SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended October 31, 2006 or
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to .
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Commission file number 1-8245
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NORTH EUROPEAN OIL ROYALTY TRUST
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(Exact name of registrant as specified in its charter)
Delaware 22-2084119
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(State of organization) (IRS Employer Identification Number)
Suite 19A, 43 West Front Street, Red Bank, N.J. 07701
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: 732-741-4008
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Units of Beneficial Interest New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes No X
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Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No X
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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 .
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X .
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Indicate by check mark whether the registrant is an accelerated filer, or a
non-accelerated filer. See definition of "accelerated filer and large
accelerated filer" in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer Accelerated filer X Non-accelerated filer
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Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes No X
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As of April 28, 2006, the aggregate market value of outstanding units of
beneficial interest of the registrant held by non-affiliates of the
registrant was approximately $303,873,849 on such date.
As of December 30, 2006, there were 9,190,590 units of beneficial interest
("units") of the registrant outstanding.
Documents Incorporated by Reference
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Items 10, 11, 12, 13 and 14 of Part III have been partially or wholly omitted
from this report and the information required to be contained therein is
incorporated by reference from the Registrant's definitive proxy statement
dated January 10, 2007 for the annual meeting to be held on February 12, 2007.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business..................................................... 4
Item 1A. Risk Factors................................................. 8
Item 1B. Unresolved Staff Comments.................................... 10
Item 2. Properties................................................... 10
Item 3. Legal Proceedings............................................ 13
Item 4. Submission of Matters to a Vote of Security Holders.......... 13
PART II
Item 5. Market for Registrant's Units of Beneficial Interests,
Related Unit Owner Matters and Trust Purchases of Units
of Beneficial Interests..................................... 14
Item 6. Selected Financial Data...................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 17
Item 7A. Quantitative and Qualitative Disclosures About Market Risks.. 25
Item 8. Financial Statements and Supplementary Data.................. 26
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 37
Item 9A. Controls and Procedures...................................... 37
Item 9B. Other Information............................................ 39
PART III
Item 10. Directors and Executive Officers of the Registrant........... 40
Item 11. Executive Compensation....................................... 40
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.................. 41
Item 13. Certain Relationships and Related Transactions............... 41
Item 14. Principal Accountant Fees and Services....................... 41
PART IV
Item 15. Exhibits and Financial Statement Schedules................... 42
Signatures............................................................. 43
Exhibit Index.......................................................... 44
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PART I
Item 1. Business.
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(a) General Development of Business.
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Registrant (the "Trust") is a grantor trust which, on behalf of
the owners of beneficial interest in the Trust (the "unit owners"), holds
overriding royalty rights covering gas and oil production in certain
concessions or leases in the Federal Republic of Germany. The rights are
held under contracts with local German exploration and development
subsidiaries of ExxonMobil Corp. ("ExxonMobil") and the Royal Dutch/Shell
Group of Companies ("Royal Dutch/Shell Group"). 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, distillate and
sulfur. See Item 2 of this Report for descriptions of certain of these
contracts.
The royalty rights were received by the Trust from North European
Oil Company (the "Company") upon dissolution of the Company in September,
1975. The Company was organized in 1957 as the successor to North European
Oil Corporation (the "Corporation"). The Trust is administered by trustees
(the "Trustees") under an Agreement of Trust dated September 10, 1975,
amended May 13, 1976 and February 10, 1981 and as deemed amended pursuant to
the Delaware Court of Chancery Order dated February 26, 1996 (the "Trust
Agreement").
Neither the Trust nor the Trustees on behalf of the Trust conduct
any active business activities or operations. The function of the Trustees is
to monitor, verify, collect, hold, invest and distribute the royalty payments
made to the Trust. Under the Trust Agreement, the Trustees make quarterly
distributions of the net funds received by the Trust on behalf of the unit
owners. Funds temporarily held by the Trust are invested in interest bearing
bank deposits, certificates of deposit, U.S. Treasury Bills or other
government obligations.
There has been no significant change in the principal operation or
purpose of the Trust during the past fiscal year.
During the past several years, the Securities and Exchange
Commission (the "SEC") finalized rules implementing legislation concerning
governance matters for publicly held entities that was passed as part of the
Sarbanes-Oxley Act of 2002 ("SOX"). The Trust is complying with the
requirements of the SEC and SOX and at this time the Trustees have chosen not
to request any relief from those provisions based on the passive nature of
the Trust and the fact that it conducts no active business. In that
connection, the Trustees have directed that the additional statements and
disclosures set forth or incorporated by reference in this Report, which the
SEC requires of corporations, be made even though some of such statements and
disclosures might not now or in the future be required to be made by the
Trust.
In addition, the New York Stock Exchange (the "NYSE"), where units
of beneficial interest of the Trust are listed for trading, has adopted
additional corporate governance rules as set forth in Section 303A of
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the NYSE Listed Company Manual. Most of the governance requirements
promulgated by the NYSE are not applicable to the Trust which is a passive
entity acting as a royalty trust and only holds overriding royalty rights.
The Trust does not engage in any operating or active business. The Trustees
have, however, chosen to constitute an Audit and a Compensation Committee.
(b) Financial Information about Industry Segments.
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Since the Trust conducts no active business operations, an analysis
by segments is accordingly not applicable to the Trust. To the extent that
royalty income received by the Trust is attributable to sales of different
products, to sales from different geographic areas or to sales by different
operating companies, this information is set forth in Item 2 of this Report
and the Exhibit described in that Item 2.
(c) Narrative Description of Business.
---------------------------------
Under the Trust Agreement, the Trust conducts no active business
operations and is restricted to collection of income from royalty rights and
distribution to unit owners of the net income after payment of administrative
and related expenses.
The overriding royalty rights held by the Trust are derived from
contracts and agreements originally entered into by German subsidiaries of
the predecessor Corporation during the early 1930's. Some of these royalty
rights are based on leases which have passed their original expiration dates.
However, the leases remain in effect as long as there is continued production
or the lessor does not cancel the lease. Individual lessors will normally
not seek termination of the rights originally granted because the leases
provide for royalty payments to the lessors if sales of oil or gas result
from discoveries made on the leased land. Additionally, termination by
individual lessors would result in the escheat of mineral rights to the State.
The remainder of the Trust's royalty rights are based on government granted
concessions which remain in effect as long as there are continued production
activities and/or exploration efforts by the operating companies. It is
generally anticipated that the operating companies will continue production
where it remains economically profitable for them to do so.
Royalties are paid to the Trust on sales from production under
these leases and concessions by the operating companies on a regular monthly
or quarterly basis pursuant to the royalty agreements. Since January 2001,
the operating companies have been making royalty payments to the Trust
exclusively in Euros. Once deposited in the Trust's bank account in Germany,
the Euros are converted into U.S. dollars at the rate in effect on the date
of transfer. The Trust does not engage in activities to hedge against
currency risk or similar transactions and the fluctuations in the conversion
rate impact its financial results. The Trust has not experienced any
difficulty in effecting the conversion into U.S. dollars.
As the holder of overriding royalty rights, the Trust has no legal
ability, whether by contract or operation of law, to compel production.
Moreover, if an operator should determine to terminate production in any
concession or lease area and to surrender the concession or lease, the
royalty rights for that area would thereby be terminated. Under certain
royalty agreements, the operating companies are required to advise the Trust
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of any intention to surrender lease or concession rights. While the Trust
itself is precluded from undertaking any production activities, possible
residual rights might permit the Trust to take up a surrendered concession
or lease and attempt to retain a third party operator to develop such
concession or lease.
In the last three years, when offered the opportunity to exercise
residual rights at the time of abandonment of four minor non-productive
leases, the Trust found that, due to the size of the leases, the lack of
any current production or hydrocarbon potential and the lack of interest by
alternate operating companies, it was appropriate to accede to the surrender
of these leases.
The exploration for and the production of gas and oil is a
speculative business. The Trust has no means of ensuring continued income
from its royalty rights at either their present levels or otherwise. In
addition, fluctuations in prices and supplies of gas and oil and the effect
these fluctuations might have on royalty income to the Trust and on reserves
net to the Trust cannot be accurately projected. The Trustees have no
information with which to make any projections beyond information on economic
conditions which is generally available to the public and thus are unwilling
to make any such projections.
While Germany has laws relating to environmental protection, the
Trustees have no detailed information concerning the present or possible
effect of such laws on operations in areas where the Trust holds royalty
rights on production and sale of products from those areas.
