SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended April 30, 2007 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from __________ to ___________ .
Commission file number 1-8245
NORTH EUROPEAN OIL ROYALTY TRUST
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(Exact name of registrant as specified in its charter)
Delaware 22-2084119
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(State of organization) (I.R.S. Employer I.D. No.)
Suite 19A, 43 West Front Street, Red Bank, New Jersey 07701
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(Address of principal executive offices)
(732) 741-4008
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark whether the registrant is a large
accelerated filer, 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
---- ---- ----
-2-
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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Class Outstanding at April 30, 2007
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Units of Beneficial Interest 9,190,590
-3-
PART I -- FINANCIAL INFORMATION
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Item 1. Financial Statements.
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STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
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April 30, 2007 AND OCTOBER 31, 2006
-----------------------------------
2007 2006
----------------- ----------------
(unaudited)
Current assets - - Cash and
cash equivalents (Note 1) $ 7,449,592 $ 7,204,250
Producing gas and oil royalty rights,
net of amortization (Notes 1 and 2) 1 1
------------ ------------
Total Assets $ 7,449,593 $ 7,204,251
============ ============
Current liabilities - - Cash distributions
payable to unit owners $ 7,352,472 $ 7,168,660
Contingent liability (Note 3)
Trust corpus (Notes 1 and 2) 1 1
Undistributed earnings 97,120 35,590
------------ ------------
Total Liabilities and Trust Corpus $ 7,449,593 $ 7,204,251
============ ============
The accompanying notes are an integral part
of these financial statements.
-4-
STATEMENTS OF REVENUE COLLECTED AND EXPENSES PAID (NOTE 1)
-----------------------------------------------------------
FOR THE THREE MONTHS ENDED APRIL 30, 2007 AND 2006
--------------------------------------------------
2007 2006
----------------- ----------------
(unaudited)
German gas, oil and sulfur
royalties received $ 7,544,543 $ 8,297,022
------------ ------------
Interest income 57,210 32,663
------------ ------------
Trust expenses ( 268,312) ( 237,243)
------------ ------------
Net income $ 7,333,441 $ 8,062,442
============ ============
Net income per unit $ .80 $ .88
====== ======
Cash distributions paid or to be paid:
Dividends and distributions per unit paid
to formerly unlocated unit owners (Note 3) $ .00 $ .00
====== ======
Distributions per unit paid or
to be paid to unit owners $ .80 $ .88
====== ======
The accompanying notes are an integral part
of these financial statements.
-5-
STATEMENTS OF REVENUE COLLECTED AND EXPENSES PAID (NOTE 1)
------------------------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 30, 2007 AND 2006
-------------------------------------------------
2007 2006
----------------- -----------------
(unaudited)
German gas, oil and sulfur
royalties received $16,027,930 $16,481,691
------------ ------------
Interest income 110,903 54,696
------------ ------------
Trust expenses ( 545,206) ( 529,336)
------------ ------------
Net income $15,593,627 $16,007,051
============ ============
Net income per unit $1.70 $1.74
====== ======
Cash distributions paid or to be paid:
Dividends and distributions per unit paid
to former unlocated unit owners (Note 3) $ .00 $ .02
====== ======
Distributions per unit paid or
to be paid to unit owners $1.69 $1.73
====== ======
The accompanying notes are an integral part
of these financial statements.
-6-
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
---------------------------------------------
FOR THE SIX MONTHS ENDED APRIL 31, 2007 AND 2006
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2007 2006
----------------- ----------------
(unaudited)
Balance, beginning of period $ 35,590 $ 64,299
Net income 15,593,627 16,007,051
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15,629,217 16,071,350
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Less:
Dividends and distributions paid to
formerly unlocated unit owners (Note 3) 0 148,097
Current year distributions paid or
to be paid to unit owners (Note 3) 15,532,097 15,894,141
------------ ------------
15,532,097 16,042,238
------------ ------------
Balance, end of period $ 97,120 $ 29,112
============ ============
The accompanying notes are an integral part
of these financial statements.
