UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended January 31, 2016 or
------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to ___________ .
Commission file number 1-8245
NORTH EUROPEAN OIL ROYALTY TRUST
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-2084119
----------------------- --------------------------
(State of organization) (I.R.S. Employer I.D. No.)
Suite 19A, 43 West Front Street, Red Bank, New Jersey 07701
-------------------------------------------------------------
(Address of principal executive offices)
(732) 741-4008
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
-2-
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule
405 of Regulation S-T (Section 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to
submit and post such files). Yes No
----- -----
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of "large accelerated filer,"
"accelerated filer," and "smaller reporting company" in Rule 12b-2 of the
Exchange Act. (Check one):
Large accelerated filer Accelerated filer X
----- -----
Non-accelerated filer Smaller reporting company
----- -----
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes No X
----- -----
Class Outstanding at January 31, 2016
---------------------------- -------------------------------
Units of Beneficial Interest 9,190,590
-3-
PART I -- FINANCIAL INFORMATION
-------------------------------
Item 1. Financial Statements.
--------------------
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
-----------------------------------------------------------
JANUARY 31, 2016 AND OCTOBER 31, 2015
-------------------------------------
(Unaudited)
-----------
2016 2015
----------------- ----------------
ASSETS
Current assets -- Cash and
cash equivalents $ 1,652,717 $ 2,192,865
Producing gas and oil royalty rights,
net of amortization (Notes 1 and 2) 1 1
------------ ------------
Total Assets $ 1,652,718 $ 2,192,866
============ ============
LIABILITIES AND TRUST CORPUS
Current liabilities -- Distributions
to be paid to unit owners, paid
February 2016 and November 2015 $ 1,470,494 $ 2,113,835
Trust corpus (Notes 1 and 2) 1 1
Undistributed earnings 182,223 79,030
------------ ------------
Total Liabilities and Trust Corpus $ 1,652,718 $ 2,192,866
============ ============
The accompanying notes are an integral part
of these financial statements.
-4-
STATEMENTS OF REVENUE COLLECTED AND EXPENSES PAID (NOTE 1)
----------------------------------------------------------
FOR THE THREE MONTHS ENDED JANUARY 31, 2016 AND 2015
----------------------------------------------------
(Unaudited)
-----------
2016 2015
----------------- ----------------
Gas, sulfur and oil
royalties received $ 1,832,471 $ 3,442,713
Interest income 1,100 3,412
------------ ------------
Trust Income $ 1,833,571 $ 3,446,125
------------ ------------
Non-related party expenses (235,343) (312,295)
Related party expenses (Note 3) (24,541) (36,914)
------------ ------------
Trust Expenses (259,884) (349,209)
------------ ------------
Net Income $ 1,573,687 $ 3,096,916
============ ============
Net income per unit $ .17 $ .34
====== ======
Distributions per unit paid or
to be paid to unit owners $ .16 $ .35
====== ======
The accompanying notes are an integral part
of these financial statements.
-5-
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
---------------------------------------------
FOR THE THREE MONTHS ENDED JANUARY 31, 2016 AND 2015
----------------------------------------------------
(Unaudited)
-----------
2016 2015
----------------- ----------------
Balance, beginning of period $ 79,030 $ 170,406
Net income 1,573,687 3,096,916
------------ ------------
1,652,717 3,267,322
Less:
Current year distributions paid
or to be paid to unit owners 1,470,494 3,216,706
------------ ------------
Balance, end of period $ 182,223 $ 50,616
============ ============
The accompanying notes are an integral part
of these financial statements.
-6-
STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS (NOTE 1)
-----------------------------------------------------------
FOR THE THREE MONTHS ENDED JANUARY 31, 2016 AND 2015
----------------------------------------------------
(Unaudited)
-----------
2016 2015
----------------- ---------------
Sources of Cash and Cash Equivalents:
------------------------------------
Gas, sulfur and oil royalties received $ 1,832,471 $ 3,442,713
Interest income 1,100 3,412
------------ ------------
1,833,571 3,446,125
------------ ------------
Uses of Cash and Cash Equivalents:
---------------------------------
Payment of Trust expenses 259,884 349,209
Distributions paid 2,113,835 3,584,330
------------ ------------
2,373,719 3,933,539
------------ ------------
Net increase (decrease) in cash and
cash equivalents during the period (540,148) (487,414)
Cash and cash equivalents,
beginning of period 2,192,865 3,754,736
------------ ------------
Cash and cash equivalents,
end of period $ 1,652,717 $ 3,267,322
============ ============
The accompanying notes are an integral part
of these financial statements.