Seasonal demand factors affect the income from royalty rights
insofar as they relate to energy demands and increases or decreases in prices,
but on average they are not material to the regular annual income received
under the royalty rights.
The Trust, either itself or in cooperation with holders of parallel
royalty rights, arranges for periodic reviews of the books and records of the
operating companies to verify compliance with the computation provisions of
the applicable agreements. From time to time, these examinations disclose
computational errors or errors from inappropriate application of existing
agreements and appropriate adjustments are requested and made.
(d) Financial Information about Foreign and Domestic Operations and
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Export Sales.
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The Trust does not engage in any active business operations, and its
sources of income are the overriding royalty rights covering gas, sulfur and
oil production in certain areas in Germany and interest on the funds
temporarily invested by the Trustees. In Item 2 of this Report, there is a
schedule (by product, geographic area and operating company) showing the
royalty income received by the Trust during the fiscal year ended
October 31, 2006.
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(e) Executive Officers and Trustees of the Trust.
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As specified in the Trust Agreement, the affairs of the Trust are
managed by not more than five individual Trustees who receive compensation
determined under that same agreement. One of the Trustees is designated as
Managing Trustee and receives additional compensation in such capacity.
Robert P. Adelman, who is 76 years old, was elected by the Trustees as
Managing Trustee on November 1, 2006. Day-to-day matters are handled by the
Managing Director, John R. Van Kirk. John R. Van Kirk, who is 54 years old,
has held the position of Managing Director of the Trust since November 1990.
John H. Van Kirk retired from the position of Managing Trustee effective
October 31, 2006 and assumed the consulting position of Founding Trustee
Emeritus. John H. Van Kirk is the father of John R. Van Kirk.
The Managing Director provides office space and services at cost to the
Trust. In addition to the Managing Director, the Trust has one
administrative employee in the United States. The Trust also maintains a
part-time consultancy relationship with an expert in Germany from whom it
receives reports on a regular basis. Because the Trust has only two
employees, employee relations or labor contracts are not directly material to
the business or income of the Trust. The Trustees have no specific
information concerning employee relations of the operating companies.
(f) Available Information.
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The Trust maintains a website at www.neort.com. The Trust's annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form
8-K and related amendments are available free of charge through the Trust's
website as soon as reasonably practicable after such reports are filed with
or furnished to the SEC. The Trust's Code of Conduct and Business Ethics,
the Trustees' Regulations and the Trust's Audit Committee Charter are also
available on the Trust's website. The Trust's website and the information
contained in it and connected to it shall not be deemed incorporated by
reference into this Form 10-K.
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Item 1A. Risk Factors.
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The results of operations and financial condition of the Trust are
subject to various risks. Some of these risks are described below, and you
should take such risks into account in evaluating the Trust or any investment
decision involving the Trust. This section does not describe all risks that
may be applicable to the Trust and it is intended only as a summary of certain
material risk factors. More detailed information concerning the risk factors
described below is contained in other sections of this Annual Report on
Form 10-K.
The Trust does not conduct any active business activities or operations and
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has no legal ability to compel production.
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The Trust holds overriding royalty rights only. It is a passive
entity and conducts no operations. It can exert no influence on the operating
companies that conduct exploration, drilling, production and sales activities
in the areas covered by the Trust's overriding royalty rights. Thus, the
Trust has no means of ensuring continued income from overriding royalty
rights. The failure of an operator to conduct its operations, discharge its
obligations, deal with regulatory agencies or comply with laws, rules and
regulations, including environmental laws and regulations, in a proper manner
could have an adverse effect on the net proceeds payable to the Trust. The
Trust also has no right to remove or replace an operator.
The current operating companies are under no obligation to continue
operations on the royalty areas. The production and sale of proved producing
reserves of natural gas, from which the Trust derives its royalties, reduces
the amount of remaining reserves. If the operating companies do not perform
additional development projects which replace at least a portion of the
current production, the anticipated life of the Trust will not be extended
and could be shortened. Absent further additions to the amount of proved
producing reserves, production and sales will reach a point in the future
where the level of sales will no longer be commercially viable and production
will cease.
Trust reserve estimates depend on many assumptions that may prove to be
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inaccurate, and these inaccuracies may cause errors in the reserve estimates.
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The value of Trust units may depend in part on the reserves
attributable to the royalty areas. The calculations performed in the process
of estimating proved producing reserves are inherently uncertain. The
accuracy of any reserve estimate is a function of the quality of available
data, engineering interpretation and judgment, and the assumptions used
regarding the quantities of recoverable natural gas and the future prices of
crude oil and natural gas. The Trust receives monthly and quarterly reports
from the operating companies with respect to production and sales on either a
well-by-well or a field-wide basis. The Trust also receives semi-annual
reports from the operating companies with respect to current and planned
drilling and exploration efforts. These reports are very limited in nature.
The unified exploration and production venture, ExxonMobil Production
Deutschland GmbH (EMPG), which provides these reports to the Trust, continues
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to limit the information flow to that which is required by German law, and
the Trust has no legal or contractual right to compel the issuance of
additional information. The Trust's inability to compel the delivery of
detailed information with respect to individual wells increases the
likelihood of inaccuracy in the petroleum engineering consultant's
estimates of reserves.
Actual production, revenues and expenditures by the operating
companies for the royalty areas, and therefore actual net proceeds payable to
the Trust, will vary from estimates and those variations could be material.
Fluctuations in prices of gas and oil and the effect of these fluctuations on
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royalty income to the Trust cannot be accurately projected.
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The Trust's distributions are highly dependent upon the prices
realized from the sale of natural gas and a decrease in such prices could
reduce the amount of cash distributions paid to unit owners.
Oil and natural gas prices can fluctuate widely in response to a
variety of factors that are beyond the control of the Trust. Factors that
contribute to price fluctuations include, among others: (1) political
conditions in major oil producing regions, especially in the Middle East;
(2) worldwide and German economic conditions; (3) weather conditions;
(4) the price of oil or natural gas imported into Germany; and (5) the level
of consumer demand in Germany.
When oil and natural gas prices decline, the Trust is affected in
two ways. First, net income from the royalty areas is reduced. Second,
exploration and development activity by the operating companies on the
royalty areas may decline as some projects may become uneconomic and are
either delayed or eliminated. It is impossible to predict future oil and
natural gas price movements, and this, along with other factors, make future
cash distributions to unit owners impossible to predict.
Changes in the value of the Euro have both an immediate and long term impact
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on the Trust.
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For unit owners, changes in the value of the Euro have both an
immediate and long term impact. The immediate impact is from the exchange
rate that is applied at the time the royalties paid to the Trust in Euros are
converted into U.S. dollars at the time of their transfer from Germany to the
United States. A higher exchange rate would yield more dollars and a lower
exchange rate less dollars. The long term impact relates to the mechanism of
gas pricing. Since oil on the international market is priced in dollars, a
weaker Euro would mean that oil imported into Germany is more expensive.
A stronger Euro would mean that oil imported into Germany is less expensive.
These changes in the price of oil in Germany are subsequently reflected in
the price of light heating oil, which is used as a component in the
calculation of gas prices in the contracts under which the gas is sold.
The changes in German domestic light heating oil prices are in turn reflected
in gas prices with a built-in delay of three to six months.
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Item 1B. Unresolved Staff Comments.
-------------------------
None
Item 2. Properties.
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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 ExxonMobil, or by Oldenburgische Erdolgesellschaft
("OEG"). As a result of direct and indirect ownership, ExxonMobil owns two-
thirds of OEG and the Royal Dutch/Shell Group owns one-third of OEG. The
Oldenburg concession (1,398,000 acres), covering virtually the entire former
State of Oldenburg and located in the federal state of Lower Saxony, is the
major source of royalty income for the Trust. BEB Erdgas und Erdol GmbH
("BEB"), a joint venture in which ExxonMobil and the Royal Dutch/Shell Group
each owns 50%, administers the concession held by OEG. In 2002, Mobil Erdgas
and BEB formed EMPG to carry out all exploration, drilling and production
activities. All sales activities are still handled by either Mobil Erdgas or
BEB.
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 account for
approximately 99% of all the royalties under said agreement. Historically,
the Trust has received significantly greater royalty payments under the Mobil
Agreement due to the higher royalty rate specified by that agreement. The
Trust is also entitled under the Mobil 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. When the average selling price falls below the
adjusted base price, no royalties are payable. No payments were received
from the sale of sulfur under this agreement during fiscal 2006.
