UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE |
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SECURITIES
EXCHANGE ACT OF 1934
for the fiscal year ended December 31,
2010
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE |
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SECURITIES
EXCHANGE ACT OF 1934
for the transition period
from
to
Commission file number
001-34026
WHITING
USA TRUST I
(Exact name of registrant as
specified in its charter)
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Delaware
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26-6053936
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(State or other jurisdiction of incorporation
or organization)
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(I.R.S. Employer
Identification No.)
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The
Bank of New York Mellon
Trust Company, N.A.,
Trustee
Global Corporate Trust
919 Congress Avenue
Austin, Texas
(Address of principal executive offices)
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78701
(Zip Code)
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Registrants telephone number, including area code:
(800) 852-1422
Securities registered pursuant to Section 12(b) of the
Act:
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Units of Beneficial Interest
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New York Stock Exchange
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Title of Each Class
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Name of Each Exchange on which Registered
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Securities registered pursuant to Section 12(g) of the
Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes No ü .
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 ü .
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 ü No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes No .
Indicate by check mark 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 registrants 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. ü
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large Accelerated Filer
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Accelerated
Filer ü
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Non-Accelerated Filer
(Do not check if a smaller reporting company)
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Smaller Reporting Company
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes No ü .
The aggregate market value of Units of Beneficial Interest in
Whiting USA Trust I held by non-affiliates at the closing
sales price on June 30, 2010 of $16.68 was $194,780,700.
As of March 11, 2011, 13,863,889 Units of Beneficial
Interest in Whiting USA Trust I were outstanding.
Documents
Incorporated By Reference: None
TABLE
OF CONTENTS
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A-1
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EX-31 |
EX-32 |
EX-99 |
-1-
References to the Trust in this document refer to
Whiting USA Trust I. References to Whiting in
this document refer to Whiting Petroleum Corporation and its
wholly-owned subsidiaries. References to Whiting Oil and
Gas in this document refer to Whiting Oil and Gas
Corporation, a wholly owned subsidiary of Whiting Petroleum
Corporation and the successor to Equity Oil Company. Equity Oil
Company was merged into Whiting Oil and Gas Corporation
effective September 30, 2009. The merger did not have an
effect on the Trust.
FORWARD-LOOKING
STATEMENTS
This Annual Report on
Form 10-K
includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of
1934, as amended. All statements other than statements of
historical facts included in this
Form 10-K,
including without limitation the statements under
Trustees Discussion and Analysis of Financial
Condition and Results of Operation are forward-looking
statements. No assurance can be given that such expectations
will prove to have been correct. When used in this document, the
words believes, expects,
anticipates, intends or similar
expressions are intended to identify such forward-looking
statements. The following important factors, in addition to
those discussed elsewhere in this
Form 10-K,
could affect the future results of the energy industry in
general, and Whiting and the Trust in particular, and could
cause actual results to differ materially from those expressed
in such forward-looking statements:
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the effect of changes in commodity prices and conditions in the
capital markets;
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the effects of global credit, financial and economic issues;
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uncertainty of estimates of oil and natural gas reserves and
production;
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risks incident to the operation of oil and natural gas wells;
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future production costs;
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the inability to access oil and natural gas markets due to
market conditions or operational impediments;
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failure of the underlying properties to yield oil or natural gas
in commercially viable quantities;
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the effect of existing and future laws and regulatory actions;
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competition from others in the energy industry;
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risks arising out of the hedge contracts;
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inflation or deflation; and
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other risks described under the caption Risk Factors
in this
Form 10-K.
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This
Form 10-K
describes other important factors that could cause actual
results to differ materially from expectations of Whiting and
the Trust, including under the caption Risk Factors.
All subsequent written and oral forward-looking statements
attributable to Whiting or the Trust or persons acting on behalf
of Whiting or the Trust are expressly qualified in their
entirety by such factors. The Trust assumes no obligation, and
disclaims any duty, to update these forward-looking statements.
-2-
GLOSSARY
OF CERTAIN DEFINITIONS
In this
Form 10-K
the following terms have the meanings specified below.
Bbl One stock tank barrel, or 42
U.S. gallons liquid volume, used in this report in
reference to oil and other liquid hydrocarbons.
Bcf One billion cubic feet of natural gas.
