Attached files
- 48 -
Exhibit 99.1
NORTH EUROPEAN OIL ROYALTY TRUST
CALCULATION OF COST DEPLETION PERCENTAGE
FOR 2010 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, 2010
Ralph E. Davis Associates, Inc.
Consultants - Petroleum and Natural Gas
1717 St. James Place, Suite 460
Houston, Texas 77056
(713) 622-8955
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T A B L E O F C O N T E N T S
Discussion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Description of Holdings . . . . . . . . . . . . . . . . . . . . . . . . 2,3
Oldenburg Area - Sales and Reserves . . . . . . . . . . . . . . . . . . . 3
Total Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Gross Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Net Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,5
Limitations of Available Data . . . . . . . . . . . . . . . . . . . . . 5,6
Calculation of Cost Depletion Percentage . . . . . . . . . . . . . . . 7,8
Certificate of Qualification . . . . . . . . . . . . . . . . . . . . . . 9
Attachment A:
Reserve Summary and Five Year Net Sales History . . . . . . . . . 10
Attachment B:
Calculation of Cost Depletion Percentage . . . . . . . . . . . . 11,12
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Ralph E. Davis Associates, Inc.
Consultants - Petroleum and Natural Gas
1717 St. James Place, Suite 460
Houston, Texas 77056
(713) 622-8955
December 17, 2010
The Trustees of
North European Oil Royalty Trust
P. O. Box 456
Red Bank, New Jersey 07701
Trustees:
In accordance with the request of the Trustees of North European
Oil Royalty Trust (the "Trustees"), the firm of Ralph E. Davis Associates,
Inc. of Houston, Texas has performed the calculations necessary to derive
the cost depletion percentage for the 2010 calendar year. The cost depletion
percentage was prepared for use by individual Trust unit owners in their tax
preparations. In order to perform the calculation of the cost depletion
percentage we were further requested by the Trustees to prepare a report of
the estimated remaining proved producing reserves attributable to the
overriding royalty interest of North European Oil Royalty Trust (the "Trust")
in the Northwest German Basin of the Federal Republic of Germany as of
October 1, 2010.
The reserves associated with this review have been classified in
accordance with the definitions of the Securities and Exchange Commission as
found in Part 210 Form and Content of and Requirements for Financial
Statements, Securities Act of 1933, Securities Exchange Act of 1934, Public
Utility Holding Company Act of 1935, Investment Company Act of 1940,
Investment Advisers Act of 1940, and Energy Policy and Conservation Act of
1975, under Rules of General Application Section 210.4-10 Financial
accounting and reporting for oil and gas producing activities pursuant to the
Federal securities laws and the Energy Policy and Conservation Act of 1975.
The proved producing reserves are as of October 1, 2010 and the
reported sales are for the twelve month period ending September 30, 2010.
The use of the period ending September 30, 2010 is consistent with prior
years and allows the timely calculation of the royalty reserves and the cost
depletion percentage for the calendar year. Throughout this report the unit
price used for crude oil, condensate, natural gas and sulfur is based upon
the appropriate price in effect for each of the twelve months during fiscal
2010 and averaged for the period. Based on the results of our calculation of
estimated remaining proved producing reserves contained in the first part of
this report, we have performed the calculations necessary to derive the cost
depletion percentage for the 2010 calendar year. As detailed in Attachment
B, the cost depletion percentage for the 2010 calendar year for Trust unit
owners is equal to 8.1743 % of their cost base as of January 1, 2010.
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North European Oil Royalty Trust December 17, 2010
Page 2
DESCRIPTION OF HOLDINGS
-----------------------
The Trust holds various overriding royalty rights on sales of gas,
sulfur and oil from certain concessions and leases in the Federal Republic of
Germany. The Oldenburg concession (1,398,000 acres), covering virtually the
entire former Grand Duchy of Oldenburg and located in the federal state of
Lower Saxony, is held by Oldenburgische Erdolgesellschaft ("OEG"). OEG in
turn is owned by Mobil Erdgas-Erdol GmbH ("Mobil Erdgas"), the German
subsidiary of ExxonMobil Corp. and by BEB Erdgas und Erdol GmbH ("BEB"), a
joint venture of ExxonMobil Corp. and the Royal Dutch/Shell Group. As a
result by direct and indirect ownership, ExxonMobil Corp. owns two-thirds of
OEG and the Royal Dutch/Shell Group owns one-third of OEG.