-7-
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
-----------
(1) Summary of significant accounting policies:
-------------------------------------------
Basis of accounting -
---------------------
The accompanying financial statements of North European Oil Royalty Trust
(the "Trust") are prepared in accordance with the rules and regulations of the
SEC. Financial statement balances and financial results are presented on a
modified cash basis of accounting, which is a comprehensive basis of accounting
other than accounting principles generally accepted in the United States ("GAAP
basis"). In the opinion of management, all adjustments that are considered
necessary for a fair presentation of these financial statements, including
adjustments of a normal, recurring nature, have been included.
On a modified cash basis, revenue is earned when cash is received and
expenses are incurred when cash is paid. GAAP basis financial statements
disclose revenue as earned and expenses as incurred, without regard to receipts
or payments. The modified cash basis of accounting is utilized to permit the
accrual for distributions to be paid to unit owners (those distributions
approved by the Trustees for the Trust). The Trust's distributable income
represents royalty income received by the Trust during the period plus interest
income less any expenses incurred by the Trust, all on a cash basis. In the
opinion of the Trustees, the use of the modified cash basis of accounting
provides a more meaningful presentation to unit owners of the results of
operations of the Trust.
The results of any interim period are not necessarily indicative of the
results to be expected for the fiscal year. These financial statements should
be read in conjunction with the financial statements that were included in the
Trust's Annual Report on Form 10-K for the year ended October 31, 2015 (the
"2015 Form 10-K"). The Statements of Assets, Liabilities and Trust Corpus
included herein contain information from the Trust's 2015 Form 10-K.
Producing gas and oil royalty rights -
--------------------------------------
The rights to certain gas and oil royalties in Germany were transferred
to the Trust at their net book value by North European Oil Company (the
"Company") (see Note 2). The net book value of the royalty rights has been
reduced to one dollar ($1) in view of the fact that the remaining net book
value of royalty rights is de minimis relative to annual royalties received
and distributed by the Trust and does not bear any meaningful relationship
to the fair value of such rights or the actual amount of proved producing
reserves.
-8-
Federal and state income taxes -
--------------------------------
The Trust, as a grantor trust, is exempt from federal income taxes
under a private letter ruling issued by the Internal Revenue Service. The
Trust has no state income tax obligations.
Cash and cash equivalents -
---------------------------
Cash and cash equivalents are defined as amounts deposited in bank accounts
and amounts invested in certificates of deposit and U. S. Treasury bills with
original maturities generally of three months or less from the date of purchase.
The investment options available to the Trust are limited in accordance with
specific provisions of the Trust Agreement. As of January 31, 2016, the
uninsured amount held in the Trust's U.S. bank accounts was approximately
$1,430,989. In addition, the Trust held Euros 9,985, the equivalent of $10,815,
in its German bank account at January 31, 2016.
Net income per unit -
---------------------
Net income per unit is based upon the number of units outstanding at
the end of the period. As of both January 31, 2016 and 2015, there were
9,190,590 units of beneficial interest outstanding.
New accounting pronouncements -
-------------------------------
The Trust is not aware of any recently issued, but not yet effective,
accounting standards that would be expected to have a significant impact
on the Trust's financial position or results of operations.
(2) Formation of the Trust:
-----------------------
The Trust was formed on September 10, 1975. As of September 30, 1975,
the Company was liquidated and the remaining assets and liabilities of the
Company, including its royalty rights, were transferred to the Trust. The
Trust, on behalf of the owners of beneficial interest in the Trust, holds
overriding royalty rights covering gas and oil production in certain
concessions or leases in the Federal Republic of Germany. These rights are
held under contracts with local German exploration and development
subsidiaries of ExxonMobil Corp. and the Royal Dutch/Shell Group of
Companies. Under these contracts, the Trust receives various percentage
royalties on the proceeds of the sales of certain products from the areas
involved. At the present time, royalties are received for sales of gas well
gas, oil well gas, crude oil, condensate and sulfur.
-9-
(3) Related party transactions:
---------------------------
John R. Van Kirk, the Managing Director of the Trust, provides office space
and office services to the Trust at cost. For such office space and office
services, the Trust reimbursed the Managing Director $5,273 and $4,334 in the
first quarter of fiscal 2016 and 2015, respectively.
Lawrence A. Kobrin, a Trustee of the Trust, is a Senior Counsel at Cahill
Gordon & Reindel LLP, which serves as counsel to the Trust. For the first
quarter of fiscal 2016 and 2015, the Trust paid Cahill Gordon & Reindel LLP
$19,268 and $32,580 for legal services, respectively.
