North European Oil Royalty Trust(NRT) - 2021 Q1 - Quarterly Report

PART I -- FINANCIAL INFORMATION This section presents the unaudited financial statements, accounting policies, management's analysis of financial condition, and disclosures on market risk and internal controls for North European Oil Royalty Trust Item 1. Financial Statements. This section presents the unaudited financial statements, including balance sheets, income statements, undistributed earnings, and cash flow statements, highlighting a significant decline in revenue and net income STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS This statement details the Trust's financial position, including cash, total assets, distributions payable, and undistributed earnings at period-end | ASSETS / LIABILITIES | Jan 31, 2021 ($) | Oct 31, 2020 ($) | | :------------------- | :----------- | :----------- | | Cash and cash equivalents | $577,616 | $649,585 | | Total Assets | $577,617 | $649,586 | | Distributions to be paid | $367,624 | $183,811 | | Undistributed earnings | $209,992 | $465,774 | | Total Liabilities and Trust Corpus | $577,617 | $649,586 | STATEMENTS OF REVENUE COLLECTED AND EXPENSES PAID This statement outlines the Trust's revenue from royalties and interest, along with expenses paid, to determine net income for the reporting periods | Metric | 3 Months Ended Jan 31, 2021 ($) | 3 Months Ended Jan 31, 2020 ($) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Gas, sulfur and oil royalties received | $283,439 | $1,025,965 | | Interest income | $83 | $1,895 | | Trust Income | $283,522 | $1,027,860 | | Trust Expenses | ($171,680) | ($280,123) | | Net Income | $111,842 | $747,737 | | Net income per unit | $0.01 | $0.08 | | Distributions per unit paid or to be paid | $0.04 | $0.08 | - Net Income decreased significantly by 85.04% from $747,737 in Q1 2020 to $111,842 in Q1 2021[7] STATEMENTS OF UNDISTRIBUTED EARNINGS This statement tracks the changes in the Trust's undistributed earnings, reflecting net income and distributions over the period | Metric | 3 Months Ended Jan 31, 2021 ($) | 3 Months Ended Jan 31, 2020 ($) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Balance, beginning of period | $465,774 | $120,399 | | Net income | $111,842 | $747,737 | | Current year distributions paid or to be paid | $367,624 | $735,247 | | Balance, end of period | $209,992 | $132,889 | STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS This statement details the inflows and outflows of cash and cash equivalents, showing the net change and period-end balances | Metric | 3 Months Ended Jan 31, 2021 ($) | 3 Months Ended Jan 31, 2020 ($) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Gas, sulfur and oil royalties received | $283,439 | $1,025,965 | | Interest income | $83 | $1,895 | | Payment of Trust expenses | $171,680 | $280,123 | | Distributions paid | $183,811 | $1,470,494 | | Net increase (decrease) in cash and cash equivalents | ($71,969) | ($722,757) | | Cash and cash equivalents, beginning of period | $649,585 | $1,590,893 | | Cash and cash equivalents, end of period | $577,616 | $868,136 | NOTES TO FINANCIAL STATEMENTS This section provides essential context to the financial statements, detailing the Trust's accounting policies, formation, related party transactions, and employee benefit plan (1) Summary of significant accounting policies This section outlines the key accounting principles and methods used by the Trust in preparing its financial statements - The Trust prepares financial statements on a modified cash basis, where revenue is recognized upon cash receipt and expenses upon cash payment, differing from GAAP[11][12] - Producing gas and oil royalty rights are valued at $1, as their net book value is de minimis compared to annual royalties[14] - The Trust is exempt from federal income taxes as a grantor trust and has no state income tax obligations[15] - Cash and cash equivalents include bank deposits, certificates of deposit, and U.S. Treasury bills with original maturities of three months or less[16] - There were 9,190,590 units of beneficial interest outstanding as of January 31, 2021, and 2020[17] (2) Formation of the Trust This section describes the establishment of the Trust and the nature of its overriding royalty rights in German gas and oil production - The Trust was formed on September 10, 1975, holding overriding royalty rights for gas and oil production in Germany, under contracts with subsidiaries of ExxonMobil Corporation and Royal Dutch/Shell Group[19] - Royalties are received for sales of gas well gas, oil well gas, crude oil, condensate, and sulfur[19] (3) Related party transactions This section details transactions between the Trust and its managing director or trustees, including reimbursements and legal services - John R. Van Kirk, the Managing Director, was reimbursed $2,215 for office expenses in Q1 fiscal 2021 (vs. $0 in Q1 fiscal 2020)[20] - Lawrence A. Kobrin, a Trustee, is Senior Counsel at Cahill Gordon & Reindel LLP, which received $17,975 for legal services in Q1 fiscal 2021 (vs. $24,262 in Q1 fiscal 2020)[21] (4) Employee benefit plan This section describes the Trust's SIMPLE IRA plan for employees, including matching contribution details - The Trust has a SIMPLE IRA plan for employees, including the Managing Director, with matching contributions up to 3% of cash compensation[22] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. This section analyzes the Trust's financial condition and results of operations, focusing on royalty income drivers, the impact of market conditions, and operational developments Executive Summary This summary outlines the Trust's passive investment nature, primary royalty income sources, key influencing