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 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.
The Trust also holds through Mobil Erdgas a 2% royalty interest in
oil and gas sales from acreage in Bavaria, and a 0.2117% royalty under the
net interest of the Bayerische Mineral Industries A.G. ("BMI"), a subsidiary
of Mobil Erdgas, in concessions in Bavaria. The net interest of BMI ranges
from 16-1/2 to 100% of the sales, depending on the geographic region or area.
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Due to the absence of royalty income under these agreements, reserves from
these areas in Bavaria are not included in reserve calculations for this
report year. While both Mobil Erdgas and BMI have suspended production in
their concessions in Bavaria, the concessions remain even though there are no
current exploration or development activities in these areas. No royalties
have been received under these concessions since 1996.
In addition to the areas of Oldenburg and Bavaria, the Trust also
holds overriding royalties at various rates on a number of leases of various
sizes in other areas of northwest Germany. At the present time, all but one
of these leases are in the non-producing category. Due to the low level of
income and the intermittent gas production from the single producing lease,
reserves from this lease are not included in reserve calculations for this
report year.
The following is a schedule of royalty income for the fiscal year
ended October 31, 2006 by product, geographic area and operating company:
BY PRODUCT:
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Product Royalty Income
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Gas Well and Oil Well Gas $ 30,523,382
Sulfur $ 258,258
Oil $ 297,482
BY GEOGRAPHIC AREA:
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Area Royalty Income
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Western Oldenburg $ 25,687,690
Eastern Oldenburg $ 5,310,224
Non-Oldenburg Areas $ 81,208
BY OPERATING COMPANY:
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Company Royalty Income
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Mobil Erdgas (under the Mobil Agreement) $ 22,069,442
BEB (under the OEG Agreement) $ 9,009,680
Exhibit 99.1 to this Report is a report entitled The Calculation of
Cost Depletion Percentage for the 2006 Calendar Year Based on the Estimate
of Remaining Proved Producing Reserves in the Northwest Basin of the Federal
Republic of Germany as of October 1, 2006 (the "Cost Depletion Report").
The Cost Depletion Report, dated December 15, 2006, was prepared by
Ralph E. Davis Associates, Inc., 1717 St. James Place, Suite 460, Houston,
Texas 77056 ("Davis Associates"). Davis Associates is an independent
petroleum and natural gas consulting organization specialized in analyzing
hydrocarbon reserves.
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The Cost Depletion Report provides documentation supporting the
calculation of the cost depletion percentage for the 2006 calendar year based
on the use of certain production data and the estimated net proved producing
reserves as of October 1, 2006 for the primary area in which the Trust holds
overriding royalty rights. The cost depletion percentage is prepared for the
Trust's unit owners for tax reporting purposes. In order to permit timely
filing of the Cost Depletion Report and consistent with the practice of the
Trust in prior years, the information has been prepared for the 12-month
period ended September 30, 2006, which is one month prior to the end of the
fiscal year of the Trust. Unit owners are referred to the full text of the
Cost Depletion Report contained herein for further details.
The primary purpose of the Cost Depletion Report is the preparation
of the cost depletion percentage. The only information provided to the Trust
that can be utilized in the calculation of the cost depletion percentage is
current and historical production and sales of proved producing reserves.
Pursuant to the arrangements under which the Trust holds royalty rights and
due to the fact that the Trust is not considered an operating company within
Germany, it has no access to the operating companies' proprietary information
concerning producing field reservoir data. The Trustees have been advised
that publication of such information is not required under applicable law in
Germany and that the royalty rights do not grant the Trust the right to
require or compel the release of such information. Past efforts to obtain
such information have not been successful. The information made available to
the Trust by the operating companies does not include any of the following:
reserve estimates, capitalized costs, production cost estimates, revenue
projections, producing field reservoir data (including pressure data,
permeability, porosity and thickness of producing zone) or other similar
information. While the limited information available to the Trust permits
the calculation of the cost depletion percentage, it does not change the
uncertainty with respect to the estimate of proved producing reserves. In
addition, it is impossible for the Trust or its consultant to make estimates
of proved undeveloped or probable future net recoverable oil and gas by
appropriate geographic areas.
The Trust has the authority to examine, but only for certain
limited purposes, the operating companies' sales and production from the
royalty areas. The Trust also has access to published materials in Germany
from W.E.G. (a German organization equivalent to the American Petroleum
Institute or the American Gas Association). The use of such statistical
information relating to production and sales necessarily involves
extrapolations and projections. Both Davis Associates and the Trustees
believe the use of the material available is appropriate and suitable for
preparation of the cost depletion percentage and the estimates described in
the Cost Depletion Report. Both the Trustees and Davis Associates believe
this report and these estimates to be reasonable and appropriate but assume
that these estimates may vary from statistical estimates which could be made
if reservoir production information (of the kind normally available to
domestic producing companies) were available. The limited information
available makes it inappropriate to make projections or estimates of proved
or probable reserves of any category or class other than the estimated net
proved producing reserves described in the Cost Depletion Report.
Attachment A of the Cost Depletion Report shows a schedule of
estimated net proved producing reserves of the Trust's royalty properties,
computed as of October 1, 2006 and a five year schedule of gas, sulfur and
oil sales for the twelve months ended September 30, 2006, 2005, 2004, 2003
and 2002 computed from quarterly sales reports of operating companies
received by the Trust during such periods.
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Item 3. Legal Proceedings.
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See Note 3 to the Financial Statements contained in Item 8 of this
Report for further information.
Item 4. Submission of Matters to a Vote of Security Holders.
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None.
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PART II
Item 5. Market for the Registrant Trust's Units of Beneficial Interest,
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Related Unit Owner Matters and Trust Purchases of Units of
----------------------------------------------------------
Beneficial Interest.
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The Trust's units of beneficial interest are traded on the New York
Stock Exchange under the symbol NRT. In addition, the Midwest Stock
exchange and the Boston Exchange have granted unlisted trading privileges in
the Trust units.
Under the Trust Agreement the Trustees distribute to unit owners,
on a quarterly basis, the net royalty income after deducting expenses and
reserving limited funds for anticipated administrative expenses.
The following table presents the high and low closing prices for
the quarterly periods ended in fiscal 2006 and 2005 as reported by the NYSE
as well as the cash distributions paid to unit owners by quarter for the past
two fiscal years.
FISCAL YEAR 2006
----------------
Low High Distribution
Closing Closing Per
Quarter Ended Price Price Unit
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January 31, 2006 $25.25 $30.50 $0.85
April 30, 2006 $26.85 $33.50 $0.88
July 31, 2006 $31.25 $42.75 $0.77
October 31, 2006 $31.03 $43.75 $0.78
FISCAL YEAR 2005
----------------
Low High Distribution
Closing Closing Per
Quarter Ended Price Price Unit
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January 31, 2005 $21.80 $23.90 $0.54
April 30, 2005 $23.55 $27.05 $0.69
July 31, 2005 $26.25 $31.10 $0.57
October 31, 2005 $27.20 $34.25 $0.42
The quarterly distributions to unit owners represent their
undivided interest in royalty payments from sales of gas, sulfur and oil
during the previous quarter. Each unit owner is entitled to recover a
portion of his or her investment in these royalty rights through a cost
depletion percentage. The calculation of this cost depletion percentage is
set forth in detail in Attachment B to the Cost Depletion Report attached as
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Exhibit 99.1. This report has been prepared by Davis Associates using the
limited information described in Item 2 of this Report to which reference is
made. The Trustees believe that the calculations and assumptions used in
this report are reasonable according to the facts and circumstances of
available information. The cost depletion percentage recommended by the
Trust's independent petroleum and natural gas consultants for calendar 2006
is 9.0126%. Specific details relative to the Trust's income and expenses and
cost depletion percentage as they apply to the calculation of taxable income
for the 2006 calendar year are included on a special removable page in the
2006 Annual Report under "Note to Unit Owners." A separate letter containing
the same information has been sent to all unit owners who were registered at
any time during calendar 2006 and who are no longer registered owners as of
the end of the calendar year. Additionally, the tax reporting information
for 2006 is available on the Trust's website, www.neort.com.
As of November 30, 2006, there were 1,174 unit owners of record.
The Trust does not maintain any compensation plans under which
units are authorized for issuance. The Trust, as a matter of practice, does
not make any repurchases of Trust units and did not make any repurchases of
Trust units during fiscal 2006, 2005 or 2004.
