BP Prudhoe Bay Royalty Trust(BPT) - 2025 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the Trust's unaudited financial statements, management's discussion and analysis, market risk disclosures, and internal controls Item 1. Financial Statements This section presents the unaudited financial statements of BP Prudhoe Bay Royalty Trust, prepared on a modified cash basis, including the Statement of Assets, Liabilities and Trust Corpus, Statements of Cash Earnings and Distributions, and Statements of Changes in Trust Corpus, along with explanatory notes detailing the Trust's formation, termination, liquidity, accounting basis, royalty interest, income taxes, Alaska oil and gas production tax, and subsequent events Statement of Assets, Liabilities and Trust Corpus This statement details the Trust's financial position, including cash, total assets, accrued expenses, total liabilities, and trust corpus at specific dates Trust's Financial Position | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :---------------------------------------------------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $3,117 | $4,159 | | Total Assets | $3,117 | $4,159 | | Accrued expenses | $325 | $532 | | Total Liabilities | $325 | $532 | | Trust Corpus (21,400,000 units issued and outstanding) | $2,792 | $3,627 | | Total Liabilities and Trust Corpus | $3,117 | $4,159 | Statements of Cash Earnings and Distributions This statement outlines the Trust's cash earnings and distributions over specified periods, including royalty revenues, interest income, and administrative expenses Cash Earnings and Distributions | Item | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Royalty revenues | $— | $— | $— | $— | | Interest income | $36 | $62 | $78 | $129 | | Less: Trust administrative expenses | $(588) | $(556) | $(1,120) | $(894) | | Cash earnings (loss) | $(552) | $(494) | $(1,042) | $(765) | | Cash distributions | $— | $— | $— | $— | | Cash distributions per unit | $— | $— | $— | $— | | Units outstanding | 21,400,000 | 21,400,000 | 21,400,000 | 21,400,000 | Statements of Changes in Trust Corpus This statement tracks changes in the Trust Corpus, reflecting the impact of cash earnings, accrued expenses, and distributions over time Changes in Trust Corpus | Item | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | | :-------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Trust Corpus at beginning of period | $3,081 | $4,475 | $3,627 | $4,964 | | Cash earnings (loss) | $(552) | $(494) | $(1,042) | $(765) | | Decrease in accrued expenses | $263 | $221 | $207 | $3 | | Cash distributions | $— | $— | $— | $— | | Trust Corpus at end of period | $2,792 | $4,202 | $2,792 | $4,202 | (1) Formation of the Trust, Organization and Termination This section details the Trust's establishment, its purpose of owning an overriding royalty interest, and the conditions leading to its termination - The Trust was formed on February 28, 1989, to own and administer an overriding royalty interest (Royalty Interest) of 16.4246% on the lesser of 90,000 barrels or the average actual daily net production from HNS's working interests in the Prudhoe Bay field[17][18] - The Trust terminated at 11:59 PM on December 31, 2024, due to net revenues being less than $1,000,000 for two successive years (2023 and 2024)[23][24] (2) Liquidity This section discusses the Trust's cash reserve management, its purpose for covering expenses, and the reevaluation of its target level during wind-down - A cash reserve was established in July 1999 for liquidity, and HNS indemnified the Trust for $537,835 in unpaid expenses in December 2020[25][27] - The Trustee increased the cash reserve to approximately $6,000,000 in 2021 to cover administrative and termination expenses, with the target level under reevaluation during wind-down[28][69][71] - The current cash reserve is deemed sufficient to cover Trust fees and expenses for the next 12 months[30] (3) Basis of Accounting This section explains that the financial statements are prepared on a modified cash basis, recording revenues when received and expenses on an accrual basis - Financial statements are prepared on a modified cash basis, considered most meaningful for quarterly distributions to Unit holders[33] - Revenues are recorded when received, distributions when paid, and Trust expenses are recorded on an accrual basis[37] (4) Royalty Interest This section outlines the initial carrying value of the Royalty Interest and its subsequent reduction to zero due to amortization and impairment - The Royalty Interest had an initial carrying value of $535,000,000 in February 1989, reduced to zero by December 31, 2010, due to amortization and impairment[38] (5) Income Taxes This section clarifies the Trust's federal tax filing as a grantor trust, where Unit holders are treated as owners of Trust income and corpus - The Trust files its federal tax return as a grantor trust, treating Unit holders as owners of Trust income and corpus for tax purposes[39] (6) Alaska Oil and Gas Production Tax This section details the 2013 amendments to Alaska's oil and gas production tax statutes, including the increased base rate and per-barrel tax credits - Alaska's oil and gas production tax statutes were amended in 2013, increasing the base rate to 35% and adding a stair-step per-barrel tax credit, effective January 1, 2014[41] - The 2014 Letter Agreement specifies the calculation of Production Taxes for the Trust's Royalty Production, including stair-step per-barrel tax credits and minimum tax limitations[42][43] (7) Subsequent Events This section reports on recent events including the absence of royalty payments, the