-7-
STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS (NOTE 1)
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FOR THE SIX MONTHS ENDED APRIL 31, 2007 AND 2006
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2007 2006
----------------- ---------------
(unaudited)
Sources of cash and cash equivalents:
German gas, oil and sulfur royalties $16,027,930 $16,481,691
Interest income 110,903 54,696
------------ ------------
16,138,833 16,536,387
------------ ------------
Uses of cash and cash equivalents:
Payment of Trust expenses 545,206 529,336
Distributions and dividends paid (Note 3) 15,348,285 11,810,487
------------ ------------
15,893,491 12,339,823
------------ ------------
Net increase (decrease) in cash and
cash equivalents during the period 245,342 4,196,564
Cash and cash equivalents,
beginning of period 7,204,250 3,920,267
------------ ------------
Cash and cash equivalents, end of period $ 7,449,592 $ 8,116,831
============ ============
The accompanying notes are an integral part
of these financial statements
-8-
NORTH EUROPEAN OIL ROYALTY TRUST
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
(Unaudited)
(1) Summary of significant accounting policies:
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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.
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.
Net income per unit -
-------------------
Net income per unit is based upon the number of units outstanding at
the end of the period. As of both April 30, 2007 and 2006, there were
9,190,590 units of beneficial interest outstanding.
-9-
(2) Formation of the Trust:
-----------------------
The Trust was formed on September 10, 1975. As of September 30, 1975,
the Company was liquidated and the remaining assets and liabilities
of the Company, including its royalty rights, were transferred to the
Trust. The Trust, on behalf of the owners of beneficial interest in
the Trust, holds overriding royalty rights covering gas and oil
production in certain concessions or leases in the Federal Republic
of Germany. These rights are held under contracts with local German
exploration and development subsidiaries of ExxonMobil Corp. and the
Royal Dutch/Shell Group of Companies. Under these contracts, the
Trust receives various percentage royalties on the proceeds of the
sales of certain products from the areas involved. At the present
time, royalties are received for sales of gas well gas, oil well gas,
crude oil, 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, 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, 2006, 729,761 Trust
units were issued in exchange for Corporate or Company shares and
dividends of $358,804 and distributions of $4,618,699 were paid to
formerly unlocated Corporation and Company shareholders. With the
escheat of the last Trust units attributable to unexchanged
Corporation and Company shares completed in April 2006, all Trust
units, including those issuable in exchange for Corporation and
Company shares, have been issued.
(4) Related party transactions:
---------------------------
John R. Van Kirk, the Managing Director of the Trust, provides office
space and services to the Trust at cost. For such office space and
services, the Trust reimbursed the Managing Director $3,134 and
$4,862 in the second quarter of fiscal 2007 and 2006, respectively.
For such office space and services, the Trust reimbursed the Managing
Director $10,763 and $11,621 in the first six months of fiscal 2007
and 2006, respectively.
As of January 1, 2007, Lawrence A. Kobrin, a Trustee of the Trust, was
named Senior Counsel at Cahill Gordon & Reindel LLP which serves as
counsel to the Trust. Prior to such time, Mr. Kobrin was a partner
at Cahill Gordon & Reindel LLP. For the second quarter of fiscal
2007, the Trust paid Cahill Gordon & Reindel LLP $8,732 for legal
services. For the first six months of fiscal 2007, the Trust paid
Cahill Gordon & Reindel LLP $40,607 for legal services.
-10-
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
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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 any such involvement by the Trust Agreement. There are no
requirements, therefore, for capital resources with which to make capital
expenditures or investments in order to continue the receipt of royalty
revenues by the Trust.
The properties of the Trust, which the Trust and Trustees hold pursuant
to the Trust Agreement on behalf of the unit owners, are overriding royalty
rights on sales of gas, sulfur and oil under certain concessions or leases in
the Federal Republic of Germany. The actual leases or concessions are held
either by Mobil Erdgas-Erdol GmbH ("Mobil Erdgas"), a German operating
subsidiary of the ExxonMobil Corp. ("ExxonMobil"), or by Oldenburgische
Erdolgesellschaft ("OEG"). In 2002 Mobil Erdgas and BEB Erdgas und Erdol
GmbH ("BEB"), a joint venture of ExxonMobil and the Royal Dutch/Shell Group
of Companies, formed a company ExxonMobil Production Deutschland GmbH
("EMPG") to carry out all exploration, drilling and production activities.