- 16 -
Item 6. Selected Financial Data.
-----------------------
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
SELECTED FINANCIAL DATA (CASH BASIS)
------------------------------------
FOR FIVE FISCAL YEARS ENDED OCTOBER 31, 2006
----------------------------------------------
2006 2005 2004 2003 2002
----------- ----------- ----------- ----------- -----------
German gas, sulfur
and oil
royalties
received $31,079,122 $21,085,039 $15,061,209 $18,169,035 $17,435,504
=========== =========== =========== =========== ===========
Net Income on a
cash basis $30,258,944 $20,222,814 $14,307,658 $17,398,359 $16,885,776
=========== =========== =========== =========== ===========
Net Income per unit
on a cash
basis (a) $3.29 $2.20 $1.60 $1.95 $1.89
===== ===== ===== ===== =====
Units of beneficial
interest
outstanding
at end
of year (a) 9,190,590 9,180,876 8,933,310 8,931,414 8,931,414
Cash distributions paid
or to be paid:
Dividends and distributions
per unit paid
to formerly
unlocated
unit owners .02 .02 .01 .00 .00
Distributions per
unit paid or
to be paid to
unit owners $3.28 $2.22 $1.59 $1.95 $1.89
===== ===== ===== ===== =====
Total assets
at year
end $7,204,251 $3,920,268 $3,014,387 $4,063,767 $3,458,578
========== =========== =========== =========== ==========
(a) Net income per unit on a cash basis was calculated based on the number
of units outstanding at the end of the fiscal year.
- 17 -
Item 7. 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. 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 the Trustees hold
pursuant to the Trust Agreement on behalf of the unit owners, are overriding
royalty rights on the 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 or by OEG. In 2002, Mobil Erdgas
and BEB formed a company 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.
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 provides approximately 98% of the total royalties. The amount of
royalties paid to the Trust is 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. 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 (1,398,000 acres)
covers virtually the entire former state of Oldenburg and is located in the
federal state of Lower Saxony.
Under the Mobil Agreement covering the western part of the
Oldenburg concession, 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. Under the Mobil Agreement there is no deduction of costs
prior to the calculation of royalties from gas well gas and oil well gas.
Historically, the Trust has received significantly greater royalty payments
under the Mobil Agreement due to the higher royalty rate specified by the
agreement.
Under the OEG Agreement covering the entire Oldenburg concession,
the Trust receives royalties at the rate of 0.6667% on gross receipts from
sales of gas well gas, oil well gas, crude oil, condensate and sulfur
(removed during the processing of sour gas) less a certain allowed deduction
of costs. Under the OEG Agreement, 50% of the field handling, treatment and
transportation costs as reported by OEG for state royalty purposes are
deducted from the gross sales receipts prior to the calculation of the
royalty to be paid to the Trust.
- 18 -
The gas is sold to various distributors under long term contracts
which delineate, among other provisions, the timing, manner, volume and price
of the gas sold. The pricing mechanisms contained in these contracts include
a delay factor of three to six months and use the price of light heating oil
in Germany as one of the primary pricing components. Since Germany must
import a large percentage of its energy requirements, the U.S. dollar price
of oil on the international market has a significant impact on the price of
light heating oil and a delayed impact on the price of gas. The Trust itself
does not have access to the specific sales contracts under which gas from the
Oldenburg concession is sold. These contacts are reviewed periodically on
behalf of the Trust by Ernst & Young AG to verify the correctness of
application of the Agreement formulas for the computation of royalty
payments.
For unit owners, changes in the value of the Euro have both an
immediate and long term impact. The immediate impact is from the exchange
rate that is applied at the time the royalties paid to the Trust in Euros are
converted into dollars at the time of their transfer from Germany to the
United States. A higher exchange rate would yield more dollars and a lower
exchange rate less dollars. The long term impact relates to the mechanism of
gas pricing. Since oil on the international market is priced in dollars, a
weaker Euro would mean that oil imported into Germany is more expensive.
A stronger Euro would mean that oil imported into Germany is less expensive.
These changes in the price of oil in Germany are subsequently reflected in
the price of light heating oil, which is used as a component in the
calculation of gas prices in the contracts under which the gas is sold.
The changes in German domestic light heating oil prices are in turn reflected
in gas prices with a built-in delay of three to six months.
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 not material to the annual income received
under the Trust's royalty rights.
Historically, another requirement for funds by the Trust related to
the occasional necessity of making lump sum payments of arrearages of
dividends of a corporate predecessor and distributions previously declared by
the Trust. The payment of such arrearages required a reduction in the amount
of distributions which otherwise would be made on presently outstanding
units. However, except for one claim begun before the cut-off date of
June 30, 2005 and concluded during the first quarter of fiscal 2006, pursuant
to the provisions of the order of the Delaware Court of Chancery of
April 17, 1996, further liability for payment of dividends or distributions
arrears has been eliminated. For further information on this contingent
liability and the impact of the Delaware Court Order see Note 3 to
Financial Statements in Item 8 of this Report.
The Trust has no means of ensuring continued income from overriding
royalty rights at their present level or otherwise. The Trust's current
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 consultant he receives reports from the operating companies
with respect to current and planned drilling and exploration efforts.
However, the unified exploration and production venture, EMPG, which provides
the reports to the Trust's consultant, continues to limit the information
flow to that which is required by German law.
- 19 -
The relatively low level of administrative expenses of the Trust
limits the effect of inflation on its financial prospects. Continued price
inflation would be reflected in sales prices, which with sales volumes form
the basis on which the royalties paid to the Trust are computed. The impact
of inflation or deflation on energy prices in Germany is delayed by the use in
certain long-term gas sales contracts of a delay factor of three to six months
prior to the application of any changes in light heating oil prices to gas
prices.
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.
Results: Fiscal 2006 versus Fiscal 2005
----------------------------------------
For fiscal 2006, the Trust's gross royalty income increased 47% to
$31,079,122 from $21,085,039 in fiscal 2005. Increases in gas prices and gas
sales offset the slight decline in average exchange rates and combined to
increase the amount of royalty income, which resulted in the higher
distributions.
Under the Mobil Agreement, the higher royalty rate agreement with
Mobil Erdgas covering western Oldenburg, gas sales increased 7.74% to 73.282
Billion cubic feet ("Bcf") in fiscal 2006 from 68.019 Bcf in fiscal 2005.
Other than the current year's third quarter when the annual maintenance was
conducted at the Grossenkneten desulfurization plant, each quarter's gas
sales showed increases over the prior year's equivalent period. The contrast
in gas sales for the third and fourth quarters in fiscal 2005 and 2006
reflects the shift in normal scheduling of maintenance at the desulfurization
plant from the third quarter to the fourth quarter in fiscal 2005. The 2006
maintenance was conducted during the third quarter of fiscal 2006.
Quarterly and Yearly Gas Sales under the Mobil Agreement
--------------------------------------------------------
Fiscal Quarter 2006 Gas Sales(Bcf.) 2005 Gas Sales(Bcf.) Percentage Changed
-------------- -------------------- -------------------- ------------------
First 19.540 17.333 12.73%
Second 19.016 17.639 7.81%
Third 17.613 18.325 -3.89%
Fourth 17.113 14.722 16.24%
Fiscal Year Total 73.282 68.019 7.74%
The overall increase in western gas sales can be explained at least partially
by the full functioning of the compressors completed in early fiscal 2005 and
the additional production from the western wells completed in the last two
years.
- 20 -
Average gas prices for gas sold from this royalty area increased
45.28% to 2.1178 Euro cents per kilowatt hour ("Ecents/Kwh") in fiscal 2006
from 1.4577 Ecents/Kwh in fiscal 2005. For fiscal 2006, the average gas
price for each quarter posted an increase over the prior year's corresponding
quarter. The run up in world oil prices during late 2005 and 2006 accounted
for much of this increase.
Average Gas Prices under the Mobil Agreement
--------------------------------------------
2006 Gas Prices 2005 Gas Prices
Fiscal Quarter (Ecents/Kwh) (Ecents/Kwh) Percentage Change
-------------- --------------- --------------- -----------------
First 2.0456 1.3010 57.23%
Second 2.2743 1.5258 49.06%
Third 2.0417 1.4738 38.54%
Fourth 2.1046 1.5397 36.69%
Fiscal Year Avg. 2.1178 1.4577 45.28%
Converting gas prices into more familiar terms using the average exchange rate
yields a price of $7.50/Mcf, a 41.1% increase over fiscal 2005's average price
of $5.31/Mcf. For fiscal 2006, the average value of the Euro based on the
transfer of royalties received from western Oldenburg gas sales was $1.2313
down 3.0% from the average value of $1.2694 for fiscal 2005.
