Financial Performance - The Trust reported cash earnings of $8,126,000 for the year ended December 31, 2020, a significant decrease from $47,922,000 in 2019, representing a decline of approximately 83%[256] - Royalty revenues for 2020 were $9,269,000, down from $48,972,000 in 2019, indicating an 81% decrease year-over-year[256] - Cash distributions for 2020 amounted to $9,079,000, compared to $47,802,000 in 2019, marking an 81% decrease[256] - The Trust's cash distributions per unit for 2020 were $0.4242, a significant drop from $2.234 in 2019[256] - Royalty revenues for Q1 2020 were $9,337 thousand, a significant decrease from $21,759 thousand in Q1 2019, reflecting a year-over-year decline of approximately 57%[285] - The Trust reported cash earnings of $9,091 thousand in Q1 2020, compared to $21,442 thousand in Q1 2019, indicating a decline of about 58%[285] - Cash distributions per unit for Q1 2020 were $0.4242, down from $1.0029 in Q1 2019, representing a decrease of approximately 58%[285] Assets and Liabilities - Total assets as of December 31, 2020, were $266,000, a decrease from $1,151,000 as of December 31, 2019, reflecting a decline of approximately 77%[254] - The Trust's total liabilities decreased to $207,000 in 2020 from $253,000 in 2019, a reduction of about 18%[254] - The Trust's corpus at the end of 2020 was $59,000, down from $898,000 at the end of 2019, representing a decline of approximately 93%[259] - The Trust's cash balance as of December 31, 2020, was $266,000, which is insufficient to cover its obligations for the upcoming year[241] Operational Challenges - The Trust has not received any royalty payments for any quarter in 2020, raising substantial doubt about its ability to continue as a going concern[236] - The Trust has not received any royalty payments since January 2020, leading to an inability to replenish its cash reserve account[265] - The Trust's ability to continue as a going concern is uncertain due to the lack of future royalties and its current liquidity position[268] - The Trust's operations are at risk of termination if net revenues from the Royalty Interest fall below $1 million per year for two consecutive years[265] - No royalty payment was received by the Trust in January 2021 for the quarter ended December 31, 2020, indicating ongoing challenges in revenue generation[283] Revenue and Pricing - The average WTI price for 2020 was $39.57 per barrel, a decrease from $55.69 in 2019, impacting the Trust's revenue and cash flows[287] - The "breakeven" WTI price for the Trust to receive a positive Per Barrel Royalty in 2021 is $60.72 per barrel, and operations will be adversely impacted if prices remain below this level[265] Financial Reporting and Controls - The Trust's internal control over financial reporting was deemed effective as of December 31, 2020, according to the auditor's opinion[246] - The Trust's financial statements are prepared on a modified cash basis, reflecting revenues when received and distributions when paid[269] - There have been no changes in accountants or disagreements with accountants on accounting principles or practices during the two fiscal years ended December 31, 2020[296] Future Outlook and Strategies - The Trust is exploring options to address its operational funding shortfall, including obtaining a loan or selling Trust assets[268] - The Trust plans to explore options under the Trust Agreement to recover the overpayment of $68,001 from BP Alaska related to the 2019 fourth quarter royalty payment[290] Production and Reserves - The average net production of crude oil and condensate from the proved reserves allocated to the Trust was less than 90,000 barrels per day during certain quarters, affecting royalty payments[279] - As of December 31, 2020, the Trust's net proved reserves of oil and condensate were estimated at 0 million barrels, down from 4.465 million barrels in 2019[287] - The standardized measure of discounted future net cash flows relating to proved reserves was $0 for 2020, compared to $5,516 thousand in 2019, reflecting a significant decline[290] - The year-end 2018 reserves were positively revised due to an increase in WTI price from $51.34 per barrel in 2017 to $65.56 per barrel in 2018[294] - The year-end 2019 reserves experienced a negative revision as WTI price decreased from $65.56 per barrel in 2018 to $55.69 per barrel in 2019[294] - The year-end 2020 reserves saw a further negative revision with WTI price dropping from $55.69 per barrel in 2019 to $39.57 per barrel in 2020[294] - The per-barrel royalty was forecast to be zero following the year 2022 based on economic conditions and production forecasts at year-end 2018[294] - The per-barrel royalty was also forecast to be zero following the year 2020 based on economic conditions and production forecasts at year-end 2019[294] - The decrease in economic life from year-end 2018 to year-end 2019 resulted in a negative revision in reserve volumes[294] - The decrease in economic life from year-end 2019 to year-end 2020 also resulted in a negative revision in reserve volumes[294]

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | |---------------------------------------------------------------------------------------------------------------------------------------------------------|------------------------------------------- ...

