Torch Energy Royalty Trust Trust Units (TRU) filed Quarterly Report for the period ended 2008-03-31.
Torch Energy Royalty Trust is a grantor trust which provides unitholders with quarterly cash distributions from Net Profits Interests in proved developed oil and gas properties in Texas, Alabama and Louisiana. Because no additional properties will be contributed to the trust, the assets of the trust will deplete over time and a portion of each cash distribution made by the trust will be analogous to a return of capital. Torch Energy Royalty Trust Trust Units has a market cap of $56.9 million; its shares were traded at around $6.61 with and P/S ratio of 6.9. The dividend yield of Torch Energy Royalty Trust Trust Units stocks is 5.3%.
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During the three months ended March 31, 2008, the average price used to calculate Net Proceeds for gas, before gathering, treating and transportation deductions, was $4.45 per MMBtu as compared to $4.18 per MMBtu for the three months ended March 31, 2007. During the three months ended March 31, 2008, the average price used to calculate Net Proceeds for oil was $80.14 per Bbl as compared to $52.16 per Bbl for the three months ended March 31, 2007.
Prior to the Trust’s termination on January 29, 2008, TEMI deducted the Price Differential and was committed to pay a Minimum Price for gas. When TEMI paid a purchase price for gas based on the Minimum Price, TEMI received Price Credits which it was entitled to deduct in determining the purchase price when the Index Price for gas exceeded the Minimum Price. TEMI had not exercised its right to discontinue the Minimum Price commitment and had no outstanding Price Credits on the Termination Date. Additionally, if the Index Price for gas exceeded $2.10 per MMBtu, adjusted annually for inflation ($2.30 per MMBtu, $2.26 per MMBtu and $2.22 per MMBtu for 2008, 2007 and 2006 production, respectively), TEMI deducted 50% of such excess in calculating the Net Proceeds payable to the Trust.
Lease operating expenses and capital expenditures attributable to the Underlying Properties in the Chalkley, Cotton Valley and Austin Chalk Fields deducted in calculating Net Proceeds due to the Trust during the three months ended March 31, 2008 and 2007 totaled $0.4 million and $0.9 million, respectively. With respect to the Robinsons’ Bend Field, lease operating expenses and capital expenditures of $1.3 million and $1.5 million were deducted in calculating the Net Proceeds payable to the Trust from the Robinson’s Bend Field for the three months ended March 31, 2008 and 2007, respectively.
Pursuant to Section 3.07 of the Trust Agreement, the Trustee established a Cash Reserve following the Trust’s termination in 2008 for the payment of actual, contingent and uncertain liabilities associated with the liquidation and winding down of the Trust and the Trust’s arbitration. During the three months ended March 31, 2008, the Trust received cash payments totaling $1.5 million from the Working Interest Owners of the Underlying Properties mainly pertaining to net profits income attributable to production from the Underlying Properties during the three months ended December 31, 2007. Of these cash receipts, $1.2 million was allocated into the Cash Reserve. The Cash Reserve as of March 31, 2008 was $1.0 million.
The foregoing resulted in distributable income of $0.7 million, or $0.08 per Unit, for the three months ended March 31, 2008, as compared to $0.8 million, or $0.10 per Unit, for the same period in 2007. Cash distributions of $0.3 million, or $0.03 per Unit, were made during the three months ended March 31, 2008 as compared to $0.9 million, or $0.10 per Unit, for the same period in 2007.
All production from the Underlying Properties during the period from the inception of the Trust to the Trust’s termination on January 29, 2008 was sold pursuant to a Purchase Contract between TRC, Velasco, and TEMI. The Purchase Contract expired upon the Trust’s termination. Pursuant to the Purchase Contract, TEMI was obligated to purchase all net production attributable to the Underlying Properties for an Index Price, less certain other charges, which were calculated monthly. The Index Price calculation was based on market prices of oil and gas and therefore was subject to commodity price risk. The Purchase Contract also provided a Minimum Price paid by TEMI for gas. The Minimum Price was adjusted annually for inflation and was $1.87, $1.83 and $1.80 per MMBtu for 2008, 2007 and 2006, respectively. When TEMI paid a purchase price based on the Minimum Price, it received Price Credits equal to the difference between the Index Price and the Minimum Price that TEMI was entitled to deduct when the Index Price exceeded the Minimum Price. Additionally, if the Index Price exceeded the Sharing Price, TEMI was entitled to deduct such excess, the Price Differential. The Sharing Price was $2.30, $2.26 and $2.22 per MMBtu in 2008, 2007 and 2006, respectively. TEMI had the annual option to discontinue the Minimum Price commitment. However, if TEMI discontinued the Minimum Price commitment, it would no longer be entitled to deduct the Price Differential and would forfeit all accrued Price Credits. TEMI did not exercise its right to discontinue the Minimum Price commitment and had no outstanding Price Credits on the Termination Date.
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