The Oldenburg concession is the major source of royalty income for
the Trust. All proved producing reserves within the Oldenburg concession are
covered by this report. Although the Trust has interests in other producing
areas, reserves and net sales for these areas are no longer used in the
calculation of the annual cost depletion percentage. The exclusion of these
reserves does not have a material effect on the calculation of the cost
depletion percentage. We will continue to monitor the quarterly statements
and, if increases are noted that could materially add reserves to the Trust,
we will resume estimating future reserves.
1. In 2002 Mobil Erdgas and BEB formed a new company ExxonMobil
Production Deutschland GmbH to carry out all exploration,
drilling and production within the Oldenburg concession. All
sales activities are still handled by either Mobil Erdgas or
BEB.
(a) 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 or oil
well gas, which together account for approximately 99% of
all the royalties under said agreement.
(b) Under another series of rights covering the entire
Oldenburg concession and pursuant to an agreement with
OEG, 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 (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 gross sales receipts prior to the calculation of the
royalty to be paid to the Trust.
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North European Oil Royalty Trust December 17, 2010
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(c) The Trust is also entitled to receive from Mobil Erdgas a
2% royalty payment on gross receipts of sales of sulfur
obtained as a by-product of sour gas produced from the
western part of Oldenburg. However, the payment of the
sulfur royalty is provisional on whether Mobil Erdgas'
selling price meets or exceeds the indexed base price. The
selling price had been below the indexed base price for
more than ten years, but beginning in the second quarter
of fiscal year 2008 the price for sulfur exceeded the
indexed base price. The average selling price for sulfur
exceeded the indexed base price, and the Trust received
sulfur royalties under the Mobil Agreement, during the
second, third and fourth quarters of fiscal 2008, the first
quarter of fiscal 2009 and the third quarter of fiscal
2010. Reserves for this royalty are not included in
overall reserve calculations.
OLDENBURG AREA - SALES AND RESERVES
------------------------------------
The Trust's royalty income comes primarily from the Oldenburg area.
Gas production accounts for the majority of the income; however, the hydrogen
sulfide in much of the gas produced necessitates its removal before the gas
can be sold. At the Grossenkneten desulfurization plant, the hydrogen sulfide
in sour gas is removed. Following earlier renovations and improvements to
the plant, the plant's present input capacity stands at 679.4 million cubic
feet ("MMcf") per day. A second desulfurization plant, Norddeutsche Erdgas
Aufbereitungs GmbH ("NEAG") remains connected by pipeline with the
transportation system of the Oldenburg concession but is currently being
utilized only to a limited degree for the processing of gas from Oldenburg.
TOTAL SALES
-----------
During the twelve months ending September 30, 2010, total sales for
the Oldenburg area were as follows:
WEST EAST TOTAL
---- ---- -----
Gas Well Gas-MMcf 43,527 70,178 113,705
Oil Well Gas-MMcf 46 8 54
Oil & Condensate-Barrels 79,011 40,835 119,846
Sulfur-Short Tons 172,645 472,426 645,071
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North European Oil Royalty Trust December 17, 2010
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GROSS RESERVES
--------------
Estimated gross remaining proved producing reserves attributable
to the total Oldenburg area as of October 1, 2010 are as follows:
WEST EAST TOTAL
---- ---- -----
Gas Well Gas-MMcf 459,928 970,880 1,430,808
Oil Well Gas-MMcf 486 34 520
Oil & Condensate-Barrels 1,158,809 591,416 1,750,225
Sulfur-Short Tons 1,836,175 7,135,231 8,971,406
NET RESERVES
------------
To present an accurate picture of estimated proved producing
reserves net to the Trust, the gross reserve figures outlined above must be
modified by the impact of the different royalty rates in effect in the
Oldenburg concession. A comparison of the Trust's overriding royalty rates
in both the western and eastern areas of Oldenburg is as follows:
Mobil Erdgas West East
--------------- ---------- ----------
Gas & Oil 4% 0%
Sulfur 2%(1) 0%
BEB
---------------
Gas & Oil 0.6667%(2) 0.6667%**
Sulfur 0.6667%(2) 0.6667%**
(1) With the exception of the third quarter of fiscal 2010, no royalty
payments under the Mobil Erdgas sulfur royalty were received.