Under the OEG Agreement, the lower royalty rate agreement with BEB
covering the entire Oldenburg concession, gas sales increased 11.02% from
160.762 Bcf in fiscal 2005 to 178.472 Bcf in fiscal 2006. Current year
quarterly gas sales showed increases for each quarter over the prior year's
corresponding quarter. The contrast in gas sales for the third and fourth
quarters in fiscal 2005 and 2006 reflects the shift in normal scheduling of
maintenance at the desulfurization plant from the third quarter to the fourth
quarter in fiscal 2005. The 2006 maintenance was conducted during the third
quarter of fiscal 2006.
Quarterly and Yearly Gas Sales under the OEG Agreement
------------------------------------------------------
Fiscal Quarter 2006 Gas Sales(Bcf.) 2005 Gas Sales(Bcf.) Percentage Changed
-------------- --------------------- --------------------- ------------------
First 47.876 44.215 8.28%
Second 46.775 43.045 8.67%
Third 42.563 41.909 1.56%
Fourth 41.258 31,593 30.59%
Fiscal Year Total 178.472 160.762 11.02%
Average gas prices for gas sold from the entire Oldenburg concession
increased 43.79% to 2.1961 Ecents/Kwh in fiscal 2006 from 1.5272 Ecents/Kwh in
fiscal 2005. For fiscal 2006, the average gas price for each quarter posted
an increase over the prior year's corresponding quarter.
Average Gas Prices under the OEG Agreement
------------------------------------------
2006 Gas Prices 2005 Gas Prices
Fiscal Quarter (Ecents/Kwh) (Ecents/Kwh) Percentage Change
-------------- --------------- --------------- -----------------
First 2.1240 1.4169 49.91%
Second 2.3088 1.6018 44.13%
Third 2.1900 1.5216 43.93%
Fourth 2.1582 1.5874 35.96%
Fiscal Year Avg. 2.1961 1.5272 43.79%
- 21 -
Converting gas prices into more familiar terms using the average exchange
rate yields a price of $7.620/Mcf, a 40.1% increase over fiscal 2005's
average price of $5.44/Mcf. For fiscal 2006, the average value of the Euro
based on the transfer of royalties received from overall Oldenburg gas sales
was $1.2362 down 2.5% from the average value of $1.2680 for fiscal 2005.
Reflecting both greater sums available for investment and higher
interest rates, interest income for fiscal 2006 was substantially higher
increasing 176.3% to $164,021 for fiscal 2006 from $59,353 for fiscal 2005.
Trust expenses increased 6.8% to $984,199 in fiscal 2006 from $921,578 in
fiscal 2005. While most expense categories showed reductions, the change to
new auditors (effective July 18, 2006) required additional review of
financial results from the first two quarters, which added to total auditor
fees. German legal fees increased as a result of inquiries into and
evaluation of the Trust's interest in certain minor leases scheduled for
abandonment by the operating companies. In addition, Trustee fees, which are
calculated based upon a formula specified in the Trust Agreement, were higher
due to the increase in gross royalty income.
The operating companies provide reports to the Trust's German
consultant detailing their plans for exploration and drilling for the
upcoming calendar year and the results of that program for the current
calendar year. The Trust's consultant has extracted the following
information from those reports. EMPG has budgeted for the drilling of four
new wells in 2007. Goldenstedt Z-7a will be the second well to explore the
Carboniferous zone in eastern Oldenburg. Drilling is scheduled to start in
January 2007. Varnhorn Z-7a will be the third well to explore the
Carboniferous zone in eastern Oldenburg and will begin after the completion
of Goldenstedt Z-7a. Hemmelte NW Z-1 is scheduled to begin drilling in the
second half of 2007. This well is located in western Oldenburg and is
intended to explore both the Bunter (sweet gas) zone and the Zechstein (sour
gas) zone. Once gas testing of the shallower Bunter zone is completed, the
well will continue to the deeper Zechstein zone and commence a horizontal
deviation of 1,000 meters. Final depth is anticipated to be nearly 12,000
feet. Once additional seismic interpretation and mapping are completed,
Quadmoor Z-5 will be drilled as a production well within an existing
field in eastern Oldenburg.
Results: Fiscal 2005 versus Fiscal 2004
----------------------------------------
For fiscal 2005, the Trust's gross royalty income increased 40%
to $21,085,069 from $15,061,209 in fiscal 2004. Increases in gas prices
under both the higher and lower royalty rate agreements, higher gas sales
from the higher royalty rate area of western Oldenburg and a higher average
value for the Euro resulted in the higher royalty income and, as a result,
higher distributions. The only negative factor impacting royalty income was
lower gas sales from eastern Oldenburg.
- 22 -
Under the Mobil Agreement, gas sales increased 6.61% to 68.019 Bcf
in fiscal 2005 from 63.801 Bcf in fiscal 2004. Gas sales strengthened each
quarter throughout fiscal 2005 until the final quarter when maintenance work
at the desulfurization plant slowed production. The following table shows
quarterly gas sales and the changes from the prior year's equivalent quarters.
Quarterly and Yearly Gas Sales under the Mobil Agreement
--------------------------------------------------------
Fiscal Quarter 2005 Gas Sales(Bcf.) 2004 Gas Sales(Bcf.) Percentage Change
-------------- -------------------- -------------------- -----------------
First 17.333 18.417 -5.88%
Second 17.639 17.277 2.10%
Third 18.325 15.159 20.88%
Fourth 14.722 12.948 13.70%
Fiscal Year Total 68.019 63.801 6.61%
The Trust's management believes that this turnaround is at least
partially the result of the new compressors that came on line in late 2004 and
the new western wells completed in 2004. Average gas prices for Western
Oldenburg increased 21.09% to 1.4577 Ecents/Kwh in fiscal 2005 from 1.2038
Ecents/Kwh in fiscal 2004. For fiscal 2005 as shown in the table below, the
average gas price for each quarter posted an increase over the prior year's
corresponding quarter.
Average Gas Prices under the Mobil Agreement
--------------------------------------------
2005 Gash Prices 2004 Gas Prices
Fiscal Quarter (Ecents/Kwh) (Ecents/Kwh) Percentage Change
-------------- ---------------- --------------- -----------------
First 1.3010 1.1836 9.92%
Second 1.5258 1.2583 21.25%
Third 1.4738 1.1276 30.70%
Fourth 1.5397 1.2491 23.27%
Fiscal Year Avg. 1.4577 1.2038 21.09%
Under the OEG Agreement covering the entire Oldenburg concession,
gas sales declined 3.39% to 160.762 Bcf in fiscal 2005 from 166.408 Bcf in
fiscal 2004. The following table shows quarterly gas sales and the changes
from the prior year's equivalent quarters.
Quarterly and Yearly Gas Sales under the OEG Agreement
------------------------------------------------------
Fiscal Quarter 2005 Gas Sales(Bcf.) 2004 Gas Sales(Bcf.) Percentage Change
-------------- -------------------- -------------------- -----------------
First 44.215 46.587 -5.09%
Second 43.045 45.347 -5.08%
Third 41.909 38.563 8.68%
Fourth 31.593 35.911 -12.02%
Fiscal Year Total 160.762 166.408 -3.39%
Average gas prices for the entire Oldenburg concession increased 25.17% to
1.5272 Ecents/Kwh in fiscal 2005 from 1.2201 Ecents/Kwh in fiscal 2004. For
- 23 -
fiscal 2005 as shown in the following table, the average gas price for each
quarter posted an increase over the prior year's corresponding quarter.
Average Gas Prices under the OEG Agreement
------------------------------------------
2005 Gash Prices 2004 Gas Prices
Fiscal Quarter (Ecents/Kwh) (Ecents/Kwh) Percentage Change
-------------- ---------------- --------------- -----------------
First 1.4169 1.2120 16.91%
Second 1.6018 1.2646 26.67%
Third 1.5216 1.1858 28.33%
Fourth 1.5874 1.2118 30.99%
Fiscal Year Avg. 1.5272 1.2201 25.17%
From its high point in November 2004, the Euro steadily declined
throughout fiscal 2005 in relation to the dollar. However, it was not until
the final quarter of fiscal 2005 that the value of the Euro showed a decline
in comparison to the prior year's equivalent quarter. Using the cumulative
transfer of royalties from Germany to the U.S. to generate an average value
for the Euro, there was a 3.6% increase in the average value to $1.2673 for
fiscal 2005 from $1.2234 for fiscal 2004.