All sales activities are still handled by the operating companies, either
Mobil Erdgas or BEB.
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 primary 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 Principality of Oldenburg and is located
in the federal state of Lower Saxony.
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 this agreement. Historically,
the Trust has received significantly greater royalty payments under the Mobil
Agreement due to the higher royalty rate specified by that agreement.
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
-11-
sales receipts prior to the calculation of the royalty to be paid to the
Trust.
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
fewer 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 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 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.
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.
-12-
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 the funds on hand after provision is made for
Trust expenses then anticipated.
Results: Second Quarter of Fiscal 2007 Versus Second Quarter of Fiscal 2006
---------------------------------------------------------------------------
For the second quarter of fiscal 2007, the Trust's net income was
$7,333,441, a decrease of 9.04% from the net income of $8,062,442 for the
second quarter of fiscal 2006. This income was derived from sales of gas,
sulfur and oil from the Trust's overriding royalty areas in Germany during
the first calendar quarter of 2007. A distribution of 80 cents per unit
was paid on May 30, 2007 to owners of record as of May 11, 2007.
The amount of royalties paid to the Trust is based on four primary
factors: the amount of gas sold, the price of that gas, the area from which
the gas is sold and the exchange rate. For the second quarter of fiscal 2007
a combination of lower gas prices and lower gas sales under both the Mobil
and the OEG Agreements more than offset the increase in average exchange
rates and resulted in the reduced net income.
For the quarter just ended, under the Mobil Agreement gas sales
decreased 9.95% to 17.125 billion cubic feet ("Bcf") from 19.016 Bcf in the
second quarter of fiscal 2006. For the quarter just ended, the average
price of gas sold under the Mobil Agreement decreased 12.28% to 1.9950
Eurocents/Kwh ("Ecents/Kwh") from 2.2743 Ecents/Kwh in the second quarter of
fiscal 2006. Based on the transfer from Germany of royalties received under
the Mobil Agreement, the average value of the Euro for the quarter just ended
increased 10.12% to a dollar equivalent of $1.3321 from $1.2097 for the
second quarter of fiscal 2006. Converting the average gas prices using this
average exchange rate into more familiar terms yields an average gas price
under this agreement of $7.64 per thousand cubic feet ("Mcf") compared to
$7.91/Mcf for the second quarter of fiscal 2006.
For the quarter just ended, under the OEG Agreement gas sales decreased
13.38% to 40.518 Bcf from 46.775 Bcf in the second quarter of fiscal 2006.
For the quarter just ended, the average price of gas sold under the OEG
Agreement decreased 0.22% to 2.3038 Ecents/Kwh from 2.3088 Ecents/Kwh in the
second quarter of fiscal 2006. Based on the transfer from Germany of
royalties received under the OEG Agreement, the average value of the Euro for
the quarter just ended increased 9.82% to a dollar equivalent of $1.3297 from
$1.2108 for the second quarter of fiscal 2006. Converting the average gas
prices using this average exchange rate into more familiar terms yields an
average gas price under this agreement of $8.60/Mcf compared to $7.84/Mcf for
the second quarter of fiscal 2006.
Interest income was higher reflecting the increased funds available for
investment and the increase in interest rates applicable during the period.
For the quarter just ended, Trust interest income increased 75.15% to $57,210
from $32,663 in the second quarter of fiscal 2006. Trust expenses for the
second quarter of fiscal 2007 were virtually unchanged.
The current Statement of Assets, Liabilities and Trust Corpus of the
Trust at April 30, 2007, compared to that at fiscal year end (October 31,
2006), shows an increase in assets due to the higher royalty receipts during
the quarter.