(2) Prior to the calculation of royalties, 50% of costs as reported for state
royalty purposes are deducted.
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North European Oil Royalty Trust December 17, 2010
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The application of these royalty rates to the estimated gross
remaining proved producing reserves attributable to the western and eastern
Oldenburg areas yields the combined estimated proved producing reserves net
to the Trust. The Trust's estimated remaining net proved producing reserves
as of October 1, 2010 and net sales for the twelve month period ending
September 30, 2010 are as follows:
Reserves Sales
-------- -----
Gas Well Gas-MMcf 26,940 2,421
Oil Well Gas-MMcf 22 2
Oil & Condensate-Barrels 56,840 3,916
Sulfur-Short Tons 85,085(1) 6,937(1)
(1) With the exception of the third quarter of fiscal 2010, no royalty
payments under the Mobil Erdgas sulfur royalty were received.
A summary of net proved producing reserves by product and a five
year history of net sales attributable to the royalty interests of the Trust
are presented in Attachment A.
LIMITATIONS OF AVAILABLE DATA
-----------------------------
The reserves considered in this report are defined as proved
producing reserves. Proved producing reserves are limited to those
quantities which can be expected to be recoverable commercially from known
reservoirs at current prices and costs, under existing regulatory practices
and with existing conventional equipment and operating methods. Proved
producing reserves do not include either proved developed non-producing
reserves or any class of probable reserves.
The estimate of reserves included in this report is based primarily
upon production history or analogy with wells in the area producing from the
same or similar formations. In addition to individual well production
history, geological and well test information, when available, were utilized
in the evaluation.
The accuracy of reserve estimates is dependent upon the quality of
available data and upon the independent geological and engineering
interpretation of that data. Reserve estimates presented in this report are
calculated using acceptable methods and procedures and are believed to be
reasonable; however, future reservoir performance may justify revision of
these estimates.
For the purpose of this report, estimated reserves are scheduled
for recovery primarily on the basis of actual producing rates or appropriate
well test information. They were prepared giving consideration to engineering
and geological data, anticipated producing mechanisms, the number and types
of completions, as well as past performance of analogous reservoirs.
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North European Oil Royalty Trust December 17, 2010
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These and other future rates may be subject to regulation by
various agencies, changes in market demand or other factors; consequently,
reserves recovered and the actual rates of recovery may vary from the
estimates included herein.
The Trust, as an overriding royalty interest owner, does not
receive proprietary data from the various operators on producing wells.
Data, such as logs, core analysis, reservoir tests, pressure tests, gas
analyses, geologic maps, and individual well production histories on all of
the wells which are used in volumetric and material balance type reserve
estimates, are not available to the Trust. The lack of such data increases
the inherent uncertainties of our reserve estimate.
The Trust receives various monthly and quarterly statements from
the operators that report production, sales and revenue data. Utilizing the
same procedures as in prior years, this information plus published
information received from W.E.G. (a German organization comparable to the
American Petroleum Institute or the American Gas Association) has been used
to prepare this annual report. In addition, the Trust retains a part-time
consultant in Germany who is familiar with the German petroleum industry in
general and the operating companies in particular. His periodic reports and
communications were considered in the preparation of this report.
We believe that reserve estimates prepared using all the available
data are appropriate and sufficient for the calculation of the cost depletion
percentage. However, due to the limitations of available data, this estimate
of reserves cannot have the same degree of accuracy that an estimate of
reserves prepared using all pertinent data would have. Our experience in the
evaluation of reserves using such limited data, including nineteen (19) years
of experience working for the Trust, compensates somewhat for the limitations
of available data.
The data in the reports received by the Trust is in metric tons and
cubic meters. The following Metric to English Unit conversion factors were
used:
Gas: 37.25 cubic feet per cubic meter at 14.7 psia
and 60 degrees Fahrenheit
Oil: 7.23 barrels per metric ton
Sulfur: 1.1 short tons per metric ton
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North European Oil Royalty Trust December 17, 2010
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CALCULATION OF COST DEPLETION PERCENTAGE
----------------------------------------
The categories of proved producing reserves considered in the
calculation of the cost depletion percentage are oil, oil well gas, and gas
well gas. Sulfur is a by-product of gas production and is not considered in
the computation of total cost depletion percentage.