Financial Performance - As of June 30, 2020, total assets decreased to $479,000 from $1,151,000 as of December 31, 2019, representing a decline of approximately 58.4%[10] - Royalty revenues for the three months ended June 30, 2020, were $(67,000), a significant decrease from $7,748,000 in the same period of 2019, indicating a decline of 100.9%[12] - Cash earnings for the six months ended June 30, 2020, were $(752,000), compared to $8,339,000 for the same period in 2019, reflecting a decrease of 109.0%[12] - Cash distributions per unit were $0.3449 for the six months ended June 30, 2019, but no distributions were made for the same period in 2020[12] - The Trust's corpus at the end of the period was $124,000, down from $898,000 at the beginning of the year, a decrease of approximately 86.2%[14] - Cash distributions for the six months ended June 30, 2020 were $9,078,000, a decrease of 68.5% from $28,844,000 in the same period of 2019[64] - Administrative expenses increased by 47.6% to $942,000 in the six months ended June 30, 2020 compared to $638,000 in the same period of 2019[64] Royalty Payments and Production - The Trust did not receive any royalty payments in April 2020 or July 2020, which adversely affected its financial position[21] - Royalty payment received in January 2020 was $9,337,000, an increase from $7,748,000 in April 2019 and $21,759,000 in January 2019[33] - Average net production of crude oil and condensate from proved reserves allocated to the Trust was less than 90,000 barrels per day during certain quarters[30] - No royalty payment was received by the Trust in July 2020 for the quarter ended June 30, 2020, due to overestimation of production volume[34] - The Trust's quarterly royalty payments are based on the WTI price less chargeable costs and production taxes[47] - Average per barrel royalty was $0.00 in Q1 2020, a decrease of 100% from $6.77 in Q1 2019[55] Market Conditions and Impact - The Trust's operations are significantly impacted by the COVID-19 pandemic and the resulting decline in oil prices, exacerbated by a price war among oil-producing nations[21] - The WTI price fell from approximately $61 per barrel at the beginning of 2020 to below $14 per barrel on April 22, 2020, before recovering to just under $22 per barrel by May 4, 2020[75] - The break-even WTI price for the Trust to receive a positive Per Barrel Royalty is $54.34, which is currently not being met due to depressed oil prices[21] - The U.S. Energy Information Administration forecasts WTI prices to average approximately $38 per barrel in the second half of 2020 and around $46 per barrel in 2021[75] - The COVID-19 pandemic has caused significant disruptions in the oil industry, impacting supply and demand dynamics[75] Financial Management and Controls - The Trust established a cash reserve account intended to cover approximately one year's current and expected liabilities, highlighting concerns about its ability to continue as a going concern[24] - The Trust maintained a cash reserve of $1,000,000 to provide liquidity during periods without distributions[41] - The Trustee intends to gradually increase the cash reserve by withholding the greater of $33,750 or 0.17% of funds available for distribution each quarter[41] - The Trust's internal control over financial reporting remains effective with no material changes identified during the last fiscal quarter[72] - The Trust's disclosure controls ensure timely receipt of information from HNS, which is crucial for compliance with the Exchange Act[70] Legal and Compliance - The Trust has not identified any legal proceedings that could materially affect its operations[74] - The Trust's financial reporting is not prepared in accordance with generally accepted accounting principles in the U.S.[85] - The Trust's agreements impose enforceable legal obligations on HNS to provide required information on a timely basis[71] - The Trust's quarterly report was completed prior to BP's planned $5.6 billion sale of assets and operations in Alaska to Hilcorp Alaska[71]

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | --- | --- | |-----------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------| | ...

Trust Structure and Operations - The Trust has a royalty interest of 16.4246% on the lesser of the first 90,000 barrels of average daily net production or the actual daily net production from BP Alaska's working interest in the Prudhoe Bay oil field[20]. - The Trust maintains a cash reserve of $1,000,000 to provide liquidity during periods without distributions from BP Alaska[32]. - The Trust will terminate if net revenues from the Royalty Interest fall below $1,000,000 per year for two consecutive years[35]. - The Trustee is authorized to borrow against the Trust's assets if cash on hand is insufficient to pay current liabilities[29]. - The Trust does not have employees; all administrative functions are performed by the Trustee[23]. - The Trustee is required to distribute available net proceeds from any sale of Trust properties to Unit holders after establishing reserves for liabilities[28]. - The Trust's assets are non-operational, and it does not have rights to take oil and gas in kind or make operational decisions[20]. - The Trust Agreement is irrevocable and can only be amended under specific conditions, including a majority vote of Unit holders[33]. - The Trustee must receive a legal opinion that any borrowing or sale will not adversely affect the Trust's classification for federal income tax purposes[31]. - The Trustee must distribute all available proceeds to Unit holders after satisfying existing liabilities and establishing adequate reserves for contingent liabilities[38]. - Any successor trustee must have a combined capital, surplus, and undivided profits of at least $50,000,000 and be subject to supervision by federal or state authorities[39]. - Unit holders possess certain voting rights but do not have the right to seek partition or distribution of the Royalty Interest during the term of the Trust[40]. Financial Performance and Projections - BP plc announced the sale of its entire business in Alaska to Hilcorp Alaska for a total consideration of $5.6 billion, expected to be completed in 2020[15]. - Chargeable Costs per barrel were $17.00 in 2015, $17.10 in 2016, $17.20 in 2017, $20.00 in 2018, and $23.75 in 2019, with 2020 Chargeable Costs at $26.50, increasing by $2.75 per barrel per year thereafter[47]. - The average WTI price for 2019 was $55.69 per barrel, influencing reserve estimates and future cash flow projections[98]. - Royalty revenues for 2019 were $48.972 million, a decrease from $114.369 million in 2018, reflecting the impact of declining oil prices[195]. - Cash distributions per unit for 2019 were $2.234, down from $5.293 in 2018, indicating a significant reduction in returns to unit holders[195]. - The Trust's cash earnings