BOE One stock tank barrel of oil equivalent,
computed on an approximate energy equivalent basis that one Bbl
of crude oil equals six Mcf of natural gas and one Bbl of crude
oil equals one Bbl of natural gas liquids.
BOE/d One BOE per day.
Completion The installation of permanent
equipment for the production of oil or natural gas, or in the
case of a dry hole, the reporting of abandonment to the
appropriate agency.
COPAS The Council of Petroleum Accountants
Societies, Inc.
Costless collar An options position where the
proceeds from the sale of a call option fund the purchase of a
put option.
Differential The difference between a
benchmark price of oil and natural gas, such as the NYMEX crude
oil spot, and the wellhead price received.
Estimated Future Net Revenues Also referred
to as estimated future net cash flows. The result of
applying current prices of oil, natural gas and natural gas
liquids to estimated future production from oil, natural gas and
natural gas liquids proved reserves, reduced by estimated future
expenditures, based on current costs to be incurred, in
developing and producing the proved reserves, excluding overhead.
Farm-in or Farm-out Agreement An agreement
under which the owner of a working interest in an oil or natural
gas lease typically assigns the working interest or a portion of
the working interest to another party who desires to drill on
the leased acreage. Generally, the assignee is required to drill
one or more wells in order to earn its interest in the acreage.
The assignor usually retains a royalty or reversionary interest
in the lease. The interest received by an assignee is a
farm-in while the interest transferred by the
assignor is a farm-out.
FASB Financial Accounting Standards Board.
FASB ASC The Financial Accounting Standards
Board Accounting Standards Codification.
Field An area consisting of either a single
reservoir or multiple reservoirs, all grouped on or related to
the same individual geological structural feature
and/or
stratigraphic condition.
GAAP Generally accepted accounting principles
in the United States.
-3-
Gross Acres or Gross Wells The total acres or
wells, as the case may be, in which a working interest is owned.
IRS The Internal Revenue Service of the
United States federal government.
MBbl One thousand barrels of crude oil or
other liquid hydrocarbons.
MBOE One thousand BOE.
MMBOE One million BOE.
Mcf One thousand standard cubic feet of
natural gas.
MMcf One million standard cubic feet of
natural gas.
Net Profits Interest (NPI) A nonoperating
interest that creates a share in gross production from an
operating or working interest in oil and natural gas properties.
The share is measured by net profits from the sale of production
after deducting costs associated with that production.
Net Revenue Interest An interest in all oil,
natural gas and natural gas liquids produced and saved from, or
attributable to, a particular property, net of all royalties,
overriding royalties, net profits interests, carried interests,
reversionary interests and any other burdens to which the
persons interest is subject.
Plugging and Abandonment Refers to the
sealing off of fluids in the strata penetrated by a well so that
the fluids from one stratum will not escape into another or to
the surface. Regulations of many states require plugging of
abandoned wells.
Pre-tax PV 10% The present value of
estimated future revenues to be generated from the production of
proved reserves calculated in accordance with Securities and
Exchange Commission (SEC) guidelines, net of
estimated lease operating expense, production taxes and future
development costs, using costs and prices (prices being the
12-month
average price calculated using the
first-day-of-the-month
price for each of the 12 months that make up the reporting
period) as of the date of estimation without future escalation,
without giving effect to non-property related expenses such as
general and administrative expenses, debt service and
depreciation, depletion and amortization, or Federal income
taxes and discounted using an annual discount rate of 10%.
Pre-tax PV10% may be considered a non-GAAP financial measure as
defined by the SEC.
Proved developed reserves Proved reserves
that can be expected to be recovered through existing wells with
existing equipment and operating methods or in which the cost of
the required equipment is relatively minor compared to the cost
of a new well.
Proved reserves Those reserves which, by
analysis of geoscience and engineering data, can be estimated
with reasonable certainty to be economically
producible from a given date forward, from known
reservoirs and under existing economic conditions, operating
methods and government regulations prior to the time
at which contracts providing the right to operate expire, unless
evidence indicates that renewal is reasonably certain,
regardless of whether deterministic or probabilistic methods are
used for the estimation. The project to extract the hydrocarbons
must have commenced, or the operator must be reasonably certain
that it will commence the project, within a reasonable time.