For each category of reserves, a product base was established for
the Trust as of January 1, 1976. Through the use of these product bases, we
can account for the relative size of each of these categories of reserves and
the corresponding impact on the calculation of the cost depletion percentage.
The product base for each category of proved producing reserves is reduced
annually by an adjustment that is calculated by multiplying the product base
at the beginning of the current year by the depletion factor for that
category of reserves. The depletion factor for each category of reserves is
the ratio of the relevant net sales during the current year to the
corresponding adjusted net proved producing reserves at the beginning of the
current year.
Significant items in the cost depletion percentage calculation that
appear on Attachment B as specific item numbers, shown in parentheses and
their sources are as follows:
The adjusted estimated net proved producing reserves as of
10/1/09 Line (3) is obtained by adding the estimated remaining
net proved producing reserves as of 10/1/09 Line (1) and the
adjustments to reserves during the period Line (2). Therefore
Line (3) = Line (1)+ Line (2).
The depletion factor Line (6) for each category of proved
producing reserves is obtained by dividing the relevant net
sales Line (4) by the corresponding adjusted estimated net
proved producing reserves as of 10/1/09 Line (3). Therefore
Line (6) = Line (4) / Line (3).
The product base for each category of proved producing reserves
as of 1/1/09 Line (7) and the adjustment taken during 2009 Line
(8) were obtained from the previous year's report. The product
base as of 1/1/10 Line (9) forms the initial starting point for
the calculation of the cost depletion percentage for the 2010
tax year. The product base for 1/1/10 Line (9) then is Line (7)
- Line (8).
The adjustment to the product base for each category of proved
producing reserves Line (10) is used to reduce the product base
as of the beginning of each year. This adjustment is the
product of the depletion factor for each category of proved
producing reserves Line (6) multiplied by the corresponding
product base as of 1/1/10 Line (9). Therefore Line (10) =
Line (6) x Line (9).
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North European Oil Royalty Trust December 17, 2010
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The cost depletion percentage Line (11) then is the sum of the
adjustment to the product base of each category of proved
producing reserves [Sum Line (10)] divided by the sum of the
product base for each category as of 1/1/10 [Sum Line (9)].
Therefore Line (11) = [Sum Line (10)] / [Sum Line (9)].
The cost depletion percentage represents the total allowable cost
depletion for the 2010 calendar year for the Trust's unit owners, expressed
as a percentage of their cost base as of January 1, 2010.
Sincerely yours,
RALPH E. DAVIS ASSOCIATES, INC.
/s/ Allen C. Barron
----------------------------
Allen C. Barron, P.E.
President
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North European Oil Royalty Trust December 17, 2010
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CERTIFICATE OF QUALIFICATION
----------------------------
I, Allen C. Barron, Registered Professional Engineer, do hereby
certify:
1. That I am President of the consulting firm of Ralph E. Davis
Associates, Inc. with offices at 1717 St. James Place, Suite
460, Houston, Texas 77056.
2. That I have prepared a reserve report on the interests of the
North European Oil Royalty Trust in the Northwest Basin of the
Federal Republic of Germany as of October 1, 2010 for the
purpose of calculating the cost depletion percentage applicable
to Trust unit owners for the 2010 calendar year.
3. That I have no direct or indirect interest, nor do I expect to
receive any direct or indirect interest, in the properties or
in any securities of the North European Oil Royalty Trust.
4. That I attended The University of Houston and that I graduated
with a Bachelor of Science Degree in Chemical Engineering with
a Petroleum Engineering Option in 1968.
5. That I am a Registered Professional Engineer in the State of
Texas Registration Number 49284, and that I am a member in
good standing of the National Society of Professional Engineers,
the Texas Society of Professional Engineers, the Society of
Petroleum Engineers, the Society of Petroleum Evaluation
Engineers, the American Association of Petroleum geologists
and other industry organizations.