for 2019 were $47.922 million, a decrease from $113.282 million in 2018, reflecting the challenging market conditions[195]. - The Trust's total assets increased to $1.151 billion in 2019 from $1.031 billion in 2018, showing a positive trend in asset management[195]. - The Trust's revenues are projected to decline as the Prudhoe Bay field has been in production since 1977 and is nearing depletion, with production expected to continue declining[130]. - The Trust's liquidity is primarily dependent on revenues from the Royalty Interest, with no other sources of capital available[196]. - The Trust's break-even WTI price for positive Per Barrel Royalty was $54.34 as of January 1, 2020[209]. - Future distributions for the Trust depend on prevailing WTI Prices for the remainder of 2020[208]. - If a low oil price environment persists, quarterly royalty payments could decline significantly or potentially be zero[209]. Production and Reserves - BP Alaska's ownership in the Prudhoe Bay Unit is 26.36% for both oil rim and gas cap as of December 31, 2019[76]. - Proved reserves attributable to the 1989 Working Interests were estimated at 4.465 million barrels of oil and condensate as of December 31, 2019, with 4.394 million barrels classified as proved developed reserves[97]. - The estimated future cash flows to the Trust from the proved reserves allocated to the 1989 Working Interests are $5.785 million, with a net present value of $5.516 million at a 10% discount[99]. - The Prudhoe Bay field's production peaked in 1988 and has been in decline since then, with a total of 1046 active producing oil wells as of December 31, 2019[86]. - BP Alaska's average net production of oil and condensate allocated to the Trust was less than 90,000 barrels per day in 2017, 2018, and 2019, with expectations to remain below this threshold in future years[204]. - The average well production rate in 2019 was approximately 163 barrels per day, showing a decline from previous years[86]. - The allocation of hydrocarbon liquids between oil and condensate is based on procedures specified in the Prudhoe Bay Unit Operating Agreement, with condensate production reaching a cumulative limit in June 2014[93]. - The average per barrel royalty in Q1 2018 was $22.38, up from $1.45 in Q1 2016, representing a significant increase of approximately 1430.3%[56]. - The average per barrel royalty decreased from $35.41 in Q4 2014 to $9.68 in Q4 2015, a reduction of about 72.7%[56]. - BP Alaska's share of hydrocarbon liquids production from the Prudhoe Bay field includes oil, condensate, and natural gas liquids, with total oil production in 2019 being 170.2 thousand barrels per day[86]. Market Conditions and Regulatory Environment - The average WTI price for any trading day is determined based on quotes from The Wall Street Journal, Reuters, or Platts Oilgram Price Report, with adjustments made if prices are not available[46]. - Production Taxes are calculated based on severance taxes, excise taxes, and other similar taxes imposed on Royalty Production, computed at defined statutory rates[49]. - The Alaska oil-tax reform bill increased the base tax rate from 25% to 35% and added a stair-step per-barrel tax credit for oil production, effective January 1, 2014[50]. - The 2014 Letter Agreement established that Production Taxes for the Trust's Royalty Production will equal the tax for the relevant quarter minus allowable monthly stair-step per-barrel tax credits[51]. - Future regulations may impact allowable rates of production and the manner in which oil and gas operations are conducted, potentially affecting BP Alaska's operations[106]. - The Trust's operations are subject to extensive federal and state regulations, which could change and affect future operations[107]. - A proposed ballot initiative could raise production taxes on Alaska legacy fields by over 300%, which may significantly impact future royalty payments[185]. Pipeline and Transportation Developments - The Trans-Alaska Pipeline System (TAPS) has a mechanical capacity of 2.1 million barrels of oil per day, averaging 490 thousand barrels per day in 2019[88]. - New pipeline projects, including the Cactus II with a capacity of 670,000 barrels per day, are expected to alleviate transportation bottlenecks from the Permian Basin[148]. - The EPIC Crude Oil Pipeline, expected to be completed in Q1 2020, will have an initial capacity of 600,000 barrels per day, enhancing crude oil transport from the Permian Basin[148]. - Cushing, Oklahoma remains a critical hub for U.S. crude oil, with significant expansions in pipeline capacity to facilitate distribution[151]. - The Keystone XL pipeline, once completed, is expected to carry up to 830,000 barrels of oil per day, further impacting crude oil flows into Cushing[153]. - Six pipeline projects are proposed to transport approximately 2 million barrels per day of crude oil away from Cushing by the end of 2021[155]. - The Seahorse Pipeline, expected to start operations in Q3 2021, will transport up to 800,000 barrels of crude oil per day from Cushing to St. James, Louisiana[155]. Economic and Global Oil Market Trends - The U.S. Energy Information Administration (EIA) forecasts Brent crude oil prices to average $61.25 per barrel and WTI prices to average $55.71 per barrel in 2020[136]. - EIA's forecast for global oil consumption has been revised down due to the coronavirus outbreak, indicating significant uncertainty in supply and demand for 2020[146]. - The average closing prices of Brent and WTI declined by approximately $7 per barrel in 2019, despite spikes due to geopolitical events[145]. - In November 2019, the U.S. exported an all-time high of 12.8 million barrels per day of oil production, marking a significant increase in oil exports since the lifting of the ban[156]. - Alaska North Slope oil production is projected to decline to an average of 492,000 barrels per day in the fiscal year ending June 30, 2020, down from 494,900 barrels per day in fiscal 2019[172]. - The Trans-Alaska Pipeline System's average throughput decreased by approximately 18,000 barrels per day in 2019, a 3.7% decrease from 2018[171]. - New discoveries in Alaska, such as the Willow project, are expected to produce up to 130,000 barrels of oil per day, with production likely to begin in 2026[173]. - The construction of a natural gas pipeline from the North Slope could accelerate the decline in royalty production from the Prudhoe Bay field[177]. - The Arctic National Wildlife Refuge is estimated to contain 11.8 billion barrels of potentially recoverable crude oil, with exploration permitted following the removal of a 40-year ban[174].

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to | --- | --- | |---------------------------------------------------------------------------------------------------------|-----------------------------------------------------| | ...

