Marine Petroleum Trust(MARPS) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements, along with the Trustee's discussion and analysis of financial condition, market risk disclosures, and controls and procedures Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Marine Petroleum Trust, including statements of assets, liabilities, trust corpus, distributable income, and changes in trust corpus, along with explanatory notes on accounting policies, basis of accounting, distributable income components, investment in Tidelands Royalty Trust "B", and a subsequent event regarding a trustee change Condensed Consolidated Statements of Assets, Liabilities and Trust Corpus This statement presents the financial position of the trust, detailing its assets, liabilities, and trust corpus at specific reporting dates Condensed Consolidated Statements of Assets, Liabilities and Trust Corpus | | September 30, 2021 (Unaudited) | June 30, 2021 | | :--- | :--- | :--- | | ASSETS | | | | Cash and cash equivalents | $976,612 | $902,023 | | Producing oil and natural gas properties | 7 | 7 | | Total assets | $976,619 | $902,030 | | LIABILITIES AND TRUST CORPUS | | | | Federal income tax payable | — | — | | Total current liabilities | — | — | | Trust corpus | $976,619 | $902,030 | | Total liabilities and trust corpus | $976,619 | $902,030 | Condensed Consolidated Statements of Distributable Income This statement details the trust's income available for distribution, including royalties, interest, and expenses, for the reported periods Condensed Consolidated Statements of Distributable Income (Three Months Ended September 30) | Income/Expense | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Oil and natural gas royalties | $229,240 | $53,639 | | Interest and dividend income | 55 | 102 | | Total income | 229,295 | 53,741 | | General and administrative expenses | 26,083 | 20,714 | | Distributable income before federal income taxes | 203,212 | 33,027 | | Federal income taxes of subsidiary | — | — | | Distributable income | $203,212 | $33,027 | | Distributable income per unit | $0.10 | $0.02 | - Distributable income per unit significantly increased from $0.02 in Q3 2020 to $0.10 in Q3 2021[12] Condensed Consolidated Statements of Changes in the Trust Corpus This statement outlines the movements in the trust's equity, reflecting distributable income and distributions to unitholders over the periods Condensed Consolidated Statements of Changes in Trust Corpus (Three Months Ended September 30) | Item | 2021 (Unaudited) | 2020 (Unaudited) | | :--- | :--- | :--- | | Trust corpus, beginning of period | $902,030 | $936,552 | | Distributable income | 203,212 | 33,027 | | Distributions to unitholders | (128,623) | (89,033) | | Trust corpus, end of period | $976,619 | $880,546 | | Distributions per unit | $0.06 | $0.04 | - Distributions per unit increased from $0.04 in Q3 2020 to $0.06 in Q3 2021[15] Notes to Condensed Consolidated Financial Statements This section provides essential context and details for the financial statements, including accounting policies, income components, and significant events - The financial statements are prepared on a modified cash basis method, not in conformity with GAAP, as permitted for royalty trusts by SEC Staff Accounting Bulletin Topic 12:E[19][22] - Distributable income is comprised of royalties from offshore Texas leases, 98% of royalties from offshore Louisiana leases (via MPC), cash distributions from Tidelands Royalty Trust "B", and MPC dividends, less administrative expenses[21] - The Trust owned 32.6% of Tidelands Royalty Trust "B", which expired earlier in 2021 and is currently winding up; no future income is expected from Tidelands[23][54] - Simmons Bank, the current Trustee, has entered into an agreement to resign and nominate Argent Trust Company as successor trustee, subject to unitholder approval[24] Item 2. Trustee's Discussion and Analysis of Financial Condition and Results of Operations This section provides the Trustee's analysis of the Trust's financial condition and operational results, highlighting the Trust's organizational structure, the significant impact of commodity prices on income, its liquidity and capital resources, details about its leases, and a summary of operating results for the quarter, emphasizing the substantial increase in royalty income and distributable income driven by higher production volumes and commodity prices Organization This section describes the trust's formation, purpose, and structure, including its term and the nature of its royalty interests - Marine Petroleum Trust is a royalty trust created in 1956, with a term expiring on June 1, 2041, organized solely for the administration and liquidation of rights to payments from certain oil and natural gas leases in the Gulf of Mexico[25][26] - The Trust holds interests in properties offshore Texas, while its wholly-owned subsidiary, Marine Petroleum Corporation (MPC), holds interests offshore Louisiana; both are prohibited from engaging in trade or business[26][28] Commodity Prices This section discusses the significant influence of commodity price fluctuations on the trust's income and operational activities - The Trust's income and monthly distributions are heavily influenced by commodity prices, which fluctuate widely due to supply/demand changes, market uncertainty, political conditions, worldwide economic conditions, and governmental regulation[31][33] - Declining crude oil and natural gas prices reduce distributable income and may lead to decreased exploration and development activity on the Trust's royalty properties[32] Liquidity and Capital Resources This section explains the trust's financial structure, highlighting its lack of capital requirements and prohibition on new investments - The Trust has no capital requirements, as its sole obligation is to distribute collected distributable income to unitholders quarterly after administrative expenses, operating as a grantor trust for tax purposes[34][35] - The Trust's oil and natural gas properties are depleting assets, and new investments are prohibited by its indenture[35] The Leases This section details the trust's royalty interests and recent operational activities on its leases, including the status of its investment in Tidelands Royalty Trust "B" - Marine holds a three-fourths of one percent overriding