(4) Employee benefit plan:
----------------------
The Trust has established a savings incentive match plan for employees
(SIMPLE IRA) that is available to both employees of the Trust, one of whom
is the Managing Director. The Trustees have authorized the Trust to make
contributions to the accounts of the employees, on a matching basis, of up
to 3% of cash compensation paid to each employee effective for the 2016 and
2015 calendar years.
-10-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
-------------------------------------------------
Executive Summary
-----------------
The Trust is a passive fixed investment trust which holds overriding
royalty rights, receives income under those rights from certain operating
companies, pays its expenses and distributes the remaining net funds to its
unit owners. As mandated by the Trust Agreement, distributions of income are
made on a quarterly basis. These distributions, as determined by the Trustees,
constitute substantially all of the funds on hand after provision is made for
Trust expenses then anticipated.
The Trust does not engage in any business or extractive operations of
any kind in the areas over which it holds royalty rights and is precluded from
engaging in such activities by the Trust Agreement. There are no requirements,
therefore, for capital resources with which to make capital expenditures or
investments in order to continue the receipt of royalty revenues by the Trust.
The properties of the Trust, which the Trust and Trustees hold
pursuant to the Trust Agreement on behalf of the unit owners, are overriding
royalty rights on sales of gas, sulfur and oil under certain concessions or
leases in the Federal Republic of Germany. The actual leases or concessions are
held either by Mobil Erdgas-Erdol GmbH ("Mobil Erdgas"), a German operating
subsidiary of the ExxonMobil Corp. ("ExxonMobil"), or by Oldenburgische
Erdolgesellschaft ("OEG"). The Oldenburg concession is the primary area from
which the natural gas, sulfur and oil are extracted and provides nearly 100% of
all the royalties received by the Trust. The Oldenburg concession
approximately (1,386,000 acres) covers virtually the entire former Grand Duchy
of Oldenburg and is located in the German federal state of Lower Saxony.
In 2002, Mobil Erdgas and BEB Erdgas und Erdol GmbH ("BEB"), a joint
venture of ExxonMobil and the Royal Dutch/Shell Group of Companies, formed a
company, ExxonMobil Production Deutschland GmbH ("EMPG"), to carry out all
exploration, drilling and production activities. All sales activities are
still handled by the operating companies, either Mobil Erdgas or BEB.
Vermilion Energy Inc. ("Vermilion"), a Canadian based international
oil and gas producer, entered into a Farm-In Agreement (the "Farm-In Agreement")
with Mobil Erdgas and BEB effective as of January 1, 2016. The Farm-In
Agreement specifies that Vermilion has acquired an interest in various portions
of a concession or areas owned by Mobil Erdgas and BEB. Three of these
licenses cover the three northernmost areas of the Oldenburg concession.
The Farm-In Agreement commits Vermilion to financial participation at a 50%
level in 11 gross exploratory wells over the next five years. If Vermilion
conducts any successful drilling within the confines of the Oldenburg
concession, sales of that gas or oil would be subject to the relevant royalty
contract.
The operating companies pay monthly royalties to the Trust based on
their sales of natural gas, sulfur and oil. Of these three products, natural gas
provided approximately 100% of the cumulative royalty income received in fiscal
2016. The amount of royalties paid to the Trust is primarily based on four
factors: the amount of gas sold, the price of that gas, the area from which the
gas is sold and the exchange rate.
-11-
On approximately the 25th of the months of January, April, July and
October, the operating companies calculate the amount of gas sold during the
previous calendar quarter and determine the amount of royalties that were
payable to the Trust based on those sales. This amount is divided into thirds
and forms the monthly royalty payments (payable on the 15th of each month) to
the Trust for its upcoming fiscal quarter. At the same time that the operating
companies determine the actual amount of royalties that were payable for the
prior calendar quarter, they look at the actual amount of royalties that were
paid to the Trust for that period and calculate the difference between what was
paid and what was payable. Additional amounts payable by the operating
companies would be paid immediately and any overpayment would be deducted from
the payment for the first month of the following fiscal quarter. In September
of each year, the operating companies make the final determination of any
necessary royalty adjustments for the prior calendar year with a positive or
negative adjustment made accordingly. The Trust's German accountants review
the royalty calculations on a biennial basis.