Revenue and Earnings - Royalty revenues for the three months ended June 30, 2019, were $7,748,000, a decrease of 72.0% compared to $27,611,000 for the same period in 2018[9] - Cash earnings for the six months ended June 30, 2019, were $28,888,000, down 46.5% from $53,545,000 for the same period in 2018[9] - Total royalty revenues for the six months ended June 30, 2019, were $29,507, a decrease of $24,643 or 45.5% from $54,150 in 2018[60] - Cash earnings for the six months ended June 30, 2019, were $28,888, down $24,657 or 46.0% from $53,545 in the previous year[60] - Cash distributions for the same period were $28,844, a decrease of $24,763 or 46.2% compared to $53,607 in 2018[60] Cash Distributions - Cash distributions per unit for the three months ended June 30, 2019, were $0.3449, a decrease of 72.9% compared to $1.2748 for the same period in 2018[9] - Cash distributions decreased to $7,381, a drop of $19,901 or 72.9% compared to $27,282 in the prior year[55] Assets and Liabilities - Trust corpus at the end of the period on June 30, 2019, was $734,000, an increase of 6.1% from $692,000 at the end of December 31, 2018[7] - Total assets as of June 30, 2019, were $1,075,000, reflecting a 4.3% increase from $1,031,000 at the end of December 31, 2018[7] - Total liabilities and trust corpus as of June 30, 2019, were $1,075,000, up from $1,031,000 at the end of December 31, 2018[7] Production and Costs - Average net production for the quarter ended March 31, 2019, was 77.4 mb/d, a decrease of 7.2% from 83.4 mb/d in the same quarter of 2018[51] - Average net production from the 1989 Working Interest declined by 7.2% due to the naturally declining production rate from the Prudhoe Bay field and downtime impacts[52] - Adjusted chargeable costs increased to $46.23 per barrel in the first quarter of 2019, up 20.6% from $38.34 in the same quarter of 2018[51] - Adjusted Chargeable Costs increased by $7.01 or 19.7% to $42.52 per barrel, impacting royalty revenues negatively[57] Oil Prices and Market Impact - The Trust's revenues are significantly affected by fluctuations in oil prices, which are influenced by domestic and international supply and demand[43] - The average WTI price for the quarter ended March 31, 2019, was $54.87, down 12.8% from $62.96 in the same quarter of 2018[51] - The average WTI price for the six months ended March 31, 2019, was $56.87, a decrease of $2.31 or 3.9% from the previous year[57] Trust Management and Reserves - The Trust has established a cash reserve account sufficient to cover approximately one year's current and expected liabilities and expenses[17] - The Trust has maintained a cash reserve of $1,000,000 since 1999 to provide liquidity during periods without distributions[37] - The Trust intends to withhold $33,750 or 0.17% of funds available for distribution each quarter to gradually increase cash reserves by approximately $270,000[32] Administrative Expenses - Trust administrative expenses for the three months ended June 30, 2019, were $312,000, a decrease of 23.3% compared to $407,000 for the same period in 2018[9] - Administrative expenses increased slightly to $638, reflecting higher overall costs and timing differences in accruals[60]

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The financial statements, prepared on a modified cash basis, detail the Trust's financial position as of March 31, 2019, and its first-quarter performance, showing decreased royalty revenues and cash earnings compared to the prior year [Financial Statements](index=3&type=section&id=Financial%20Statements) The statements show a year-over-year decrease in cash earnings, distributions, and royalty revenues for the three months ended March 31, 2019, alongside a slight decline in total assets Statements of Assets, Liabilities and Trust Corpus (In thousands) | | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $1,010 | $1,031 | | **Total assets** | **$1,010** | **$1,031** | | **Liabilities and Trust Corpus** | | | | Accrued expenses | $312 | $339 | | Trust corpus | $698 | $692 | | **Total liabilities and trust corpus** | **$1,010** | **$1,031** | Statements of Cash Earnings and Distributions (In thousands, except per unit data) | | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Royalty revenues | $21,759 | $26,539 | | Interest income | $9 | $6 | | Less: Trust administrative expenses | ($326) | ($215) | | **Cash earnings** | **$21,442** | **$26,330** | | **Cash distributions** | **$21,463** | **$26,325** | | **Cash distributions per unit** | **$1.0029** | **$1.2302** | [Notes to Financial Statements](index=6&type=section&id=Notes%20to%20Financial%20Statements) These notes detail the Trust's passive structure, its modified cash basis accounting, the full amortization of its Royalty Interest, its tax treatment as a grantor trust, and the Trustee's recent decision to withhold funds for cash reserves - The Trust's sole purpose is to own and administer the Royalty Interest, which is a **16.4246% per barrel royalty** on the first **90,000 barrels of average actual daily net production** per quarter from BP Alaska's 1989 working interests in the Prudhoe Bay field[19](index=19&type=chunk) - The financial statements are prepared on a **modified cash basis**, recording revenues when received, which is considered most meaningful for quarterly distributions[27](index=27&type=chunk)[28](index=28&type=chunk) - The carrying value of the Royalty Interest was reduced to **zero by December 31, 2010**, through **$359.5 million** in amortization and **$175.5 million** in impairment write-downs[34](index=34&type=chunk) - Subsequent Event (April 2019): The Trust received a royalty payment of **~$7.7 million** for Q1 2019, distributing **$7.38 million** to unit holders after withholding **$33,750** to increase cash reserves, a practice the Trustee intends to continue quarterly[45](index=45&type=chunk)[46](index=46&type=chunk) [Item 2. Trustee's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=11&type=section&id=Item%202.