BP Prudhoe Bay Royalty Trust
Notes to Financial Statements
(Prepared on a modified cash basis)
December 31, 2021
pay the Administrative Expenses of the Trust and the fees, costs and expenses related to an orderly termination of the Trust.
In July 2021, the Trust received a Royalty Payment of $3,203,261 attributable to the quarter ended June 30, 2021, in October 2021 the
Trust received a Royalty Payment of $6,145,027 attributable to the quarter ended September 30, 2021 and in January 2022 the trust received a royalty payment of $12,801,452 attributable to the quarter ended December 31, 2021.
The Trustee evaluated the adequacy of the cash reserve, the likelihood of the continued and regular receipts of revenues from the Royalty
Interest during the remainder of 2021 and beyond and the anticipated timing of termination of the Trust, and has determined to further increase the cash reserve to approximately $6,000,000. As a result, the Trustee transferred an additional
$4,229,980 to the reserve in October 2021. As a result of the receipt of royalty revenues for the past three quarters and the replenishment of the cash reserve, there is no longer substantial doubt regarding the Trusts ability to continue
operating as a going concern within one year from the issuance of these Financial Statements. See Note 8 to the Financial Statements in Item 1.
Although the Trust received net revenues attributable to the quarters ended June 30, September 30, and December 31, 2021, there
can be no assurance that WTI Prices will remain at levels sufficient to result in Royalty Payments to the Trust in any future quarter.
The
Trustee intends to continue to evaluate the adequacy of the cash reserve and may, at any time without notice to the Unit holders, increase or decrease the amount of the cash reserve due to the facts and circumstances prevailing from time to time.
The Trustee believes the current cash reserve is sufficient to pay Trust fees and expenses for the next 12 months.
Cash held in reserve
will be invested as required by the Trust Agreement. Any cash reserved in excess of the amount necessary to pay or provide for the payment of future known, anticipated or contingent expenses or liabilities eventually will be distributed to Unit
holders, together with interest earned on the funds. Any amounts set aside for the cash reserve are invested by the Trustee in U.S. government or agency securities secured by the full faith and credit of the United States, or mutual funds investing
in such securities.
In light of the Trusts cash shortfall in December 2020, the Trust began to explore the options available under
the Trust Agreement to address the issue. These options included efforts to obtain a loan for the Trust, sell a portion of the Trust assets, or sell all of the Trust assets and taking the necessary steps to terminate the Trust. The Trustee engaged a
firm with expertise in the oil industry to provide financial advisory, investment banking, valuation, and consulting services to assist the Trust in identifying potential lenders or potential purchasers of Trust assets, and to advise the Trust with
respect to the timing of its potential termination pursuant to the Trust Agreement. The Trusts initial efforts to obtain a loan were unsuccessful; however, because the Trust received additional revenue from the Royalty Interests, and the cash
reserve is fully funded to a targeted level, a loan may no longer be necessary, even if available. While these efforts are currently on hold, there can be no assurance in the future that the Trust will be able to secure a loan or arrange for the
sale of Trust assets should it become necessary, or if it does secure a loan or arrange a sale, that any loan or sale would be on terms that are acceptable to the Trust.
The financial statements of the Trust are prepared on a modified cash basis and reflect the Trusts assets, liabilities, corpus, earnings,
and distributions, as follows:
|
a. |
Revenues are recorded when received (generally within 15 days of the end of the preceding quarter) and
distributions to Trust Unit holders are recorded when paid. |
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