-4-
The area of the reservoir considered as proved includes all of
the following:
a. The area identified by drilling and limited by fluid
contacts, if any, and
b. Adjacent undrilled portions of the reservoir that can,
with reasonable certainty, be judged to be continuous with it
and to contain economically producible oil or gas on the basis
of available geoscience and engineering data.
Reserves that can be produced economically through application
of improved recovery techniques (including, but not limited to,
fluid injection) are included in the proved classification when
both of the following occur:
a. Successful testing by a pilot project in an area of the
reservoir with properties no more favorable than in the
reservoir as a whole, the operation of an installed program in
the reservoir or an analogous reservoir, or other evidence using
reliable technology establishes the reasonable certainty of the
engineering analysis on which the project or program was
based, and
b. The project has been approved for development by all
necessary parties and entities, including governmental entities.
Existing economic conditions include prices and costs at which
economic producibility from a reservoir is to be determined. The
price shall be the average price during the
12-month
period before the ending date of the period covered by the
report, determined as an unweighted arithmetic average of the
first-day-of-the-month
price for each month within such period, unless prices are
defined by contractual arrangements, excluding escalations based
upon future conditions.
Reasonable certainty If deterministic methods
are used, reasonable certainty means a high degree of confidence
that the quantities will be recovered. If probabilistic methods
are used, there should be at least a 90 percent probability
that the quantities actually recovered will equal or exceed the
estimate. A high degree of confidence exists if the quantity is
much more likely to be achieved than not, and, as changes due to
increased availability of geoscience (geological, geophysical
and geochemical) engineering, and economic data are made to
estimated ultimate recovery with time, reasonably certain
estimated ultimate recovery is much more likely to increase or
remain constant than to decrease.
Recompletion The completion for production of
an existing well bore in another formation from which that well
has been previously completed.
Reserves Estimated remaining quantities of
oil and gas and related substances anticipated to be
economically producible, as of a given date, by application of
development projects to known accumulations. In addition, there
must exist, or there must be a reasonable expectation that there
will exist, the legal right to produce or a revenue interest in
the production, installed means of delivering oil and gas or
related substances to market, and all permits and financing
required to implement the project.
Reservoir A porous and permeable underground
formation containing a natural accumulation of producible crude
oil and/or
natural gas that is confined by impermeable rock or water
barriers and is individual and separate from other reservoirs.
-5-
Standardized Measure of Discounted Future Net Cash
Flows Also referred to herein as
standardized measure. The discounted future net cash
flows relating to proved reserves based on, the average price
during the 12 month period before the ending date of the
period covered by the report, determined as an unweighted
arithmetic average of the
first-day-of-the-month
price for each month within such period (unless prices are
defined by contractual arrangements, excluding escalations based
upon future conditions), current costs and statutory tax rates,
and a 10% annual discount rate.
Working Interest The interest in a crude oil
and natural gas property (normally a leasehold interest) that
gives the owner the right to drill, produce and conduct
operations on the property and to share in production, subject
to all royalties, overriding royalties and other burdens and to
share in all costs of exploration, development and operations
and all risks in connection therewith.
Workover Operations on a producing well to
restore or increase production.
-6-
General
Whiting USA Trust I is a statutory trust formed in October
2007 under the Delaware Statutory Trust Act, pursuant to a
trust agreement (the Trust agreement) among Whiting
Oil and Gas as trustor, The Bank of New York Trust Company,
N.A., as Trustee (subsequently renamed The Bank of New York
Mellon Trust Company, N.A., and hereinafter referred to as
Trustee), and Wilmington Trust Company, as
Delaware Trustee (the Delaware Trustee). The initial
capitalization of the Trust estate was funded by Whiting in
November 2007. The Trust maintains its offices at the office of
the Trustee, at 919 Congress Avenue, Austin, Texas 78701. The
telephone number of the Trustee is
1-800-852-1422.
The Trust makes copies of its reports under the Exchange Act
available at www.businesswire.com/cnn/whx.htm. The
Trusts filings under the Exchange Act are also available
electronically from the website maintained by the Securities and
Exchange Commission (SEC) at
http://www.sec.gov.
In addition, the Trust will provide electronic and paper copies
of its recent filings free of charge upon request to the Trustee.