Interest income for fiscal 2005 was higher due to the combination
of rising interest rates and increased funds available for investment. Trust
expenses increased 18.8% to $921,578 in fiscal 2005 from $775,521 in fiscal
2004. A number of expense items not part of the normal yearly Trust expenses
were incurred in 2005. The expenses associated with the biennial examination
of the operating companies in Germany to confirm the accuracy of the royalty
payments added $25,874 to the expense total. Payment of a portion of the
fees of the Trust's German consultant was made early in fiscal 2005, which
added $50,664 to the expense total. The resolution of the Trust's contingent
liability resulted in additional legal expenses compared to fiscal 2004.
The operating companies provide reports to the Trust's German
consultant detailing their plans for exploration and drilling for the
upcoming calendar year and the results of that program for the current
calendar year. The Trust's consultant has extracted the following
information from those reports. The operating companies' expanded drilling
program continued throughout 2005. Goldenstedt Z-12a was successfully
completed in March 2005 with a horizontal deviation of 3,117 feet. After
construction of production facilities was completed, production began in
October 2005. Hemmelte Z-5a, a western well, was completed in mid June 2005
but due to geological constraints did not fully penetrate the total reservoir
section as originally planned. This would appear to have had an impact on
the well's productivity. However, following the completion of the production
facilities, production began in October 2005. Doetlingen Ost Z-2, the first
exploratory well in the Carboniferous zone, entered production in June 2006.
While technically a success, wellhead pressure and flow rate was 50% of
initial estimates. Oythe Z-3 was a new vertical well planned to replace
Oythe Z-2, which suffered a casing collapse. Drilling began in September
2005 but significant technical difficulties forced the operators to plug the
initial drilling with cement and re-drill. Now designated Oythe Z-3a, the
well commenced production is June 2006. After an initial flow rate in line
with expectations, the flow rate decreased during the following months. A
well treatment is being considered. Drilling for Doetlingen Z-8a was
completed in February 2006. However, the start of production in June 2006
produced only reservoir water. A revision of the geological model for that
portion of the reservoir is being made
- 24 -
Critical Accounting Policies
----------------------------
The financial statements, appearing subsequently in this Report,
present financial statement balances and financial results 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").
Cash basis accounting is an accepted accounting method for royalty trusts such
as the Trust. GAAP basis financial statements disclose income as earned and
expenses as incurred, without regard to receipts or payments. The use of GAAP
would require the Trust to accrue for expected royalty payments.This is
exceedingly difficult since the Trust has very limited information on such
payments until they are received. The Trust's cash basis financial statements
disclose revenue when cash is received and expenses when cash is paid. The
one modification of the cash basis of accounting is that the Trust accrues 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 provides a more meaningful
presentation to unit owners of the results of operations of the Trust and
presents to the unit owners a more accurate calculation of income and expenses
for tax reporting purposes.
Off-Balance Sheet Arrangements
------------------------------
The Trust has no off-balance sheet arrangements.
Contractual Obligations
-----------------------
As shown below, the Trust had no contractual obligations as of
October 31, 2006 other than the distribution announced on October 30, 2006
and payable to unit owners on November 29, 2006, as reflected in the
statement of assets, liabilities and trust corpus.
Payments Due by Period
----------------------
Less than More than
Total 1 Year 1-3 Years 3-5 Years 5 Years
---------- ----------- --------- --------- ---------
Cash distributions
payable to
unit owners $7,168,660 $7,168,660 $--- $--- $---
- 25 -
-----------------------------------
This Report on Form 10-K contains forward looking statements
concerning business, financial performance and financial condition of 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 uncertainties concerning
levels of gas production and gas sale prices, general economic conditions and
currency exchange rates, as well as those factors set forth above under
Item 1A of this Report. Actual results and events may vary significantly
from those discussed in the forward looking statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
The Trust does not hedge against foreign exchange fluctuations.
Standing instructions at the Trust's German bank require the bank to process
transfers of royalty payments as soon as possible following their receipt.
The Trust does not engage in any trading activities with respect to commodity
price fluctuations.
- 26 -
Item 8. Financial Statements and Supplementary Data.
-------------------------------------------
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
INDEX TO FINANCIAL STATEMENTS
------------------------------
Page Number
-----------
Reports of Independent Registered Public Accounting Firms F-1 - F-2
Financial Statements:
Statements of Assets, Liabilities and
Trust Corpus as of October 31, 2006 and 2005 F-3
Statements of Revenue Collected and Expenses Paid
for the Years Ended October 31, 2006,
2005 and 2004 F-4
Statements of Undistributed Earnings for the
Years Ended October 31, 2006, 2005 and 2004 F-5
Statements of Changes in Cash and Cash Equivalents for
the Years Ended October 31, 2006, 2005 and 2004 F-6
Notes to Financial Statements F-7 - F-10
- 27 -
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
To the Board of Trustees and Unit Owners of
North European Oil Royalty Trust
We have audited the accompanying statements of assets, liabilities and trust
corpus of North European Oil Royalty Trust (the "Trust") as of October 31,
2006, and the related statements of revenue collected and expenses paid,
undistributed earnings and changes in cash and cash equivalents for the year
then ended. These financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As described in Note 1, these financial statements have been prepared on the
modified cash basis of accounting, which is a comprehensive basis of
accounting other than U.S. generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities and trust corpus of North
European Oil Royalty Trust at October 31, 2006, its revenue collected and
expenses paid, its undistributed earnings and changes in its cash and cash
equivalents for the year ended October 31, 2006, on the basis of accounting
described in Note 1.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of North
European Oil Royalty Trust's internal control over financial reporting as of
October 31, 2006, based on criteria established in Internal Control--
Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission, and our report dated December 20, 2006 expressed an
unqualified opinion thereon.
Weiser LLP
New York, NY
December 20, 2006
F-1
- 28 -
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
The Board of Trustees and Unit Owners of
North European Oil Royalty Trust
We have audited the accompanying statement of assets, liabilities and trust
corpus arising from cash transactions of North European Oil Royalty Trust as
of October 31, 2005, and the related statements of revenue collected and
expenses paid, undistributed earnings and changes in cash and cash
equivalents for each of the two years in the period ended October 31, 2005.
These financial statements are the responsibility of the Trust's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As described in Note 1, these financial statements have been prepared on the
modified cash basis of accounting, which is a comprehensive basis of
accounting other than U.S. generally accepted accounting principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities and trust corpus arising from
cash transactions of North European Oil Royalty Trust at October 31, 2005,
its revenue collected and expenses paid, its undistributed earnings and
changes in its cash and cash equivalents for each of the two years in the
period ended October 31, 2005, on the basis of accounting described in
Note 1.
/s/ Ernst & Young LLP
New York, NY
December 7, 2005
F-2
- 29 -
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
-----------------------------------------------------------
OCTOBER 31, 2006 AND 2005
-------------------------
ASSETS 2006 2005
------ ------------ ------------
Current Assets
Cash and cash equivalents (Note 1) $7,204,250 $3,920,267
Producing gas and oil
royalty rights (Note 1) 1 1
------------ ------------
$7,204,251 $3,920,268
============ ============
LIABILITIES AND TRUST CORPUS
----------------------------
Current liabilities
Cash distributions payable
to unit owners, paid
November 2006 and 2005 $7,168,660 $3,855,968
Contingent liability (Note 3)
Trust corpus (Notes 1 and 2) 1 1
Undistributed earnings 35,590 64,299
------------ ------------
$7,204,251 $3,920,268
============ ============
The accompanying notes are
an integral part of these financial statements.
F-3
- 30 -
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
STATEMENTS OF REVENUE COLLECTED AND EXPENSES PAID (NOTE 1)
----------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31, 2006, 2005 AND 2004
---------------------------------------------------
2006 2005 2004
------------ ------------ ------------
German gas, sulfur and
oil royalties received $31,079,122 $21,085,039 $15,061,209
Interest income 164,021 59,353 21,970
Trust expenses (984,199) (921,578) (775,521)
------------ ------------ ------------
Net income $30,258,944 $20,222,814 $14,307,658
============ ============ ============
Net income per unit $3.29 $2.20 $1.60
======= ======= =======
Cash distributions paid
or to be paid:
Dividends and distributions
per unit paid to formerly
unlocated unit owners .02 .02 .01
Distributions per unit
paid or to be paid to
unit owners (Note 5) $3.28 $2.22 $1.59
======= ======= =======
The accompanying notes are
an integral part of these financial statements.