-13-
Results: First Six Months of Fiscal 2007 Versus First Six Months of Fiscal
--------------------------------------------------------------------------
2006
----
For the six month period, the Trust's net income was $15,593,627, a
decrease of 2.58% from the net income of $16,007,051 for last year's
equivalent period. This income was derived from sales of gas, sulfur and
oil from the Trust's overriding royalty areas in Germany during the fourth
calendar quarter of 2006 and the first calendar quarter of 2007. For the
six month period ended April 30, 2007 total distributions were equal to
$1.69 per unit compared to total distributions of $1.73 for the first six
months of fiscal 2006.
For the six months just ended, under the Mobil Agreement gas sales
decreased 10.17% to 34.637 Bcf from 38.556 Bcf in the first six months of
fiscal 2006. For the six months just ended, the average price of gas sold
under the Mobil Agreement decreased 1.19% to 2.1327 Ecents/Kwh from 2.1584
Ecents/Kwh in the first six months of fiscal 2006. Based on the transfer
from Germany of royalties received under the Mobil Agreement, the average
value of the Euro for the six months just ended increased 9.64% to a dollar
equivalent of $1.3180 from $1.2021 for the first six months of fiscal 2006.
Converting the average gas prices using this average exchange rate into more
familiar terms yields an average gas price under this agreements of $8.08/Mcf
compared to $7.46/Mcf for the first six months of fiscal 2006.
For the six months just ended, under the OEG Agreement gas sales
decreased 12.85% to 82.493 Bcf from 94.651 Bcf in the first six months of
fiscal 2006. For the six months just ended, the average price of gas sold
under the OEG Agreement increased 6.25% to 2.3536 Ecents/Kwh from 2.2153
Ecents/Kwh in the first six months of fiscal 2006. Based on the transfer
from Germany of royalties received under the OEG Agreement, the average value
of the Euro for the quarter just ended increased 8.70% to a dollar equivalent
of $1.3166 from $1.2112 for the first six months of fiscal 2006. Converting
the average gas prices using this average exchange rate into more familiar
terms yields an average gas price under this agreement of $8.70/Mcf compared
to $7.53/Mcf for the first six months of fiscal 2006.
Interest income was higher reflecting the increased funds available for
investment and the increase in interest rates applicable during the period.
Interest income for the six month period increased 102.76% to $110,903 from
$54,696 in the second quarter of fiscal 2006. Trust expenses for the six
month period increased 2.99% or $15,870 to $545,206 in comparison to the
prior year's equivalent period.
Report on Drilling and Geophysical Work
---------------------------------------
The Trust's German consultant, Alfred Stachel, met with representatives
of the operating companies recently to inquire about planned and proposed
drilling and geophysical work for 2007 and 2008 and other general matters.
The following is a summary of Mr. Stachel's account of the operating
companies' responses to his inquiries. The Trust is not able to confirm the
accuracy of any of these findings or responses. In addition, the operating
companies are not obligated to take any of the actions outlined and, if they
change their plans with respect to any such actions, they are not obligated
to inform the Trust.
-14-
The operating companies reported to Mr. Stachel that the drilling
program is being continued with two wells (both located in eastern Oldenburg)
planned for calendar 2007. Goldenstedt Z-7a, a horizontal deviation, will
begin drilling in May 2007 as the second well intended to exploit the tight
Carboniferous gas zone. The first well to exploit the Carboniferous zone
using a horizontal deviation was Doetlingen Ost Z-2, which began production
in 2006. The Carboniferous zone is a sweet gas zone located below the
Zechstein (sour gas) zone. Using an existing borehole, the horizontal
deviation is planned to penetrate the gas bearing zone along a length of
3,940 feet. The gas bearing reservoir's vertical thickness is believed to be
approximately 820 feet. Seven individual hydraulic fracturing treatments are
planned along the horizontal length. Estimated production startup is in the
first half of 2008. Following the completion of the drilling of Goldenstedt
Z-7a the drilling rig will be moved to the second well, Varnhorn Z-7a, which
is scheduled to further explore the Carboniferous zone. Working from an
existing borehole, the horizontal deviation is planned to penetrate the gas
bearing zone along a length of 4,920 feet. The gas bearing reservoir's
vertical thickness is believed to be approximately 328 feet. Six individual
hydraulic fracturing treatments are planned along the horizontal length.