As of December 31, 2007, the Trust had no assets other than
a de minimus cash balance from the initial capitalization
and had conducted no operations other than organizational
activities. In April 2008, the Trust issued
13,863,889 units of beneficial interest in the Trust
(Trust units) to Whiting in exchange for the
conveyance of a term net profits interest (NPI) by
Whiting Oil and Gas. The NPI represents the right for the Trust
to receive 90% of the net proceeds from Whitings interests
in certain existing oil, natural gas and natural gas liquid
producing properties which we refer to as the underlying
properties. The underlying properties are located in the
Rocky Mountains, Mid-Continent, Permian Basin and Gulf Coast
regions. The underlying properties include interests in
3,077 gross (373.1 net) producing oil and gas wells.
Immediately after the conveyance, Whiting completed an initial
public offering of Trust units selling 11,677,500 such units.
Whiting retained ownership of 2,186,389 Trust units, or 15.8% of
the total Trust units issued and outstanding.
The NPI will terminate when 9.11 MMBOE have been produced
and sold from the underlying properties (which amount is the
equivalent of 8.20 MMBOE in respect of the Trusts
right to receive 90% of the net proceeds from such reserves
pursuant to the NPI), and the Trust will soon thereafter wind up
its affairs and terminate. As of December 31, 2010, on a
cumulative accrual basis 3.90 MMBOE of the Trusts
total 8.20 MMBOE have been produced and sold and a
cumulative 0.02 MMBOE have been divested. Further detail on
the reserves is provided herein under the section titled
Properties-Description of the Underlying
Properties Reserves, and such reserve
information is based upon a reserve report prepared by
independent reserve engineers Cawley, Gillespie &
Associates, Inc. for the underlying properties at
December 31, 2010, which we refer to as the reserve
report. According to the reserve report, the portion of
the 9.11 MMBOE (8.20 MMBOE at the 90% NPI) reserve
quantities attributable to the NPI not yet produced or sold as
divestitures at December 31, 2010 is projected to be
produced from the underlying properties by November 30,
2015, and the reserve report is based on the assumptions
included therein. See Risk Factors in Item 1A
of this Annual Report on
Form 10-K
for additional discussion. Production from the underlying
properties for the year ended December 31, 2010, was
approximately 60% oil and approximately 40% natural gas.
-7-
Net proceeds payable to the Trust depend upon production
quantities, sales prices of oil, natural gas and natural gas
liquids, costs to develop and produce the oil, natural gas and
natural gas liquids and realized cash settlements from commodity
derivative contracts. In calculating net proceeds, Whiting
deducts from gross oil and natural gas sales proceeds, all
royalties, lease operating expenses (including costs of
workovers), production and property taxes, hedge payments made
by Whiting to the hedge contract counterparty, maintenance
expenses, postproduction costs (including plugging and
abandonment liabilities) and producing overhead. If at any time
costs should exceed gross proceeds, neither the Trust nor the
Trust unitholders would be liable for the excess costs. The
Trust however, would not receive any net proceeds until future
net proceeds exceed the total of those excess costs, plus
interest at the prime rate. For more information on the net
proceeds calculation, see Computation of Net
Proceeds later in this section.
The Trust makes quarterly cash distributions of substantially
all of its quarterly cash receipts, after the deduction of fees
and expenses for the administration of the Trust, to holders of
its Trust units. Because payments to the Trust are generated by
depleting assets and the Trust has a finite life with the
production from the underlying properties diminishing over time,
a portion of each distribution represents a return of the
original investment in the Trust units.
The Trustee can authorize the Trust to borrow money to pay Trust
administrative or incidental expenses that exceed cash held by
the Trust. The Trustee may authorize the Trust to borrow from
the Trustee, Whiting or the Delaware Trustee as a lender,
provided the terms of the loan are similar to the terms it would
grant to a similarly situated commercial customer with whom it
did not have a fiduciary relationship. The Trustee may also
deposit funds awaiting distribution in an account with itself
and make other short-term investments with the funds awaiting
distribution.
The Trust was created to acquire and hold the term NPI for the
benefit of the Trust unitholders pursuant to a conveyance to the
Trust from Whiting Oil and Gas. The NPI is the only asset of the
Trust, other than cash held for Trust expenses. The NPI is
passive in nature, and the Trustee has no management control
over and no responsibility relating to the operation of the
underlying properties. The business and affairs of the Trust are
managed by the Trustee, and Whiting and its affiliates have no
ability to manage or influence the operations of the Trust. The
oil and gas properties comprising the underlying properties for
which Whiting is designated the operator are currently operated
by Whiting and its subsidiaries on a contract operator basis.
