
Corporation), holds title to interests in properties that are situated offshore of Louisiana.
Ninety-five percent of all oil, natural gas, and other mineral royalties collected by this
subsidiary are retained by and delivered to the Trust. Tidelands Corporation, like the Trust, is
prohibited from engaging in a trade or business and does only those things necessary for the
administration and liquidation of its properties. The Trust is authorized to pay the expenses of
Tidelands Corporation should it be necessary.
The Trust and its subsidiary have no employees. Tidelands Corporation has entered into an
arrangement with Marine Petroleum Corporation (a wholly-owned subsidiary of Marine Petroleum Trust,
an affiliate of the Trust) to share certain administrative expenses and to assist the trustee in
the administration of the Trust. For the years ended 2009, 2008 and 2007, Tidelands Corporation
paid $48,900, $47,901and $50,363 to Marine Petroleum Corporation, respectively. At December 31,
2009 and 2008, Marine Petroleum Trust owned 32.6% of the Trusts outstanding units of beneficial
interest.
(b) | Unitholder Voting Matters |
On March 27, 2001, the unitholders of record at the close of business on February 16, 2001,
approved an amendment to the Indenture to extend the life of the Trust to April 30, 2021.
(c) | Principles of Consolidation |
The consolidated financial statements include the Trust and its wholly-owned subsidiary,
Tidelands Corporation. All material intercompany accounts and transactions have been eliminated in
consolidation.
(d) | Producing Oil and Gas Properties |
At the time the Trust was established, no determinable market value was available for the
assets transferred to the Trust; consequently, nominal values were assigned. Accordingly, no
allowance for depletion has been computed.
Tidelands revenues are derived from production payments and overriding royalty interests
related to properties located in the Gulf of Mexico.
(e) | Federal Income Taxes |
No provision has been made for Federal income taxes on the Trusts income because such taxes
are the liability of the unitholders.
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Federal income taxes are provided on the income of Tidelands Corporation (which specifically
excludes the 95% net profits interest to be retained by and delivered to the Trust) after deducting
statutory depletion. There were no significant deferred tax assets or liabilities as of December
31, 2009 and 2008. Tidelands Corporation uses the cash method of reporting for Federal income
taxes. The primary difference between the actual tax expense of Tidelands Corporation and the
expected tax expense is due to the fact that only 5% of Tidelands Corporations income (i.e.,
excluding the 95% net profits interest retained by and delivered to the Trust) is subject to
Federal income tax.
Tidelands Corporation recognizes interest and penalties related to unrecognized tax benefits
in income tax expense.
(f) | Credit Risk Concentration and Cash Equivalents |
Financial instruments which potentially subject the Trust and its wholly-owned subsidiary to
concentrations of credit risk are primarily investments in cash equivalents and unsecured oil and
natural gas royalties receivable. The Trust and its wholly-owned subsidiary place their cash
investments with financial institutions that the Trustee considers creditworthy and limit the
amount of credit exposure from any one financial institution. Royalties receivable are from large
creditworthy companies and the Trust historically has not encountered collection problems. The
estimated fair values of cash equivalents and oil and natural gas royalties receivable approximate
the carrying values due to the short term nature of these financial instruments.
(g) | Use of Estimates |
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.
(h) | Distributable Income per Unit |
Distributable income per unit is determined by dividing distributable income by the number of
units of beneficial interest outstanding during the period.
(i) | Significant Royalty Sources |
Percentages of royalties received by Tidelands from working interest owners are summarized as
follows:
Working Interest Owners | 2009 | 2008 | 2007 | |||||||||
Devon Energy Production Company LP |
78 | % | 77 | % | 74 | % | ||||||
NOEX Energy, Inc. |
15 | % | 8 | % | 7 | % | ||||||
W&T Offshore Inc. |
7 | % | 7 | % | 6 | % | ||||||
ENI
Petroleum USA LLC |
* | 1 | % | | ||||||||
Mariner
Energy Resources, Inc. |
* | | | |||||||||
Sterling
Energy, Inc. |
| | | |||||||||
Barron Petroleum Inc. |
| 3 | % | 2 | % | |||||||
McMoran Oil & Gas |
| 4 | % | | ||||||||
Dominion Exploration & Production, Inc. |
| | 1 | % | ||||||||
Newfield Exploration Co. |
| | 10 | % | ||||||||
100 | % | 100 | % | 100 | % | |||||||
(2) BASIS OF ACCOUNTING
As of the period ended June 30, 2008, the financial statements of Tidelands have been prepared
on the modified cash basis method and are not intended to present financial position and results of
operations in conformity with accounting principles generally accepted in the United States
(GAAP). Under the modified cash basis method:
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| Royalty income is recognized when received by Tidelands. | ||
| Tidelands expenses (which include accounting, legal, and other professional fees, trustees fees and out-of-pocket expenses) are recorded on an accrual 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 Tidelands 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 contingencies that would not be recorded under GAAP. |
This comprehensive basis of accounting corresponds to the accounting principles permitted for
royalty trusts by the SEC, as specified by Staff Accounting Bulletin Topic 12:E, Financial
Statements of Royalty Trusts.
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.