delisting of Units, and the ongoing sale process for Trust assets - No royalty payment was received in July 2025 for the quarter ended June 30, 2025[45] - The Units were delisted from the NYSE effective June 30, 2025, due to failing the $1.00 average closing price requirement, and began trading on the OTC Pink market on July 1, 2025[46][47] - Following termination, HNS declined its option to purchase Trust assets, initiating a sale process with bids due in July and August 2025, currently under review[48][54][55] Item 2. Trustee's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of the Trust's financial condition and operational results, detailing its termination, the ongoing asset sale process, recent developments, forward-looking statements, liquidity management, and a comparative analysis of its financial performance for the three and six months ended June 30, 2025, versus 2024 - Crude oil prices significantly affect the Trust's revenues, influenced by global supply/demand, market conditions, and geopolitical events[74] - The Per Barrel Royalty is calculated as WTI Price less Adjusted Chargeable Costs and Production Taxes; HNS's net production has been below 90,000 barrels per day since 2020 and is expected to remain so[76][77] - WTI crude oil spot prices were, on average, below the 'break-even' level for both the first and second quarters of 2025, preventing the Trust from receiving a Per Barrel Royalty[79][80] - An overpayment of $13,279 from the fourth quarter of 2022 remains outstanding and will be deducted from any future distributions[83] Per Barrel Royalty Calculation Factors (Quarter Average) | Royalty Payment in Month | Quarter Ended | Average WTI Price | Chargeable Costs | Cost Adjustment Factor | Adjusted Chargeable Costs | Average Production Taxes | Average Per Barrel Royalty | Average Net Production (mb/d) | | :----------------------- | :------------ | :---------------- | :--------------- | :--------------------- | :------------------------ | :----------------------- | :------------------------- | :---------------------------- | | April 2025 | 03/31/25 | $71.50 | $40.25 | 2.4569 | $98.89 | $2.46 | $(29.85) | 65.6 | | Jan. 2025 | 12/31/24 | $70.32 | $37.50 | 2.4293 | $91.10 | $2.42 | $(23.19) | 64.6 | | April 2024 | 03/31/24 | $77.01 | $37.50 | 2.3895 | $89.61 | $2.69 | $(15.28) | 66.8 | | Jan. 2024 | 12/31/23 | $78.47 | $34.75 | 2.3643 | $82.16 | $2.75 | $(6.44) | 67.9 | Introduction This section introduces the Trust's termination due to insufficient net revenues and the subsequent initiation of an asset sale process after HNS declined its purchase option - The Trust terminated on December 31, 2024, as net revenues from the Royalty Interest were less than $1.0 million for two successive years (2023 and 2024)[52] - HNS declined its option to purchase Trust assets on June 2, 2025, leading the Trustee to initiate a sale process for the assets, with bids currently under review[54][55] Recent Developments This section highlights the impact of low WTI prices on royalty calculations and the payment of accrued administrative expenses from the cash reserve - The average WTI price for the quarter ended June 30, 2025, was below the 'break-even' price, resulting in a negative Per Barrel Royalty calculation, though payments cannot be less than zero[57][59] - Accrued expenses totaling $588,418 through June 30, 2025, were paid from the cash reserve[58] Forward-Looking Statements This section cautions that forward-looking statements are subject to various risks, including fluctuations in oil prices, production levels, and the outcome of the Trust's winding up - Forward-looking statements are subject to risks including future changes in oil prices, production levels, production charges, Trust expenses, cash reserve levels, and the timing/outcome of the Trust's winding up and asset sale[60] Liquidity and Capital Resources This section describes the Trust's limited capital resources, its cash reserve for expenses, and the ongoing reevaluation of the reserve target during wind-down - The Trust is a passive entity with no capital resources other than royalty revenues, though the Trustee can borrow, establish reserves, or dispose of property under limited circumstances[65] - The cash reserve, increased to $6.0 million in 2021, is intended to cover administrative and termination expenses, with its target level being reevaluated during the Trust's wind-down[69][70][71] Results of Operations This section analyzes the Trust's operational performance, comparing financial results and key royalty calculation factors for the three and six months ended June 30, 2025, against the prior year Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024 This section compares the Trust's financial performance and key royalty calculation factors for the three months ended June 30, 2025, against the same period in 2024 Changes in Royalty Calculation Factors (Q1 2025 vs Q1 2024) | Item | Three Months Ended 3/31/2025 | Amount (Increase/Decrease) | Percent (Increase/Decrease) | Three Months Ended 3/31/2024 | | :-------------------------- | :--------------------------- | :------------------------- | :-------------------------- | :--------------------------- | | Average WTI Price | $71.50 | $(5.51) | (7.2)% | $77.01 | | Adjusted Chargeable Costs | $98.89 | $9.28 | 10.4% | $89.61 | | Average Production Taxes | $2.46 | $(0.23) | (8.6)% | $2.69 | | Average Per Barrel Royalty (paid) | $(29.85) | $(14.57) | (95.4)% | $(15.28) | | Average net production (mb/d) | 65.6 | (1.2) | (1.8)% | 66.8 | - The Average Per Barrel Royalty remained negative and decreased by $14.57, primarily due to a 7.2% decrease