Estimated production startup is in the second half of 2008.
The processing and interpretation of earlier seismic work covering the
Quadmoor, Rechterfeld, Sagermeer, Goldenstedt, Visbek and Oythe fields has
and will be continuing. This work provides detailed information regarding
depth and location of potential gas bearing structures and provides insight
into how best to develop the available reserves within these fields through
further drilling, including infill, exploratory and horizontal. Preliminary
well planning based on the information developed has begun for four drilling
projects scheduled for beyond 2007. Hemmelte NW Z-1, an exploratory well,
is the only well planned for the western half of Oldenburg. This well is
scheduled to exploit two gas bearing zones, the Bunter sweet gas zone and the
Zechstein sour gas zone. Quadmoor Z-5 is an infill well intended to exploit
the sour gas bearing Zechstein zone within an existing field and increase
overall field recovery. Goldenstedt Z-23a, a horizontal deviation, will be
the fourth well to exploit the Carboniferous zone. The final well, Cappeln
Z-6, is scheduled to exploit a separate geological block of the Carboniferous
zone. No start times for these future drilling projects have been announced.
According to the long term inspection and maintenance schedule, there
is no maintenance work scheduled for the Grossenkneten desulfurization plant
during 2007. The new compressor units completed in the fall of 2004
continue to contribute to gas production levels without any major problems.
-----------------------------------
This report on Form 10-Q 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 prices, general economic conditions and currency
exchange rates and the risks described in Item 1A, "Risk Factors," in the
Trust's Annual Report on 10-K for the fiscal year ended October 31, 2006.
Actual results and events may vary significantly from those discussed in the
forward looking statements.
-15-
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
The Trust does not engage in any trading activities with respect to
possible foreign exchange fluctuations. The Trust does not use any financial
instruments to hedge against possible risks related to foreign exchange
fluctuations. The market risk is negligible because standing instructions
at its German bank require the bank to process conversions and transfers of
royalty payments as soon as possible following their receipt. The Trust
does not engage in any trading activities with respect to possible commodity
price fluctuations.
Item 4. Controls and Procedures.
-----------------------
The Trust maintains disclosure controls and procedures that are designed
to ensure that information required to be disclosed by the Trust is recorded,
processed, summarized, accumulated and communicated to its management, which
consists of the Managing Director, to allow timely decisions regarding
required disclosure, and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The Managing Director
has performed an evaluation of the effectiveness of the design and operation
of the Trust's disclosure controls and procedures as of April 30, 2007.
Based on that evaluation, the Managing Director concluded that the Trust's
disclosure controls and procedures were effective as of April 30, 2007.
There have been no changes in our internal control over financial
reporting identified in connection with the evaluation described above that
occurred during the second quarter of fiscal 2007 that have materially
affected or are reasonably likely to materially affect our internal control
over financial reporting.
Part II -- OTHER INFORMATION
----------------------------
Item 5. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
The Annual Meeting of Unit Owners was held on February 12, 2007. The
following persons were elected as Trustees of the Trust to serve until the
next Annual Meeting of Unit Owners:
Robert P. Adelman (7,889,951 votes for; 144,198 withheld)
Samuel M. Eisenstat (7,981,503 votes for; 52,646 withheld)
Lawrence A. Kobrin (7,952,165 votes for; 81,984 withheld)
Willard B. Taylor (7,959,366 votes for; 74,783 withheld)
Rosalie J. Wolf (7,976,794 votes for; 57,355 withheld)
-16-
Item 6. Exhibits.
--------
(a) Exhibits.
Exhibit 31. Certification of Chief Executive Officer and
Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
Exhibit 32. Certification of Chief Executive Officer and
Chief Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NORTH EUROPEAN OIL ROYALTY TRUST
---------------------------------
(Registrant)
/s/ John R. Van Kirk
---------------------------------
John R. Van Kirk
Managing Director
Dated: May 31, 2007