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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(3) SUPPLEMENTAL INFORMATION RELATING TO OIL AND NATURAL GAS RESERVES (UNAUDITED)
Oil and natural gas reserve information relating to the Trusts royalty interests is not
presented because such information is not available to the Trust. The Trusts share of oil and
natural gas produced for its royalty interests was as follows:
For Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Net production quantities: |
||||||||||||
Oil (bbls) |
6,662 | 4,603 | 7,071 | |||||||||
Natural gas (mcf) |
513,880 | 428,728 | 515,260 |
(4) SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The following quarterly financial information for the years ended December 31, 2009 and 2008
is unaudited; however, in the opinion of the Trustee, all adjustments necessary to present a fair
statement of the results of operations for the interim periods have been included.
Oil and Natural Gas | Distributable | Distributable | ||||||||||
Royalties | Income | Income Per Unit | ||||||||||
Quarter ended: |
||||||||||||
March 31, 2008 |
$ | 1,041,493 | $ | 951,070 | $ | 0.69 | ||||||
June 30, 2008 |
987,340 | 914,886 | 0.66 | |||||||||
September 30, 2008 |
1,383,855 | 1,269,745 | 0.92 | |||||||||
December 31, 2008 |
1,162,022 | 1,094,507 | 0.78 | |||||||||
$ | 4,574,710 | $ | 4,230,208 | $ | 3.05 | |||||||
Quarter ended: |
||||||||||||
March 31, 2009 |
$ | 1,172,076 | $ | 1,088,388 | $ | 0.79 | ||||||
June 30, 2009 |
634,411 | 548,452 | 0.39 | |||||||||
September 30, 2009 |
793,293 | 722,686 | 0.52 | |||||||||
December 31, 2009 |
533,499 | 472,261 | 0.34 | |||||||||
$ | 3,133,279 | $ | 2,831,787 | $ | 2.04 | |||||||
(5) TEXAS FRANCHISE TAX
Texas does not impose an income tax. Therefore, no part of the income produced by the
Trust is subject to state income tax in Texas. However, in May 2006, the State of Texas enacted
legislation, as amended in June 2007 and again in June 2009, to implement a new franchise tax.
Under the new legislation, a 1% tax (in certain cases not applicable here, the tax rate is 0.5%)
will be imposed on each taxable entitys taxable margin. Taxable margin is generally defined as
revenues less certain costs, as provided in the statute. Most entities that provide owners with
limited liability protection, including trusts, are considered to be taxable entities for purposes
of the Texas franchise
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tax. The statute provides certain limited exemptions from the tax, including exclusions for
certain passive entities that satisfy specified statutory requirements as described below.
Under the Texas franchise tax statute, passive entities, including trusts, that meet the
following requirements, will be exempt from the Texas state franchise tax: (a) the trust cannot be
a business trust within the meaning of U.S. Treasury Regulation section 301.7701-4(b); (b) at least
90% of the trusts income for the taxable year must be derived from passive sources (e.g.,
royalties, bonuses, delay rental income from mineral properties, dividends, interest, gains from
the sale of securities); and (c) no more than 10% of the trusts income for the taxable year can be
derived from an active trade or business (e.g., rent, certain income received by a non-operator
under a joint operating agreement pursuant to which the operator is the member of an affiliated
group that includes such non-operator). An entity will determine on an annual basis whether it
meets the requirements to be treated as a passive entity for Texas state franchise tax purposes.
The Trustee believes that all or substantially all of the income of the Trust currently is passive,
as it consists of royalty income from the sale of oil and natural gas, dividends and interest
income. Subject to any change in the sources of income derived by the Trust or any change in the
Indenture, the Trust expects that it will be a passive entity that is not subject to the franchise
tax.
If the Trust is exempt from the Texas state franchise tax as a passive entity, each unitholder
that is subject to the Texas franchise tax as a taxable entity under the Texas Tax Code would
generally include its share of the Trusts revenue in its franchise tax computation. The Texas Tax
Code does not apply to natural persons. The Trust has determined that it was a passive entity in
2009.
Each unitholder is urged to consult his or her own tax advisor regarding the requirements for
filing state tax returns.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this Annual Report on Form 10-K to be signed by the undersigned
thereunto duly authorized.
Date: March 25, 2010 |
Tidelands Royalty Trust B (Registrant) By: U.S. Trust, Bank of America Private Wealth Management (in its capacity as Corporate Trustee of Tidelands Royalty Trust B and not in its individual capacity or otherwise) |
By: | /s/ Ron E. Hooper | |||
Ron E. Hooper | ||||
Senior Vice President | ||||
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on
Form 10-K has been signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
NAME | CAPACITIES | DATE | ||
U.S. Trust, Bank of America Private
|
Corporate Trustee | March 25, 2010 | ||
Wealth Management |
By: | /s/ Ron E. Hooper | |||
Ron E. Hooper | ||||
Senior Vice President |
(The Registrant has no directors or executive officers).
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EXHIBIT INDEX
Exhibit | ||
Number | Description | |
4.1
|
Indenture of Trust dated June 1, 1954, as amended, filed as an Exhibit to the Trusts Quarterly Report on Form 10-Q for the period ended September 30, 2001, filed with the Securities and Exchange Commission on November 14, 2001, and incorporated herein by reference. | |
21.1
|
Subsidiaries of the Trust, filed as Exhibit 21.1 to the Trusts Annual Report on Form 10-K of for the fiscal year ended December 31, 2006, filed with the Securities and Exchange Commission on April 2, 2007, and incorporated herein by reference. | |
31.1*
|
Certification of the Corporate Trustee pursuant to Section 302 of the Sarbanes-Oxley of Act of 2002. | |
32.1*
|
Certification of the Corporate Trustee pursuant to Section 906 of the Sarbanes-Oxley of Act of 2002. |
* | Filed herewith. |
30