There are two types of natural gas found within the Oldenburg
concession, sweet gas and sour gas. Sweet gas has little or no contaminants
and needs no treatment before it can be sold. Sour gas, in comparison, must be
processed at the Grossenkneten desulfurization plant before it can be sold.
The desulfurization process removes hydrogen sulfide and other contaminants.
The hydrogen sulfide in gaseous form is converted to sulfur in a solid form and
sold separately. As needed, EMPG conducts maintenance on the plant generally
during the summer months when demand is lower. The operating companies have
informed the Trust that, to promote greater efficiency and cost effectiveness,
the production capacity of Grossenkneten will be reduced beginning in 2017.
Under one set of rights covering the western part of the Oldenburg
concession (approximately 662,000 acres), the Trust receives a royalty payment
of 4% on gross receipts from sales by Mobil Erdgas of gas well gas, oil well
gas, crude oil and condensate (the "Mobil Agreement"). Under the Mobil
Agreement, there is no deduction of costs prior to the calculation of royalties
from gas well gas and oil well gas, which together accounted for approximately
99% of the cumulative royalty income received under this agreement in fiscal
2016. Historically, the Trust has received significantly greater royalty
payments under the Mobil Agreement, as compared to the OEG Agreement described
below, due to the higher royalty rate specified by that agreement.
The Trust is also entitled under the Mobil Sulfur Agreement to receive
a 2% royalty on gross receipts of sales of sulfur obtained as a by-product of
sour gas produced from the western part of Oldenburg. The payment of the sulfur
royalty is conditioned upon sales of sulfur by Mobil Erdgas at a selling price
above an agreed upon base price. This base price is adjusted annually by an
inflation index. In the first three months of fiscal 2016 and 2015, the Trust
received no sulfur royalties under the Mobil Agreement. In the first quarter of
fiscal 2016, the Trust was entitled to receive royalties attributable to sulfur
sales during the third and fourth quarters of 2015. However, the operating
companies made an accounting error by including eastern Oldenburg sulfur sales
for the fourth quarter of 2011, all of 2012 and the first quarter of 2015 in the
calculation of the western sulfur royalties under the Mobil Sulfur Agreement.
This error resulted in an overpayment of sulfur royalties previously paid to the
Trust. This overpayment was matched against the current sulfur royalties
payable, and the remaining negative balance of $191,321 was applied against
other royalties paid during the first quarter of fiscal 2016.
Under another set of rights covering the entire Oldenburg concession
and pursuant to the agreement with OEG, the Trust receives royalties at the rate
of 0.6667% on gross receipts from sales by BEB of gas well gas, oil well
-12-
gas, crude oil, condensate and sulfur (removed during the processing of sour
gas) less a certain allowed deduction of costs (the "OEG Agreement"). Under the
OEG Agreement, 50% of the field handling, treatment and transportation costs, as
reported for state royalty purposes, are deducted from the gross sales receipts
prior to the calculation of the royalty to be paid to the Trust.
Under the Mobil and OEG Agreements, the gas is sold in one of three
ways: (1) directly on the spot market; (2) between Mobil Erdgas and BEB (intra-
company sales); or (3) directly to various distributors under contracts (which
delineate, among other provisions, the timing, manner, volume and price of the
gas sold). While gas supply contracts have in the past used the price of
light heating oil in Germany as one of the primary pricing components, we have
been advised that the number of such contracts now account for only a minor
percentage of all Oldenburg gas sales. In contrast, the price of gas sold on
the spot market or sold between Mobil Erdgas and BEB is largely determined by
the quoted market price of gas then trading as determined by supply and demand
and has no relationship to the price of oil.
The Trust itself does not have access to the specific sales contracts
under which gas from the Oldenburg concession is sold. However, working under
a confidentiality agreement with the operating companies, the Trust's German
accountants review the spot market sales, the intra-company sales and the
contractual sales periodically on behalf of the Trust to verify their
correctness. The Trust's accountants in Germany are in the process of
completing their examination of the operating companies for 2013 and 2014.
For unit owners, changes in the dollar value of the Euro have an
immediate impact. This impact occurs at the time the royalties, which are paid
to the Trust in Euros, are converted into U.S. dollars at the applicable
exchange rate and transferred from Germany to the United States. In relation
to the dollar, a stronger Euro would yield more dollars and a weaker Euro would
yield less dollars.
Seasonal demand factors affect the income from the Trust's royalty
rights insofar as they relate to energy demands and increases or decreases in
prices, but on average they are generally not material to the annual income
received under the Trust's royalty rights.