6. That I have in excess of forty years experience in the
evaluation of oil and gas properties in the United States,
Canada, South America, Asia and Germany, and that I have
been practicing as a consultant in petroleum reservoir
engineering since 1978.
RALPH E. DAVIS ASSOCIATES, INC.
/s/ Allen C. Barron
---------------------------------
Allen C. Barron, P.E.
President
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North European Oil Royalty Trust December 17, 2010
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ATTACHMENT A
NORTH EUROPEAN OIL ROYALTY TRUST
RESERVE SUMMARY AND FIVE YEAR NET SALES HISTORY
ESTIMATED NET PROVED PRODUCING RESERVES
---------------------------------------
AS OF OCTOBER 1, 2010
---------------------
OLDENBURG
---------------------------------------------------------------------------
Gas Well Oil Well Oil/Cond. Sulfur
Gas Gas
MMcf MMcf Barrels Short Tons
--------- ---------- ---------- ----------
26,940 22 56,840 85,085(1)
FIVE YEAR NET SALES SUMMARY
---------------------------
12 MONTHS ENDING SEPTEMBER 30, 2010
-----------------------------------
OLDENBURG
---------------------------------------------------------------------------
Gas Well Oil Well Oil/Cond. Sulfur
Gas Gas
MMcf MMcf Barrels Short Tons
---------- ---------- ---------- ------------
2010 2,421 2 3,916 6,937(1)
2009 2,816 2 4,828 8,780(2)
2008 2,975 1 4,763 8,985(3)
2007 3,586 2 5,934 3,822(4)
2006 4,031 2 5,653 5,158(4)
(1) With the exception of the third quarter of fiscal 2010, no payments
were received under the Mobil Erdgas sulfur royalty.
(2) With the exception of the first quarter of 2009, no payments were
received under the Mobil Erdgas sulfur royalty.
(3) Payments under the Mobil Erdgas sulfur royalty resumed as of the
second quarter of fiscal 2008 and continued through the remainder
of the fiscal year.
(4) At then current prices, no payments were received under the Mobil
Erdgas sulfur royalty.
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North European Oil Royalty Trust December 17, 2010
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ATTACHMENT B
NORTH EUROPEAN OIL ROYALTY TRUST
CALCULATION OF TOTAL COST DEPLETION PERCENTAGE
For the Year Ending December 31, 2010
OLDENBURG
-------------------------------------
Gas Well Oil Well
Gas Gas Oil
MMcf MMCF Barrels
------- ---------- ----------
NEORT NET RESERVES (Million Cubic Feet of Gas and Barrels of Oil )
------------------------------------------------------------------
1. Estimated remaining net proved
producing reserves as of 10-1-09 30,041 21 69,809
2. Adjustments to reserves
during period -680 3 -9,053
3. Adjusted est. net proved
producing reserves
as of 10-1-09 29,361 24 60,756
4. Net sales from 10-1-09
to 9-30-10 2,421 2 3,916
5. Estimated remaining net proved
producing reserves
as of 10-1-10 26,940 22 56,840
RESERVE DEPLETION FACTOR
-----------------------------
6. Depletion factor 0.08246 0.08333 0.06445
NEORT WEIGHTED PRODUCT BASE ALLOCATION
-------------------------------------------
7. Product base as of 1-1-09 5.02893 0.00452 0.20425
8. Less adjustments taken
during 2009 0.43100 0.00039 0.01313
9. Product base as of 1-1-10 4.59793 0.00413 0.19112
10. 2010 Adjustment
to product base 0.37915 0.00034 0.01232
11. Cost depletion percentage for 2010 calendar year for Trust unit owners
is equal to 8.1743 percent of their 1-1-10 cost base.
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North European Oil Royalty Trust December 17, 2010
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Footnotes:
Line (1) from reserves review as of 10-1-09
Line (2) from reserves review as of 10-1-10
Line (3) = Line (1) + Line (2)
Line (4) from BEB and Mobil Erdgas statements
Line (5) from reserves review as of 10-1-10
Line (6) = Line (4) / Line (3)
Line (7) from 2009 depletion calculations
Line (8) from 2009 depletion calculations
Line (9) = Line (7) - Line (8)
Line (10) = Line (9) x Line (6)
Line (11) = Sum Line (10) / Sum Line (9