Whiting, as a matter of course, does not make public projections
as to future sales, earnings or other results relating to the
underlying properties.
Marketing
and Major Customers
Pursuant to the terms of the conveyance creating the NPI,
Whiting has the responsibility to market, or cause to be
marketed, the oil, natural gas and natural gas liquid production
attributable to the underlying properties. The terms of the
conveyance creating the NPI do not permit Whiting to charge any
marketing fee, other than fees for marketing paid to
non-affiliates, when determining the net proceeds upon which the
NPI is calculated. As a result, the net proceeds to the Trust
from the sales of oil, natural gas and natural gas liquid
production from the underlying properties are determined based
on the same price that Whiting receives for oil, natural gas and
natural gas liquid production attributable to Whitings
remaining interest in the underlying properties.
-8-
Whiting principally sells its oil and natural gas production to
end users, marketers and other purchasers that have access to
nearby pipeline facilities. In areas where there is no practical
access to pipelines, oil is trucked to storage facilities.
Whitings marketing of oil and natural gas can be affected
by factors beyond its control, the effects of which cannot be
accurately predicted. During 2010, sales to Lion Oil Company
accounted for 14% of total oil and natural gas sales from the
underlying properties. There is significant competition among
purchasers of crude oil and natural gas in the areas of the
underlying properties, and if the underlying properties were to
lose one or both of their largest purchasers, several entities
could reasonably be expected to purchase crude oil and natural
gas produced from the underlying properties without significant
interruption to the sales.
Competition
and Markets
The oil and natural gas industry is highly competitive. Whiting
competes with major oil and gas companies and independent oil
and gas companies for oil and natural gas, equipment, personnel
and markets for the sale of oil and natural gas. Many of these
competitors are financially stronger than Whiting, but even
financially troubled competitors can affect the market because
of their need to sell oil and natural gas at any price to
attempt to maintain cashflow. The Trust is subject to the same
competitive conditions as Whiting and other companies in the oil
and natural gas industry.
Oil and natural gas compete with other forms of energy available
to customers, primarily based on price. These alternate forms of
energy include electricity, coal and fuel oils. Changes in the
availability or price of oil, natural gas or other forms of
energy, as well as business conditions, conservation,
legislation, regulations and the ability to convert to alternate
fuels and other forms of energy may affect the demand for oil
and natural gas. Future price fluctuations for oil, natural gas
and natural gas liquids will directly impact Trust
distributions, estimates of reserves attributable to the
Trusts interests and estimated and actual future net
revenues to the Trust.
Description
of Trust Units
Each Trust unit is a unit of beneficial interest in the Trust
and is entitled to receive cash distributions from the Trust on
a pro rata basis. Each Trust unitholder has the same rights
regarding his or her Trust units as every other Trust unitholder
has regarding his or her units. The Trust units are in
book-entry form only and are not represented by certificates.
Periodic
Reports
The Trustee files all required Trust federal and state income
tax and information returns. The Trustee prepares and mails to
Trust unitholders annual reports that Trust unitholders need to
correctly report their share of the Trusts income and
deductions. The Trustee also causes to be prepared and filed
reports required under the Securities Exchange Act of 1934, as
amended, and by the rules of any securities exchange or
quotation system on which the Trust units are listed or admitted
to trading, and is responsible for causing the Trust to comply
with all of the provisions of the Sarbanes-Oxley Act, including
but not limited to, establishing, evaluating and maintaining a
system of internal controls over financial reporting in
compliance with the requirements of Section 404 thereof.
Each Trust unitholder and his or her representatives may
examine, for any proper purpose, during reasonable business
hours, the records of the Trust and the Trustee.
-9-
Liability
of Trust Unitholders
Under the Delaware Statutory Trust Act, Trust unitholders
are entitled to the same limitation of personal liability
extended to stockholders of private corporations for profit
under the General Corporation Law of the State of Delaware. No
assurance can be given, however, that the courts in
jurisdictions outside of Delaware would give effect to such
limitation.