The Trust has no means of ensuring continued income from overriding
royalty rights at their present level or otherwise. The Trust's consultant in
Germany provides general information to the Trust on the German and European
economies and energy markets. This information provides a context in which to
evaluate the actions of the operating companies. The Trust's consultant
receives reports from EMPG with respect to current and planned drilling and
exploration efforts. However, EMPG and the operating companies continue to
limit the information flow to that which is required by German law.
The Trust has no means of ensuring continued income from overriding
royalty rights at their present level or otherwise. The Trust's consultant
in Germany provides general information to the Trust on the German and
European economies and energy markets. This information provides a context
in which to evaluate the actions of the operating companies. In his position
as the Trust's consultant, he receives reports from EMPG with respect to
current and planned drilling and exploration efforts. However, EMPG and the
operating companies continue to limit the information flow to that which is
required by German law.
-13-
The low level of administrative expenses of the Trust limits the
effect of inflation on costs. Sustained price inflation would be reflected in
sales prices. Sales prices along with sales volumes form the basis on which
the royalties paid to the Trust are computed.
Results: First Quarter of Fiscal 2016 Versus First Quarter of Fiscal 2015
-------------------------------------------------------------------------
Total royalty income received during the first quarter of fiscal 2016
was derived from sales of gas, sulfur and oil from the Trust's overriding
royalty areas in Germany during the fourth calendar quarter of 2015. The
distribution of $0.16 per unit was paid on February 24, 2016 to owners of
record as of February 12, 2016. Comparisons of total royalty income and net
income for the first quarter of fiscal 2016 and 2015 are shown below.
1st Fiscal Qtr. 1st Fiscal Qtr. Percentage
Ended 1/31/2016 Ended 1/31/2015 Change
-----------------------------------------------------------------------------
Total Royalties Received $1,832,471 $3,442,713 - 46.77%
Net Income $1,573,687 $3,096,916 - 49.19%
Distribution per Unit $0.16 $0.35 - 54.29%
-----------------------------------------------------------------------------
The decline in net income between the first quarter of fiscal 2016
and the first quarter of fiscal 2015 resulted primarily from lower gas sales,
lower gas prices and lower average exchange rates under both the Mobil and OEG
Agreements as shown in the table below. Additionally, an accounting error by
the operating companies resulted in an overpayment of sulfur royalties
previously paid to the Trust. This overpayment was matched against the current
sulfur royalties payable, and the remaining negative balance of $191,321 reduced
total royalties received by the Trust during the first quarter of fiscal 2016.
No sulfur payments were received during the first quarter of fiscal 2015.
"Total Royalties Received" also includes various positive and
negative adjustments that the operators made during the quarter, including
corrections from prior years. The net amount of such adjustments reduced
royalties received in the first quarter of fiscal 2016 by $369,582. The net
amount of such adjustments reduced royalties received in the first quarter of
fiscal 2015 by $200,209.
-14-
The table below is intended to illustrate trends based on actual gas
sales in each quarter. "Gas Royalties" shown in the table below are based
solely on the actual gas sales that occurred during the fourth calendar quarter
of 2015 and do not reflect any adjustments for prior periods.
-----------------------------------------------------------------------------
Quarterly Gas Data Providing Basis for Fiscal Quarter Royalties
-----------------------------------------------------------------------------
4th Calendar Qtr. 4th Calendar Qtr. Percentage
Mobil Agreement Ended 12/31/2015 Ended 12/31/2014 Change
-----------------------------------------------------------------------------
Gas Sales (Bcf)(1) 6.604 7.876 - 16.15%
Gas Prices (Ecents/Kwh)(2) 1.8649 2.3538 - 20.77%
Average Exchange Rates(3) 1.0881 1.2127 - 10.27%
Gas Royalties $1,538,701 $2,577,934 - 40.31%
Gas Prices ($/Mcf)(4) $ 5.82 $ 8.18 - 28.85%
-----------------------------------------------------------------------------
OEG Agreement
-----------------------------------------------------------------------------
Gas Sales (Bcf) 20.507 23.497 - 12.73%
Gas Prices (Ecents/Kwh) 1.9803 2.4808 - 20.17%
Average Exchange Rates 1.0874 1.1973 - 9.18%
Gas Royalties $668,112 $1,129,397 - 40.84%
Gas Prices ($/Mcf) $ 6.04 $ 8.33 - 27.49%
-----------------------------------------------------------------------------
(1) Billion cubic feet
(2) Euro cents per Kilowatt hour
(3) Based on average exchanges rates of cumulative royalty transfers
(4) Dollars per thousand cubic feet
Excluding the effects of differences in prices and average exchange
rates, the combination of royalty rates on gas sold from western Oldenburg
results in an effective royalty rate approximately seven times higher than the
royalty rate on gas sold from eastern Oldenburg. This is of particular
significance to the Trust since gas sold from western Oldenburg provides the
bulk of royalties paid to the Trust. For the first quarter of fiscal 2016, gas
sales from western Oldenburg accounted for only 32.21% of all gas sales.