%20Trustee%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations.) The Trustee's analysis highlights the Trust's sensitivity to oil prices and production, noting a significant Q1 2019 decline in royalty revenues and distributions primarily due to increased Chargeable Costs and lower production, leading to a new strategy for building cash reserves [Liquidity and Capital Resources](index=11&type=section&id=Liquidity%20and%20Capital%20Resources) The Trust's liquidity is solely dependent on royalty payments from BP Alaska, prompting the Trustee to implement a plan to increase cash reserves by withholding a portion of quarterly distributions starting April 2019 - The Trust is a passive entity with its sole source of liquidity and capital being the revenue from the Royalty Interest[50](index=50&type=chunk) - Commencing with the April 2019 distribution, the Trustee began withholding funds each quarter to increase the cash reserve by a total of approximately **$270,000** to cover future expenses[53](index=53&type=chunk) [Results of Operations](index=12&type=section&id=Results%20of%20Operations) Q1 2019 royalty revenues decreased 18% year-over-year to **$21.8 million**, primarily due to a 14.1% drop in Average Per Barrel Royalty driven by increased Adjusted Chargeable Costs and lower average net production, despite a rise in WTI price Comparison of Royalty Calculation Factors (for Q4 production periods) | Factor | Q4 2018 | Q4 2017 | Change (%) | | :--- | :--- | :--- | :--- | | Average WTI Price | $58.82 | $55.48 | 6.0% | | Adjusted Chargeable Costs | $38.81 | $32.67 | 18.8% | | Average Production Taxes | $2.04 | $1.92 | 6.3% | | **Average Per Barrel Royalty** | **$17.94** | **$20.89** | **(14.1%)** | | Average net production (mb/d) | 78.7 | 84.0 | (6.3%) | Comparison of Financial Results (Three Months Ended March 31) | (In thousands) | 2019 | 2018 | Change (%) | | :--- | :--- | :--- | :--- | | Royalty revenues | $21,759 | $26,539 | (18.0%) | | Cash earnings | $21,442 | $26,330 | (18.6%) | | Cash distributions | $21,463 | $26,325 | (18.5%) | - The decrease in royalty revenue was primarily caused by the increase in Adjusted Chargeable Costs and lower production, despite a **6% increase** in the average WTI price for the quarter[67](index=67&type=chunk)[70](index=70&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=15&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk.) The Trust, as a passive entity, faces minimal market risk from interest rates, foreign currency, or derivatives, with oil price fluctuation being its inherent primary risk - The Trust is not subject to any material interest rate risk, foreign currency risk, or risk from derivative financial instruments[71](index=71&type=chunk) [Item 4. Controls and Procedures](index=15&type=section&id=Item%204.%20Controls%20and%20Procedures.) The Trustee confirmed the effectiveness of the Trust's disclosure controls and procedures, relying on BP Alaska's contractual reporting, with no material changes to internal control over financial reporting during the quarter - The Trustee evaluated the Trust's disclosure controls and procedures and concluded they are effective, relying on information contractually provided by BP Alaska[72](index=72&type=chunk)[77](index=77&type=chunk) - There were no changes in the Trust's internal control over financial reporting during the last fiscal quarter that materially affected, or are reasonably likely to materially affect, its internal controls[78](index=78&type=chunk) [PART II - OTHER INFORMATION](index=17&type=section&id=PART%20II%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=17&type=section&id=Item%201.%20Legal%20Proceedings.) The Trust reports no legal proceedings - None[80](index=80&type=chunk) [Item 1A. Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the Trust's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - There have been no material changes in risk factors disclosed in the 2018 Annual Report[81](index=81&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=17&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds.) The Trust reports no unregistered sales of equity securities - None[83](index=83&type=chunk) [Item 3. Defaults Upon Senior Securities](index=17&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities.) The Trust reports no defaults upon senior securities - None[84](index=84&type=chunk) [Item 4. Mine Safety Disclosures](index=17&type=section&id=Item%204.%20Mine%20Safety%20Disclosures.) This item is not applicable to the Trust - Not applicable[85](index=85&type=chunk) [Item 5. Other Information](index=17&type=section&id=Item%205.%20Other%20Information.) This section references Note 7 of the financial statements, which details the subsequent event related to the April 2019 royalty payment and distribution - Reference is made to Note 7 of Notes to Financial Statements (Unaudited) in Part I, Item 1, regarding a subsequent event[86](index=86&type=chunk) [Item 6. Exhibits](index=17&type=section&id=Item%206.%20Exhibits.) This section lists the exhibits filed with the Form 10-Q, including certifications and various agreements incorporated by reference from previous filings - Exhibits filed include Rule 13a-14(a)/15d-14(a) Certifications and Section 1350 Certification. Other agreements are incorporated by reference[88](index=88&type=chunk) [Signature](index=19&type=section&id=SIGNATURE) [Signature](index=19&type=section&id=Signature) The report was duly signed and authorized on May 10, 2019, by The Bank of New York Mellon Trust Company, N.A., acting as the Trustee for the BP Prudhoe Bay Royalty Trust - The report was signed on **May 10, 2019**, by Elaina C. Rodgers, Vice President of The Bank of New York Mellon Trust Company, N.A., as Trustee[93](index=93&type=chunk)[94](index=94&type=chunk)

