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].
BP Prudhoe Bay Royalty Trust(BPT) - 2019 Q4 - Annual Report