in Average WTI Price and a 10.4% increase in Adjusted Chargeable Costs[87] Changes in Trust's Revenues and Expenses (Q2 2025 vs Q2 2024) | Item | Three Months Ended 6/30/2025 (in thousands) | Amount (Increase/Decrease) | Percent (Increase/Decrease) | Three Months Ended 6/30/2024 (in thousands) | | :---------------------- | :---------------------------------------- | :------------------------- | :-------------------------- | :---------------------------------------- | | Royalty revenues | $— | $— | — | $— | | Cash earnings (loss) | $(552) | $(58) | (11.7)% | $(494) | | Cash distributions | $— | $— | — | $— | | Administrative expenses | $588 | $32 | 5.8% | $556 | - Cash losses increased by 11.7% due to Administrative Expenses being paid solely from the cash reserve, which itself increased by 5.8% due to higher service provider fees[89] Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024 This section compares the Trust's financial performance and key royalty calculation factors for the six months ended June 30, 2025, against the same period in 2024 Changes in Royalty Calculation Factors (H1 2025 vs H1 2024) | Item | Six Months Ended 3/31/2025 | Amount (Increase/Decrease) | Percent (Increase/Decrease) | Six Months Ended 3/31/2024 | | :-------------------------- | :------------------------- | :------------------------- | :-------------------------- | :------------------------- | | Average WTI Price | $70.90 | $(6.85) | (8.8)% | $77.75 | | Adjusted Chargeable Costs | $94.95 | $9.11 | 10.6% | $85.84 | | Average Production Taxes | $2.44 | $(0.28) | (10.3)% | $2.72 | | Average Per Barrel Royalty (paid) | $(26.49) | $(15.68) | (145.1)% | $(10.81) | | Average net production (mb/d) | 65.1 | (2.3) | (3.4)% | 67.4 | - The Average Per Barrel Royalty remained negative and decreased by $15.68, primarily due to an 8.8% decrease in Average WTI Price and a 10.6% increase in Adjusted Chargeable Costs[91] Changes in Trust's Revenues and Expenses (H1 2025 vs H1 2024) | Item | Six Months Ended 6/30/2025 (in thousands) | Amount (Increase/Decrease) | Percent (Increase/Decrease) | Six Months Ended 6/30/2024 (in thousands) | | :---------------------- | :-------------------------------------- | :------------------------- | :-------------------------- | :-------------------------------------- | | Royalty revenues | $— | $— | — | $— | | Cash earnings (loss) | $(1,042) | $277 | 36.2% | $(765) | | Cash distributions | $— | $— | — | $— | | Administrative expenses | $1,120 | $226 | 25.3% | $894 | - Cash losses increased by 36.2% due to Administrative Expenses being paid solely from the cash reserve, with Administrative Expenses increasing by 25.3% due to higher service provider fees[93] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Trust, as a passive entity with limited investment options, faces no material interest rate risk, foreign currency risk, or exposure to derivative financial instruments - The Trust is a passive entity with no material interest rate risk due to the short-term nature and limitations on its investments[94] - The Trust does not engage in foreign currency transactions or invest in derivative financial instruments, thus avoiding related market risks[94] Item 4. Controls and Procedures This section details the Trustee's evaluation of the Trust's internal control over financial reporting, concluding its effectiveness as of June 30, 2025, and reporting no material changes during the last fiscal quarter Evaluation of Disclosure Controls and Procedures This section confirms the Trustee's responsibility for internal control over financial reporting and its conclusion that controls were effective as of June 30, 2025 - The Trustee is responsible for establishing and maintaining adequate internal control over financial reporting[95] - Based on an evaluation using COSO criteria, the Trust's internal control over financial reporting was effective as of June 30, 2025[97] Changes in Internal Control Over Financial Reporting This section reports that no material changes occurred in the Trust's internal control over financial reporting during the last fiscal quarter - There have been no material changes in the Trust's internal control over financial reporting during the last fiscal quarter[98] PART II—OTHER INFORMATION This section covers various other information, including legal proceedings, risk factors, equity security sales, defaults, mine safety, and exhibits Item 1. Legal Proceedings The Trust reports no legal proceedings - None[100] Item 1A. Risk Factors The Trust states there have been no material changes to the risk factors previously disclosed in its annual report on Form 10-K for the year ended December 31, 2024 - There have been no material changes from the risk factors disclosed in the Trust's annual report on Form 10-K for the year December 31, 2024[101] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities The Trust reports no unregistered sales of equity securities, use of proceeds, or issuer purchases of equity securities - None[102] Item 3. Defaults Upon Senior Securities The Trust reports no defaults upon senior securities - None[103] Item 4. Mine Safety Disclosures This item is not applicable to the Trust - Not applicable[104] Item 5. Other Information The Trust reports no other information - None[105] Item 6. Exhibits This section lists the exhibits filed with the report, including certifications and an explanatory note regarding the Interactive Data File - Exhibits include Rule 13a-14(a) Certification and Section 1350 Certification[107] - An Interactive Data File is not submitted because the Trust does not prepare financial statements in accordance with GAAP[107]