Part I [Business](index=5&type=section&id=ITEM%201%2E%20BUSINESS) BP Prudhoe Bay Royalty Trust is a passive Delaware business trust whose sole asset is a royalty interest in a portion of the Prudhoe Bay field's net production [The Trust](index=6&type=section&id=THE%20TRUST) The Trust's non-operational royalty interest in the Prudhoe Bay field is administered by a Trustee who manages income and distributions, maintaining a cash reserve and subject to specific termination conditions - The Trust's property consists of an overriding royalty interest on **16.4246%** of the lesser of the first **90,000 barrels** of average actual daily net production per quarter from BP Alaska's 1989 working interest in the Prudhoe Bay oil field, or the actual average daily net production from that interest[22](index=22&type=chunk) - The Trust has no employees and all administrative functions are performed by the Trustee, whose basic function is to collect income, pay expenses, and distribute available cash to Unit holders[23](index=23&type=chunk)[27](index=27&type=chunk) - On December 19, 2018, the Trustee announced a gradual increase to the existing **$1,000,000** cash reserve, starting with the April 2019 distribution, to cover future expenses and liabilities[35](index=35&type=chunk) - The Trust will terminate if net revenues are less than **$1,000,000** per year for two successive years or if holders of at least **60%** of the outstanding Units vote to terminate[37](index=37&type=chunk) [The Royalty Interest](index=10&type=section&id=THE%20ROYALTY%20INTEREST) Quarterly royalty payments are determined by daily Royalty Production and Per Barrel Royalty, which is the WTI Price less annually increasing Chargeable Costs and Production Taxes, impacted by Alaska's tax statutes Chargeable Costs per Barrel (2018-2020) | Calendar year | Chargeable Costs per barrel | | :--- | :--- | | 2018 | $20.00 | | 2019 | $23.75 | | 2020 | $26.50 | Per Barrel Royalty Calculation Example (2018) | Quarter | Average WTI Price | Adjusted Chargeable Costs | Production Taxes | Average Per Barrel Royalty | | :--- | :--- | :--- | :--- | :--- | | Q4 2017 | $55.48 | $32.67 | $1.92 | $20.89 | | Q1 2018 | $62.96 | $38.34 | $2.21 | $22.38 | | Q2 2018 | $67.85 | $38.74 | $2.41 | $26.70 | | Q3 2018 | $69.60 | $38.83 | $2.81 | $27.96 | - Alaska's 2013 oil-tax reform bill (the "Act") impacts the Production Tax calculation by adding a stair-step per-barrel tax credit, which may be limited by a "minimum tax"[55](index=55&type=chunk)[56](index=56&type=chunk)[57](index=57&type=chunk) [The Prudhoe Bay Unit and Field](index=16&type=section&id=THE%20PRUDHOE%20BAY%20UNIT%20AND%20FIELD) The Trust's royalty interest is tied to BP Alaska's declining Prudhoe Bay field, with **15.772 million barrels** of proved reserves as of December 31, 2018, and projected royalty payments ceasing after 2022 based on 2018 WTI prices Net Production Allocated to 1989 Working Interests (2014-2018) | Calendar year | Oil (thousand barrels per day) | Condensate (thousand barrels per day) | | :--- | :--- | :--- | | 2014 | 81.8 | 2.3 | | 2015 | 87.1 | 0.0(a) | | 2016 | 87.8 | 0.0(a) | | 2017 | 83.4 | 0.0(a) | | 2018 | 77.3 | 0.0(a) | - As of Dec 31, 2018, proved reserves allocated to the Trust were **15.772 million barrels**, an increase of **6.702 million barrels** during 2018, primarily due to higher WTI prices extending the economic life of the field[107](index=107&type=chunk) - Based on the 2018 average WTI price of **$65.56**, royalty payments to the Trust are estimated to continue through **2022** and become zero in the following year, a forecast highly sensitive to future oil prices[112](index=112&type=chunk) Estimated Future Net Cash Flow (as of Dec 31, 2018) | Metric | Value (in millions) | | :--- | :--- | | Undiscounted Estimated Future Cash Flow | $154.662 | | Net Present Value (at 10% discount) | $138.541 | [Certain Tax Considerations](index=22&type=section&id=CERTAIN%20TAX%20CONSIDERATIONS) The Trust is a grantor trust for federal income tax purposes, with income and deductions passing through to Unitholders, who may claim depletion deductions, while foreign Unitholders face a 30% withholding tax - The Trust is a grantor trust and not subject to federal income tax, requiring Unitholders to report their share of all Trust income, deductions, and credits on their own tax returns[123](index=123&type=chunk)[125](index=125&type=chunk)[126](index=126&type=chunk) - Foreign Unitholders are generally subject to a **30%** withholding tax on gross income from the Royalty Interest, though a lower treaty rate may apply[132](index=132&type=chunk) - The Trust is treated as a Widely Held Fixed Investment Trust (WHFIT), with the Trustee providing tax information in accordance with applicable regulations[137](index=137&type=chunk) [Risk Factors](index=25&type=section&id=ITEM%201A%2E%20RISK%20FACTORS) Unitholders face significant risks including declining Prudhoe Bay oil production, volatile WTI crude oil prices, operational disruptions to the field or TAPS, and potential adverse impacts from natural gas pipeline construction or changes in Alaska's tax laws - Production from the Prudhoe Bay field is declining and is projected to cease being economic for the Trust after **2022**, based on 2018 average WTI prices[141](index=141&type=chunk)[142](index=142&type=chunk) - Royalty payments are unpredictable due to the volatility of WTI crude oil prices, which can fall below the 'break-even' point required to generate a positive Per Barrel Royalty, with the break-even price on January 1, 2019, being **$47.69**[145](index=145&type=chunk)[163](index=163&type=chunk) - The Trans-Alaska Pipeline System (TAPS), the only transport for North Slope oil, is vulnerable to damage from natural causes, accidents, and issues related to declining oil flow, which could halt production[175](index=175&type=chunk)[176](index=176&type=chunk) - Construction of a natural gas pipeline from the North Slope could lower reservoir pressure in the Prudhoe Bay field, accelerating the decline in oil production and royalty payments, with no offsetting gas revenue for the Trust[185](index=185&type=chunk) - Potential conflicts of interest exist, as BP Alaska might decide to halt production from the 1989 Working Interests based on its own profitability, even if a Per Barrel Royalty would still be payable to the Trust[198](index=198&type=chunk) [Unresolved Staff Comments](index=35&type=section&id=ITEM%201B%2E%20UNRESOLVED%20STAFF%20COMMENTS) The Trust has not received