factors, and recent operational developments - The Trust operates as a passive fixed investment trust, holding overriding royalty rights and distributing net funds to unit owners quarterly[23] - Royalty rights cover gas, sulfur, and oil sales from the Oldenburg concession in Germany, primarily from Mobil Erdgas and OEG, with natural gas accounting for approximately 87% of cumulative royalty income in Q1 fiscal 2021[26][28] - Royalty amounts are primarily influenced by gas sales volume, gas price, sales area, and the Euro/U.S. Dollar exchange rate[28][37] - The Grossenkneten desulfurization plant's five-week shutdown, extending into Q1 fiscal 2021, contributed to a decline in gas sales[30] - The Mobil Agreement (4% royalty rate) historically yields significantly higher payments than the OEG Agreement (0.6667% royalty rate), despite western Oldenburg (Mobil) accounting for only 27.73% of gas sales but 80.73% of gas royalties in Q1 fiscal 2021[31][32][34][48] - Royalty calculations shifted from contractual prices to the German Border Import gas Price (GBIP) in 2016, aiming for revenue neutrality and reduced disputes[35][36] - EMPG has postponed new gas well drilling through 2021 due to continuing low gas prices[40] Results: First Quarter of Fiscal 2021 versus First Quarter of Fiscal 2020 This section provides a comparative analysis of the Trust's financial performance for the first fiscal quarter of 2021 against the same period in 2020 | Metric | 1st Fiscal Quarter Ended 1/31/2021 ($) | 1st Fiscal Quarter Ended 1/31/2020 ($) | Percentage Change | | :------------------- | :--------------------------------- | :--------------------------------- | :---------------- | | Total Royalty Income | $283,439 | $1,025,965 | -72.37% | | Net Income | $111,842 | $747,737 | -85.04% | | Distribution per Unit | $0.04 | $0.08 | -50.00% | - The decrease in total royalty income was primarily due to lower gas sales and lower gas prices under both Mobil and OEG Agreements, exacerbated by the economic disruption from COVID-19[42] - Total royalties in Q1 fiscal 2021 were reduced by $538,651 in negative adjustments but increased by $65,267 from Mobil sulfur royalties (including corrections for prior periods)[43] Quarterly Gas Data (4th Calendar Quarter) | Metric (Mobil Agreement) | 12/30/2020 | 12/31/2019 | Percentage Change | | :----------------------- | :--------- | :--------- | :---------------- | | Gas Sales (Bcf) | 3.222 | 4.884 | -34.03% | | Gas Prices (Ecents/Kwh) | 1.1935 | 1.3550 | -11.92% | | Average Exchange Rate | 1.2116 | 1.1105 | +9.10% | | Gas Royalties ($) | $532,128 | $843,908 | -36.94% | | Gas Prices ($/Mcf) | $4.13 | $4.32 | -4.40% | | Metric (OEG Agreement) | 12/30/2020 | 12/31/2019 | Percentage Change | | :----------------------- | :--------- | :--------- | :---------------- | | Gas Sales (Bcf) | 11.622 | 16.026 | -27.48% | | Gas Prices (Ecents/Kwh) | 1.2171 | 1.3818 | -11.92% | | Average Exchange Rate | 1.2123 | 1.1115 | +9.07% | | Gas Royalties ($) | $193,266 | $332,242 | -41.83% | | Gas Prices ($/Mcf) | $4.10 | $4.28 | -4.21% | - Trust expenses decreased by 38.71% ($108,443) to $171,680 in Q1 fiscal 2021, driven by lower insurance, reduced Trustee fees, virtual meetings, and timing shifts for German accountant examinations[49] - Assets decreased at January 31, 2021, compared to October 31, 2020, due to lower royalty receipts[50] - Forward-looking statements are subject to risks including COVID-19 impact, gas production/price levels, economic conditions, currency exchange rates, and operating companies' performance[51][52][54] Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company, the Trust is exempt from providing quantitative and qualitative disclosures about market risk - The Trust is a smaller reporting company and is not required to provide market risk disclosures[56] Item 4. Controls and Procedures. The Trust's Managing Director evaluated the effectiveness of disclosure controls and procedures as of January 31, 2021, concluding they were effective. No material changes to internal control over financial reporting were identified, though the Trust continues to monitor the impact of COVID-19 - The Managing Director concluded that the Trust's disclosure controls and procedures were effective as of January 31, 2021[58] - No material changes in internal control over financial reporting were identified during Q1 fiscal 2021, and the Trust is monitoring COVID-19's impact on controls[59] PART II -- OTHER INFORMATION This section covers legal proceedings, equity sales, defaults, mine safety, other information, exhibits, and the official signature for the report Item 1. Legal Proceedings. The Trust is not currently involved in any pending legal proceedings - The Trust is not a party to any pending legal proceedings[61] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. This item is not applicable to the Trust - This item is not applicable[61] Item 3. Defaults Upon Senior Securities. This item is not applicable to the Trust - This item is not applicable[62] Item 4. Mine Safety Disclosure. This item is not applicable to the Trust - This item is not applicable[62] Item 5. Other Information. There is no other information to report under this item - No other information to report[62] Item 6. Exhibits. This section lists the certifications required by the Sarbanes-Oxley Act of 2002 - Includes Exhibit 31 (CEO/CFO Certification pursuant to Section 302 of Sarbanes-Oxley Act) and Exhibit 32 (CEO/CFO Certification pursuant to Section 906 of Sarbanes-Oxley Act)[63] SIGNATURE The report is signed by John R. Van Kirk, Managing Director, on behalf of North European Oil Royalty Trust - The report was signed by John R. Van Kirk, Managing Director, on February 25, 2021[64][65]