F-4
- 31 -
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
---------------------------------------------
FOR THE FISCAL YEARS ENDED OCTOBER 31, 2006, 2005 AND 2004
----------------------------------------------------------
2006 2005 2004
------------ ------------ ------------
Balance,
beginning of year $ 64,299 $ 66,394 $ 44,630
Net income 30,258,944 20,222,814 14,307,658
------------ ----------- -----------
30,323,243 20,289,208 14,352,288
Less:
Dividends and
distributions paid
to formerly unlocated
unit owners (Note 3) 148,097 155,062 83,605
Cash distributions paid
or to be paid to unit
owners (Note 5) 30,139,556 20,069,847 14,202,289
----------- ------------ ------------
Balance, end of year $ 35,590 $ 64,299 $ 66,394
============ =========== ============
The accompanying notes are
an integral part of these financial statements.
F-5
- 32 -
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS (NOTE 1)
-----------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31, 2006, 2005 AND 2004
---------------------------------------------------
2006 2005 2004
------------ ------------ ------------
Sources of cash and
cash equivalents:
German gas, sulfur and
oil royalties received $31,079,122 $21,085,039 $15,061,209
Interest income 164,021 59,353 21,970
----------- ----------- -----------
31,243,143 21,144,392 15,083,179
Uses of cash and
cash equivalents:
Payment of Trust expenses 984,199 921,578 775,521
Distributions and
dividends paid (Note 3) 26,974,961 19,316,933 15,357,038
----------- ----------- -----------
27,959,160 20,238,511 16,132,559
----------- ----------- -----------
Net increase (decrease)
in cash and cash
equivalents during the year 3,283,983 905,881 (1,049,380)
Cash and cash equivalents,
beginning of year 3,920,267 3,014,386 4,063,766
----------- ----------- -----------
Cash and cash equivalents,
end of year $7,204,250 $3,920,267 $3,014,386
=========== =========== ===========
The accompanying notes are
an integral part of these financial statements.
F-6
- 33 -
NORTH EUROPEAN OIL ROYALTY TRUST
--------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
OCTOBER 31, 2006, 2005 AND 2004
-------------------------------
(1) Summary of significant accounting policies:
------------------------------------------
Basis of accounting -
---------------------
The accompanying financial statements of North European Oil Royalty
Trust (the "Trust") present financial statement balances and financial
results 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"). Cash basis
financial statements disclose revenue when cash is received and
expenses when cash is paid. GAAP basis financial statements disclose
income 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.
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.
Federal 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.
F-7
- 34 -
Cash and cash equivalents -
---------------------------
Included in cash and cash equivalents are amounts deposited in bank
accounts and amounts invested in certificates of deposit and U.S.
Treasury bills with original maturities of three months or less from
the date of purchase.
Net income per unit on the cash basis -
---------------------------------------
Net income per unit on the cash basis is based upon the number of
units outstanding at the end of the period. As of October 31, 2006,
2005 and 2004, there were 9,190,590, 9,180,876 and 8,933,310 units of
beneficial interest outstanding, respectively.
(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 and the Royal
Dutch/Shell Group. 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, distillate and
sulfur.
(3) Contingent liability:
---------------------
Since its inception in 1975, the Trust had served as fiduciary for
certain unlocated or unknown shareholders of North European Oil
Corporation (the "Corporation") and North European Oil Company,
corporate predecessors of the Trust. Pursuant to an order of the
Delaware Court of Chancery dated February 26, 1996 (the "Chancery Court
Order"), from and after July 1, 2005, the Trust has no further
obligation to make payments of dividends or distributions attributable
to any unexchanged Corporate and Company shares.
From the liquidation of the Company to October 31, 2005, 726,611 Trust
units were issued in exchange for Corporate and Company shares and
dividends of $357,035 and distributions of $4,472,371 were paid to
formerly unlocated Corporation and Company shareholders. For the year
ended October 31, 2006, 3,150 units of beneficial interest were issued
in exchanges and $1,769 in dividends and $146,328 in distributions were
paid to formerly unlocated Corporation and Company shareholders based
upon a claim initiated prior to the July 1, 2005 expiration date.
F-8
- 35 -
Pursuant to the Chancery Court Order, the Trust escheated the final
6,564 units attributable to unexchanged Corporate and Company shares.
Under the Chancery Court Order, no payment for arrearages was made for
such units.
(4) Related Party Transaction:
--------------------------
John R. Van Kirk, the Managing Director of the Trust, provides office
space and office services to the Trust at cost. During fiscal 2006,
the Trust reimbursed him a total of $21,871 for such office space and
office services.
F-9
- 36 -
(5) Quarterly results (unaudited):
------------------------------
The table below summarizes the quarterly results and distributions of
the Trust for the years ended October 31, 2006 and 2005.
Fiscal 2006 by Quarter and Year
-------------------------------------------------------------
First Second Third Fourth Year
---------- ---------- ---------- ---------- -------------
Royalties
received $8,184,669 $8,297,022 $7,312,458 $7,284,973 $31,079,122
Net income 7,944,609 8,062,442 7,140,701 7,111,192 30,258,944
Net income
per unit .87 .88 .78 .77 3.29
Cash distributions
paid or
to be paid 7,806,422 8,087,719 7,076,754 7,168,661 30,139,556
Dividends and
distributions
paid to formerly
unlocated
unit owners .02 .00 .00 .00 .02
Distributions per
unit paid or
to be paid to
unit owners .85 .88 .77 .78 3.28
Fiscal 2005 by Quarter and Year
-------------------------------------------------------------
First Second Third Fourth Year
---------- ---------- ---------- ---------- -------------
Royalties
received $5,154,811 $6,332,292 $5,419,524 $4,178,412 $21,085,039
Net income 4,835,114 6,137,395 5,219,675 4,030,630 20,222,814
Net income
per unit .54 .69 .57 .44 2.20
Cash distributions
paid or
to be paid 4,823,991 6,164,019 5,225,869 3,855,968 20,069,847
Dividends and
distributions
paid to formerly
unlocated
unit owners .00 .00 .00 .02 .02
Distributions per
unit paid or
to be paid to
unit owners .54 .69 .57 .42 2.22
F-10
- 37 -
Item 9. Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosure.
------------------------
None.
Item 9A. Controls and Procedures.
-----------------------
Disclosure Controls and Procedures
----------------------------------
As of the end of the period covered by this report, an evaluation
was carried out, under the supervision and with the participation of the
Trust's management, which consists of the Managing Director, of the
effectiveness of the design and operation of the Trust's disclosure controls
and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934.
Based upon that evaluation, the Managing Director concluded that the Trust's
disclosure controls and procedures were effective, in all material respects,
with respect to the recording, processing, summarizing and reporting, within
the time periods specified in the Securities and Exchange Commission's rules
and forms, of information required to be disclosed by the Trust's management
in the reports that are filed or submitted under the Exchange Act.
Internal Control Over Financial Reporting
-----------------------------------------
Part A. Management's Report on Internal Control Over Financial
------------------------------------------------------
Reporting
---------
The Trust's management is responsible for establishing and
maintaining adequate internal control over financial reporting (as such term
is defined in Exchange Act Rule 13a-15(f)) for the Trust. There are inherent
limitations in the effectiveness of any internal control, including the
possibility of human error and the circumvention or overriding of controls.
Accordingly, even effective internal controls can provide only reasonable
assurance with respect to financial statement preparation. Further, because
of changes in conditions, the effectiveness of internal control may vary over
time. Management has evaluated the Trust's internal control over financial
reporting as of October 31, 2006. This assessment was based on criteria for
effective internal control over financial reporting described in the
standards promulgated by Public Company Accounting Oversight Board and in
Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation,
management concluded that the Trust's internal control over financial
reporting was effective as of October 31, 2006. Management's assessment of
the effectiveness of our internal control over financial reporting as of
October 31, 200 has been audited by Weiser LLP, the Trust's independent
auditors, as stated in their report which appears below.