royalty interest in 55 leases covering 199,868 gross acres in the Gulf of Mexico[37] - No new well completions or drilling/recompletion activities were reported on Marine's leases during the three months ended September 30, 2021, or as of November 1, 2021[36] - The Trust's 32.6% interest in Tidelands Royalty Trust "B" is no longer expected to generate income, as Tidelands expired in 2021 and is winding up[37] Critical Accounting Policies and Estimates This section outlines the specific accounting methods and principles used by the trust, particularly its modified cash basis approach - Marine uses the modified cash basis method of accounting, recording royalty income when received and expenses when paid, and reports distributable income instead of net income[38] - There were no changes in Marine's critical accounting policies or estimates during the three months ended September 30, 2021[39] New Accounting Pronouncements This section addresses the impact of recent accounting standards on the trust's financial reporting, noting no significant effects - No new accounting pronouncements have been adopted or issued that would have a significant impact on Marine's financial statements, given its modified-cash basis accounting[40] General This section discusses the external factors and inherent limitations affecting the trust's royalty income and future production levels - Marine's royalty income is derived from third-party oil and natural gas production activities and fluctuates based on factors beyond its control, including productive wells, production levels, and selling prices[41][42] - Production from existing wells is anticipated to decrease in the future due to normal well depletion, and operators do not provide information regarding future drilling or re-working operations[43] Summary of Operating Results This section presents key operational and financial metrics over recent periods, highlighting production volumes, prices, and distributions Key Operating Metrics (Three Months Ended September 30) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Oil production (bbls) | 3,241 | 2,148 | | Natural gas production (mcf) | 3,808 | 2,154 | | Average oil price realized ($/bbl) | $64.40 | $23.19 | | Average natural gas price realized ($/mcf, net of expenses) | $5.39 | $1.78 | | Distributable income per unit | $0.10 | $0.02 | | Distributions per unit | $0.06 | $0.04 | Net Production Quantities, Distributable Income and Distributions Per Unit (Last Six Quarters) | Quarter Ended | Oil (bbls) | Natural Gas (mcf) | Distributable Income Per Unit | Distributions Per Unit | | :--- | :--- | :--- | :--- | :--- | | June 30, 2020 | 4,466 | 5,529 | $0.09 | $0.10 | | September 30, 2020 | 2,148 | 2,154 | $0.02 | $0.04 | | December 31, 2020 | 2,512 | 1,965 | $0.00 | $0.01 | | March 31, 2021 | 1,965 | 1,428 | $0.01 | $0.02 | | June 30, 2021 | 2,460 | 2,992 | $0.05 | $0.06 | | September 30, 2021 | 3,241 | 3,808 | $0.10 | $0.06 | Results of Operations—Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020 This section analyzes the financial performance for the specified comparative periods, focusing on royalty income, production volumes, and expenses Income from Oil and Natural Gas Royalties (Three Months Ended September 30) | Royalty Type | 2021 | 2020 | | :--- | :--- | :--- | | Total oil and natural gas royalties | $229,240 | $53,639 | | Oil royalties | $208,729 | $49,795 | | Natural gas royalties (net of expenses) | $20,511 | $3,844 | | Distributable income | $203,212 | $33,027 | Oil and Natural Gas Sales Volume and Average Price (Three Months Ended September 30) | Commodity | Metric | 2021 | 2020 | | :--- | :--- | :--- | :--- | | Oil | Bbls sold | 3,241 | 2,148 | | | Average price ($/bbl) | $64.40 | $23.19 | | Natural gas | Mcf sold | 3,808 | 2,154 | | | Average price, net of expenses ($/mcf) | $5.39 | $1.78 | - General and administrative expenses increased to $26,083 for the three months ended September 30, 2021, from $20,714 for the comparable period in 2020, primarily due to timing of payment of expenses[57] Forward-Looking Statements This section provides a cautionary note regarding statements about future events and potential risks that could affect the trust's performance - Forward-looking statements in the report are identified by words like "anticipate," "believe," and "expect," and are subject to risks such as reductions in commodity prices or demand, production declines, regulatory changes, and the trustee's resignation[58] Website This section informs about the availability of public filings and reports on the trust's official website - Marine makes its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K available free of charge on its website at www.marps-marine.com[59](index=59&type=chunk) Item 3. Quantitative and Qualitative Disclosures About Market Risk This section states that there have been no material changes to the quantitative and qualitative disclosures about market risk since the previous Annual Report on Form 10-K - There has been no material change from the market risk information provided in Marine's Annual Report on Form 10-K for the fiscal year ended June 30, 2021[60] Item 4. Controls and Procedures This section concludes that Marine's disclosure controls and procedures were effective as of September 30, 2021, and reports no material changes in internal control over financial reporting during the quarter - The Trustee concluded that Marine's disclosure controls and procedures were effective as of September 30, 2021[62] - There have been no material changes in Marine's internal control over financial reporting during the quarter ended September 30, 2021[63] PART II. OTHER INFORMATION This section addresses other required disclosures, including updates on risk factors and a list of exhibits Item 1A. Risk Factors This section states that there have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K - As of the filing date, there have been no material changes from the risk factors previously disclosed in Marine's Annual Report on Form 10-K for the fiscal year ended June 30, 2021[65] Item 6. Exhibits This section lists the exhibits included in the report, specifically certifications required by the Sarbanes-Oxley Act - The report includes certifications from the Corporate Trustee pursuant to Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002[67]