any unresolved written comments from the Securities and Exchange Commission staff regarding its periodic or current reports - The Trust has no unresolved written comments from the SEC staff[199](index=199&type=chunk) [Properties](index=35&type=section&id=ITEM%202%2E%20PROPERTIES) Information regarding the Trust's properties is detailed in Item 1 of this report - This section refers to Item 1 for information on the Trust's properties[200](index=200&type=chunk) [Legal Proceedings](index=35&type=section&id=ITEM%203%2E%20LEGAL%20PROCEEDINGS) The Trust reports no legal proceedings - There are no legal proceedings to report[201](index=201&type=chunk) [Mine Safety Disclosures](index=35&type=section&id=ITEM%204%2E%20MINE%20SAFETY) This item is not applicable to the Trust - Mine safety disclosures are not applicable[201](index=201&type=chunk) Part II [Market for Registrant's Units, Related Unitholder Matters and Issuer Purchases of Units](index=36&type=section&id=ITEM%205%2E%20MARKET%20FOR%20REGISTRANT%27S%20UNITS%2C%20RELATED%20UNITHOLDER%20MATTERS%20AND%20ISSUER%20PURCHASES%20OF%20UNITS) The Trust's Units of Beneficial Interest are traded on the NYSE under symbol BPT, with **21,400,000** Units outstanding as of February 14, 2019, and future distributions dependent on WTI prices, production, and costs Quarterly Unit Price and Distributions (2017-2018) | Period | High Price | Low Price | Distributions Per Unit | | :--- | :--- | :--- | :--- | | **2017** | | | | | Q1 | $32.95 | $15.00 | $0.994 | | Q2 | $24.65 | $18.55 | $1.098 | | Q3 | $22.45 | $18.75 | $0.833 | | Q4 | $22.75 | $18.65 | $0.675 | | **2018** | | | | | Q1 | $27.95 | $19.25 | $1.230 | | Q2 | $31.80 | $20.85 | $1.275 | | Q3 | $34.60 | $26.75 | $1.408 | | Q4 | $37.23 | $17.00 | $1.380 | - As of February 14, 2019, there were **21,400,000** Units outstanding[205](index=205&type=chunk) [Selected Financial Data](index=37&type=section&id=ITEM%206%2E%20SELECTED%20FINANCIAL%20DATA) This section presents a five-year summary of the Trust's key financial data, highlighting **$114.4 million** in royalty revenues and **$5.293** cash distributions per unit for the year ended December 31, 2018 Selected Financial Data (2014-2018) | (in thousands, except per Unit amounts) | 2018 | 2017 | 2016 | 2015 | 2014 | | :--- | :--- | :--- | :--- | :--- | :--- | | Royalty revenues | $114,369 | $78,193 | $44,917 | $126,781 | $227,904 | | Cash earnings | $113,282 | $77,039 | $43,621 | $125,461 | $226,763 | | Cash distributions | $113,263 | $77,031 | $43,619 | $125,461 | $226,763 | | Cash distributions per unit | $5.293 | $3.600 | $2.038 | $5.863 | $10.596 | [Trustee's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=37&type=section&id=ITEM%207%2E%20TRUSTEE%27S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) The Trust's financial condition and results are primarily driven by WTI crude oil prices, leading to increased royalty revenues and distributions in 2018, with the Trustee also planning to gradually increase the cash reserve [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The Trust's liquidity is dependent on royalty revenues, with the Trustee planning to gradually increase the existing **$1,000,000** cash reserve by approximately **$270,000** starting April 2019 to cover future expenses - The Trustee announced on December 19, 2018, a plan to gradually increase the existing cash reserve by approximately **$270,000**, commencing with the April 2019 distribution[211](index=211&type=chunk)[213](index=213&type=chunk) [Results of Operations](index=38&type=section&id=Results%20of%20Operations) The Trust's financial results significantly improved in 2018 due to a **29.4%** increase in average WTI prices, leading to a **46.3%** rise in royalty revenues to **$114.4 million**, despite lower production volumes Comparison of Operating Factors (For Fiscal Years 2018 vs. 2017) | Factor | 12 Months Ended 9/30/2018 | 12 Months Ended 9/30/2017 | % Change | | :--- | :--- | :--- | :--- | | Average WTI Price | $63.95 | $49.41 | 29.4% | | Average Per Barrel Royalty | $24.48 | $15.49 | 58.0% | | Average net royalty production (mb/d) | 78.3 | 84.8 | (7.7)% | Comparison of Financial Results (FY 2018 vs. FY 2017) | (Dollars in thousands) | Year Ended 12/31/2018 | Year Ended 12/31/2017 | % Change | | :--- | :--- | :--- | :--- | | Royalty revenues | $114,369 | $78,193 | 46.3% | | Cash earnings | $113,282 | $77,039 | 47.0% | | Cash distributions | $113,263 | $77,031 | 47.0% | Comparison of Operating Factors (For Fiscal Years 2017 vs. 2016) | Factor | 12 Months Ended 9/30/2017 | 12 Months Ended 9/30/2016 | % Change | | :--- | :--- | :--- | :--- | | Average WTI Price | $49.41 | $41.61 | 18.7% | | Average Per Barrel Royalty | $15.49 | $8.81 | 75.8% | | Average net royalty production (mb/d) | 84.8 | 89.0 | (4.7)% | [Quantitative and Qualitative Disclosures About Market Risk](index=41&type=section&id=ITEM%207A%2E%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) As a passive entity, the Trust is not subject to material interest rate risk due to its short-term, restricted investments, nor does it engage in foreign currency or derivative transactions - The Trust is not subject to any material interest rate risk due to the short-term nature of its investments[235](index=235&type=chunk) - The Trust does not engage in transactions involving foreign currencies or derivative financial instruments[235](index=235&type=chunk) [Financial Statements and Supplementary Data](index=42&type=section&id=ITEM%208%2E%20FINANCIAL%20STATEMENTS%20AND%20SUPPLEMENTARY%20DATA) This section presents the Trust's financial statements, prepared on a modified cash basis, with an unqualified auditor's opinion, showing **$1.031 million** in assets and **$113.3 million** in cash earnings for 2018, and **15.772 million barrels** of proved reserves projected to end after 2022 [Financial Statements](index=46&type=section&id=Financial%20Statements) The Trust's financial statements, prepared on a modified cash basis, report total assets of **$1.031 million** and liabilities of **$339 thousand** as of December 31, 2018, with **$114.369 million** in