- 38 -
Part B. Attestation Report of Independent Registered Public
---------------------------------------------------
Accounting Firm
---------------
Report of Independent Registered Public Accounting Firm
On Internal Control over Financial Reporting
To the Board of Trustees and Unit Owners of
North European Oil Royalty Trust
We have audited management's assessment, included in the accompanying
Management's Report on Internal Control Over Financial Reporting, that North
European Oil Royalty Trust (the "Trust") maintained effective internal
control over financial reporting as of October 31, 2006, based on criteria
established in Internal Control Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission ("COSO"). The Trust's
management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal
control over financial reporting. Our responsibility is to express an opinion
on management's assessment and an opinion on the effectiveness of the Trust's
internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control,
and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. A company's
internal control over financial reporting includes those policies and
procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
- 39 -
In our opinion, management's assessment that North European Oil Royalty Trust
maintained effective internal control over financial reporting as of
October 31, 2006, is fairly stated, in all material respects, based on
criteria established in Internal Control Integrated Framework issued by COSO.
Also, in our opinion, the Trust maintained, in all material respects,
effective internal control over financial reporting as of October 31, 2006,
based on criteria established in Internal Control Integrated Framework issued
by COSO.
We also have audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the statement of assets,
liabilities and trust corpus as of October 31, 2006, and the related
statements of revenue collected and expenses paid, undistributed earnings and
changes in cash and cash equivalents for the year ended October 31, 2006 of
North European Oil Royalty Trust and our report dated December 20, 2006
expressed an unqualified opinion thereon.
Weiser LLP
New York, NY
December 20, 2006
Part C. Changes in Internal Control Over Financial Reporting
----------------------------------------------------
There have been no changes in the Trust's internal control over
financial reporting that occurred during the fourth quarter of fiscal 2006
that have materially affected, or are reasonably likely to materially affect,
the Trust's internal control over financial reporting.
Item 9B. Other Information.
-----------------
None.
- 40 -
PART III
Item 10. Directors and Executive Officers of the Registrant.
--------------------------------------------------
The identity, business experience, relationships, and other
information about the Trustees as set forth under the caption "Election of
Trustees" in Registrant's definitive Proxy Statement, dated January 10, 2007,
as filed with the Commission, are incorporated herein by reference in
accordance with Instruction G(3) to Form 10-K. See "Executive Officers and
Trustees of the Trust" under Item 1 of this Report for information concerning
the executive officers and Trustees of the Trust.
The information required by this item with respect to the Trust's
audit committee, audit committee financial experts and Section 16(a)
Beneficial Ownership Reporting Compliance is also set forth in the
Registrant's definitive Proxy Statement, dated January 10, 2007, as filed
with the Commission, which is incorporated herein by reference in accordance
with Instruction G(3) to Form 10-K.
Code of Ethics
--------------
The Trustees have adopted a Code of Conduct and Business Ethics
(the "Code") for the Trust's trustees and employees, which at this time
includes the Trustees, including the Managing Trustee, and the Managing
Director. The Managing Director serves the roles of principal executive
officer and principal financial and accounting officer. A copy of the Code
is available without charge on request by writing to the Managing Director at
the office of the Trust. The Code is also available at the Trust's web-site,
www.neort.com.
All trustees and employees of the Trust have signed a copy of the
Code. No waivers or exceptions to the Code have been granted since the
adoption of the Code. Any amendments or waivers to the Code will be
disclosed in a Form 8-K filing of the Trust after such amendment or waiver.
Item 11. Executive Compensation.
----------------------
The information about remuneration of the Trustees and Management
as set forth under the caption "Management Compensation" in Registrant's
definitive Proxy Statement, dated January 10, 2007, as filed with the
Commission, is incorporated herein by reference in accordance with
Instruction G(3) to Form 10-K.
- 41 -
Item 12. Security Ownership of Certain Beneficial Owners and Management
--------------------------------------------------------------
and Related Stockholder Matters.
-------------------------------
The information about security ownership of certain beneficial
owners and management as set forth in the introduction to and under the
caption "Election of Trustees" in Registrant's definitive Proxy Statement,
dated January 10, 2007, as filed with the Commission, is incorporated
herein by reference in accordance with Instruction G(3) to Form 10-K.
The Trust does not maintain any compensation plans under which
units are authorized for issuance.
Item 13. Certain Relationships and Related Transactions.
----------------------------------------------
The information about certain relationships and related
transactions as set forth under the captions "Election of Trustees" and
"Management Compensation" in Registrant's definitive Proxy Statement, dated
January 10, 2007, as filed with the Commission, is incorporated herein by
reference in accordance with Instruction G(3) to Form 10-K.
Item 14. Principal Accountant Fees and Services.
--------------------------------------
The information about fees billed by our independent auditors and
our pre-approval policies with respect to non-audit services are set forth
under the caption "Auditor Matters" in Registrant's definitive Proxy
Statement, dated January 10, 2007, as filed with the Commission, is
incorporated herein by reference in accordance with Instruction G(3) to
Form 10-K.
- 42 -
PART IV
Item 15. Exhibits and Financial Statement Schedules.
------------------------------------------
(a) The following is a list of the documents filed as part of this
Report:
1. Financial Statements
Index to Financial Statements for the Years
Ended October 31, 2006, 2005 and 2004
Reports of Independent Registered Public Accounting Firms
Statements of Assets, Liabilities and Trust Corpus as of
October 31, 2006 and 2005
Statements of Revenue Collected and Expenses Paid for the
Years Ended October 31, 2006, 2005 and 2004
Statements of Undistributed Earnings for the Years
Ended October 31, 2006, 2005 and 2004
Statements of Changes in Cash and Cash Equivalents for the
Years Ended October 31, 2006, 2005 and 2004
Notes to Financial Statements
2. Exhibits
The Exhibit Index following the signature page lists all
exhibits filed with this Report or incorporated by reference.
- 43 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Trust has duly caused this Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
NORTH EUROPEAN OIL ROYALTY TRUST
Dated: December 22, 2006 By: /s/ John R. Van Kirk
-------------------------
John R. Van Kirk,
Managing Director
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Dated: December 22, 2006 /s/ Robert P. Adelman
--------------------------------
Robert P. Adelman, Managing Trustee
Dated: December 22, 2006 /s/ Samuel M. Eisenstat
--------------------------------
Samuel M. Eisenstat, Trustee
Dated: December 22, 2006 /s/ Lawrence A. Kobrin
--------------------------------
Lawrence A. Kobrin, Trustee
Dated: December 22, 2006 /s/ Willard B. Taylor
--------------------------------
Willard B. Taylor, Trustee
Dated: December 22, 2006 /s/ Rosalie J. Wolf
--------------------------------
Rosalie J. Wolf, Trustee
Dated: December 22, 2006 /s/ John R. Van Kirk
--------------------------------
John R. Van Kirk, Managing Director
- 44 -
Exhibit Index
-------------
Exhibit Page
------- ----
(3.1) Trust Agreement, dated September 10, 1975,
amended May 13, 1976, and February 10, 1981
(incorporated by reference to Exhibit 4(I) to
Form 10-Q for the quarter ended April 30, 1981
(File No. 0-8378)).
(3.2) Amended and Restated Trustees' Regulations,
dated September 10, 1975, and amended and
restated as of February 9, 2005 (incorporated
by reference to Exhibit 3 to Form 10-Q for the
quarter ended January 31, 2005 (File No. 0-8378))
(10.1) Agreement with OEG, dated April 2, 1979,
exhibit to Current Report on Form 8-K
filed May 11, 1979 (incorporated by
reference as Exhibit 1 to Current Report
on Form 8-K, filed May 11, 1979
(File No. 0-8378)).
(10.2) Agreement with Mobil Oil, A.G. concerning
sulfur royalty payment, dated March 30, 1979,
(incorporated by reference to Exhibit 3
to Current Report on Form 8-K, filed
May 11, 1979 (File No. 0-8378)).
(21) There are no subsidiaries of the Trust.
(31) Certification of Chief Executive Officer and Chief 45
Financial Officer Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
(32) Certification of Chief Executive Officer and 47
Chief Financial Officers pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(99.1) The Calculation of Cost Depletion Percentage 48
for the 2006 Calendar Year Based on the Estimate
of Remaining Proved Producing Reserves in the
Northwest Basin of the Federal Republic of Germany
as of October 1, 2006 prepared by
Ralph E. Davis Associates, Inc.
(99.2) Order Approving Settlement signed by
Vice Chancellor Jack Jacobs of the
Delaware Court of Chancery
(incorporated by reference as
Exhibit 99.2 to Current Report on
Form 8-K, filed February 26, 1996).