However, royalties on these gas sales provided approximately 77.79% or
$1,499,728 out of a total of $1,928,031 in Oldenburg royalties attributable to
gas.
Trust expenses for the first quarter of fiscal 2016 decreased 25.58%
or $89,325 to $259,884 in comparison to $349,209 in the first quarter of fiscal
2015. The decrease in costs reflects a shift in the timing of payments
associated with the mailing of the materials for the annual meeting and the
payment of the NYSE annual fee as well as reduced legal expenses and a reduction
in the amount of Trustee fees as specified in the Trust Agreement. Trust
interest income received in the first quarter of fiscal 2016 was $1,100,
a decrease from interest income of $3,412 received in the first quarter of
fiscal 2015 due to reduced funds available.
The current Statement of Assets, Liabilities and Trust Corpus of the
Trust at January 31, 2016, compared to that at fiscal year-end (October 31,
2015), shows a decline in assets due to lower royalty receipts during the first
quarter of fiscal 2016.
-15-
-----------------------------------
This report on Form 10-Q may contain forward-looking statements
intended to qualify for the safe harbor from liability established by the
Private Securities Litigation Reform Act of 1995. Such statements address
future expectations and events or conditions concerning the Trust. Many of
these statements are based on information provided to the Trust by the
operating companies or by consultants using public information sources.
These statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from those anticipated in any
forward-looking statements. These include:
1. risks and uncertainties concerning levels of gas production
and gas sale prices, general economic conditions and currency
exchange rates;
2. the ability or willingness of the operating companies to
perform under their contractual obligations with the Trust;
3. potential disputes with the operating companies and the
resolution thereof; and
4. the risk factors set forth under Item 1A of the Trust's Annual
Report on Form 10-K for the year ended October 31, 2015.
All such factors are difficult to predict, contain uncertainties
that may materially affect actual results, and are generally beyond the
control of the Trust. New factors emerge from time to time and it is not
possible for the Trust to predict all such factors or to assess the impact
of each such factor on the Trust. Any forward-looking statement speaks only
as of the date on which such statement is made, and the Trust does not
undertake any obligation to update any forward-looking statement to reflect
events or circumstances after the date on which such statement is made.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
The Trust does not engage in any trading activities with respect to
possible foreign exchange fluctuations. The Trust does not use any financial
instruments to hedge against possible risks related to foreign exchange
fluctuations. The market risk is negligible because standing instructions at
the Trust's German bank require the bank to process conversions and transfers
of royalty payments as soon as possible following their receipt. The Trust
does not engage in any trading activities with respect to possible commodity
price fluctuations.
-16-
Item 4. Controls and Procedures.
-----------------------
The Trust maintains disclosure controls and procedures that are
designed to ensure that information required to be disclosed by the Trust is
recorded, processed, summarized, accumulated and communicated to its management,
which consists of the Managing Director, to allow timely decisions regarding
required disclosure, and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms.
The Managing Director has performed an evaluation of the effectiveness
of the design and operation of the Trust's disclosure controls and procedures as
of January 31, 2016 based on the criteria for effective internal control over
financial reporting described in the standards promulgated by the Public Company
Accounting Oversight Board and the Internal Control-Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on that evaluation, the Managing Director concluded that the Trust's
disclosure controls and procedures were effective as of January 31, 2016.
There have been no changes in the Trust's internal control over
financial reporting identified in connection with the evaluation described
above that occurred during the first quarter of fiscal 2016 that have materially
affected or are reasonably likely to materially affect the Trust's internal
control over financial reporting.
-17-
PART II -- OTHER INFORMATION
----------------------------
Item 1. Legal Proceedings.
-----------------
The Trust is not a party to any pending legal proceedings.
Item 6. Exhibits.
--------
Exhibit 31. Certification of Chief Executive Officer and
Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
Exhibit 32. Certification of Chief Executive Officer and
Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTH EUROPEAN OIL ROYALTY TRUST
---------------------------------
(Registrant)
/s/ John R. Van Kirk
---------------------------------
John R. Van Kirk
Managing Director
February 26, 2016