royalty revenues and **$5.293** cash distributions per unit for the year Statement of Assets, Liabilities and Trust Corpus (in thousands) | | Dec 31, 2018 | Dec 31, 2017 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $1,031 | $1,012 | | **Total assets** | **$1,031** | **$1,012** | | **Liabilities and Trust Corpus** | | | | Accrued expenses | $339 | $227 | | Trust corpus | $692 | $785 | | **Total liabilities and trust corpus** | **$1,031** | **$1,012** | Statement of Cash Earnings and Distributions (in thousands, except per unit data) | | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Royalty revenues | $114,369 | $78,193 | $44,917 | | Cash earnings | $113,282 | $77,039 | $43,621 | | Cash distributions per unit | $5.293 | $3.600 | $2.038 | [Notes to Financial Statements](index=49&type=section&id=Notes%20to%20Financial%20Statements) The notes detail the modified cash basis accounting, grantor trust tax status, Alaska's production tax impact, royalty payment adjustments, and supplemental reserve information, noting a positive revision in 2018 reserves due to higher WTI prices extending the Trust's economic life to **2022** - The financial statements are prepared on a modified cash basis, where revenues are recorded when cash is received, and distributions are recorded when paid[270](index=270&type=chunk) - The carrying value of the Royalty Interest on the Trust's books was reduced to zero by December 31, 2010, through amortization and impairment write-downs[273](index=273&type=chunk) Changes in Estimated Proved Reserves (in thousands of barrels) | Description | Barrels | | :--- | :--- | | Balance at Dec 31, 2017 | 9,070 | | Revisions of previous estimates | 11,311 | | Production | (4,609) | | **Balance at Dec 31, 2018** | **15,772** | - The positive revision in year-end 2018 reserves is primarily due to the increase in the 12-month average WTI price from **$51.34** in 2017 to **$65.56** in 2018, which extended the forecast economic life of the trust from year-end 2019 to year-end **2022**[298](index=298&type=chunk) [Controls and Procedures](index=58&type=section&id=ITEM%209A%2E%20CONTROLS%20AND%20PROCEDURES) The Trustee concluded that the Trust's disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with KPMG LLP issuing an unqualified opinion on internal controls - The Trustee concluded that the Trust's disclosure controls and procedures were effective as of December 31, 2018[305](index=305&type=chunk) - Management concluded that the Trust's internal control over financial reporting was effective as of December 31, 2018, based on the COSO criteria[310](index=310&type=chunk) - KPMG LLP, the independent registered public accounting firm, provided an unqualified opinion on the effectiveness of the Trust's internal control over financial reporting as of December 31, 2018[311](index=311&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=59&type=section&id=ITEM%2010%2E%20DIRECTORS%2C%20EXECUTIVE%20OFFICERS%20AND%20CORPORATE%20GOVERNANCE) The Trust has no directors, executive officers, or audit committee, being administered solely by the Trustee under the Trust Agreement and Delaware law without a formal code of ethics - The Trust has no directors, executive officers, or audit committee, being administered by the Trustee[315](index=315&type=chunk)[318](index=318&type=chunk) [Executive Compensation](index=60&type=section&id=ITEM%2011%2E%20EXECUTIVE%20COMPENSATION) The Trust pays no executive compensation as it has no directors, officers, or employees, with the Trustee receiving a quarterly administrative fee of **$0.0011** per outstanding Unit plus **$10.00** per wire transfer, subject to inflation adjustment Compensation to Trustee (2016-2018) | Year ended December 31, | Trustee's Fees | | :--- | :--- | | 2016 | $238,011 | | 2017 | $234,716 | | 2018 | $223,755 | [Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters](index=60&type=section&id=ITEM%2012%2E%20SECURITY%20OWNERSHIP%20OF%20CERTAIN%20BENEFICIAL%20OWNERS%20AND%20MANAGEMENT%20AND%20RELATED%20UNITHOLDER%20MATTERS) As of February 24, 2019, the Trustee was unaware of any beneficial owners holding more than **5%** of the Trust's Units, and neither BP entities nor the Trustee own any Units, with no Units authorized under equity compensation plans - There are no persons known to the Trustee to be beneficial owners of more than **5%** of the Units[323](index=323&type=chunk) - Neither BP, its subsidiaries, nor the Trustee own any Units[324](index=324&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=61&type=section&id=ITEM%2013%2E%20CERTAIN%20RELATIONSHIPS%20AND%20RELATED%20TRANSACTIONS%2C%20AND%20DIRECTOR%20INDEPENDENCE) The Trust has no independent directors and has engaged in no material related party transactions since early 2018, apart from fees and expense reimbursements paid to the Trustee as per the Trust Agreement - The only related party transactions are the fees and reimbursements paid to the Trustee as specified in the Trust Agreement[326](index=326&type=chunk) [Principal Accountant Fees and Services](index=61&type=section&id=ITEM%2014%2E%20PRINCIPAL%20ACCOUNTANT%20FEES%20AND%20SERVICES) This section details the fees paid to KPMG LLP for audit, audit-related, and tax services in 2018 and 2017, noting the Trust lacks an audit committee or pre-approval policy for these fees Accountant Fees (KPMG LLP) | Service | 2018 | 2017 | | :--- | :--- | :--- | | Audit | $193,100 | $186,300 | | Audit related | $24,000 | $23,400 | | Tax | $220,000 | $215,000 | | **Total** | **$437,100** | **$424,700** | [Exhibits and Financial Statement Schedules](index=61&type=section&id=ITEM%2015%2E%20EXHIBITS%20AND%20FINANCIAL%20STATEMENT%20SCHEDULES) This section lists the financial statements from Item 8 and exhibits filed with the report, including the Trust Agreement, Conveyance documents, and the independent petroleum engineering firm's report - Lists the financial statements and exhibits filed with the Form 10-K, including the report of Miller and Lents, Ltd. dated February 25, 2019[329](index=329&type=chunk)[331](index=331&type=chunk)[333](index=333&type=chunk)