Voting
Rights of Trust Unitholders
The Trustee or Trust unitholders owning at least 10% of the
outstanding Trust units may call meetings of Trust unitholders.
The Trust is responsible for all costs associated with calling a
meeting of Trust unitholders, unless such meeting is called by
the Trust unitholders in which case the Trust unitholders are
responsible for all costs associated with calling such meeting.
Meetings must be held in such location as is designated by the
Trustee in the notice of such meeting. The Trustee must send
written notice of the time and place of the meeting and the
matters to be acted upon to all of the Trust unitholders at
least 20 days and not more than 60 days before the
meeting. Trust unitholders representing a majority of Trust
units outstanding must be present or represented to have a
quorum. Each Trust unitholder is entitled to one vote for each
Trust unit owned.
Unless otherwise required by the Trust agreement, a matter may
be approved or disapproved by the vote of a majority of the
Trust units held by the Trust unitholders at a meeting where
there is a quorum. This is true even if a majority of the total
Trust units did not approve it. In determining whether the
holders of the required number of units have approved any matter
that is submitted to a vote of unitholders, those units owned by
Whiting will be disregarded if such matter either would result
in increased costs and expenses to the Trust or would adversely
affect the economic interests of Trust unitholders. The
affirmative vote of the holders of a majority of the outstanding
Trust units is required to:
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dissolve the Trust;
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remove the Trustee or the Delaware Trustee;
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amend the Trust agreement (except with respect to certain
matters that do not adversely affect the rights of Trust
unitholders in any material respect);
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merge or consolidate the Trust with or into another entity;
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approve the sale of assets of the Trust unless the sale involves
the release of less than or equal to 0.25% of the total
production from the underlying properties for the last twelve
months and the aggregate asset sales do not have a fair market
value in excess of $500,000 for the last twelve months; or
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agree to amend or terminate the conveyance.
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In addition, certain amendments to the Trust agreement,
conveyance, administrative services agreement and registration
rights agreement may be made by the Trustee without approval of
the Trust unitholders. The Trustee must consent before all or
any part of the Trust assets can be sold, except in connection
with the dissolution of the Trust or limited sales directed by
Whiting in conjunction with its sale of underlying properties.
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Termination
of the Trust; Sale of the Net Profits Interest
The NPI will terminate at the time when 9.11 MMBOE
(8.20 MMBOE at the 90% NPI) have been produced and sold
from the underlying properties, and the Trust will soon
thereafter wind up its affairs and terminate. The Trust will
dissolve prior to the termination of the NPI if:
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the Trust sells the NPI;
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annual gross proceeds to the Trust attributable to the NPI are
less than $1.0 million for each of any two consecutive
years;
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the holders of a majority of the outstanding Trust units vote in
favor of dissolution; or
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the Trust is judicially terminated.
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The Trustee would then sell all of the Trusts assets,
either by private sale or public auction, and distribute the net
proceeds of the sale to the Trust unitholders.
Computation
of Net Proceeds
The provisions of the conveyance governing the computation of
net proceeds are detailed and extensive. The following
information summarizes the material information contained in the
conveyance related to the computation of net proceeds. For more
detailed provisions concerning the NPI, we make reference to the
conveyance agreement, which is listed as an exhibit to this
Annual Report on
Form 10-K.
Net
Profits Interest
The term NPI was conveyed to the Trust by Whiting Oil and Gas in
April 2008 by means of a conveyance instrument that has been
recorded in the appropriate real property records in each county
where the underlying properties are located. The NPI burdens the
interests owned by Whiting in the underlying properties.
The conveyance creating the NPI provides that the Trust is
entitled to receive an amount of cash for each quarter equal to
90% of the net proceeds (calculated as described below) from the
sale of oil, natural gas and natural gas liquid production
attributable to the underlying properties.
The amounts paid to the Trust for the NPI are based on the
definitions of gross proceeds and net
proceeds contained in the conveyance and described below.
Under the conveyance, net proceeds are computed quarterly, and
90% of the aggregate net proceeds attributable to a computation
period are paid to the Trust no later than 60 days
following the end of the computation period (or the next
succeeding business day). Whiting does not pay to the Trust any
interest on the net proceeds held by Whiting prior to payment to
the Trust. The Trustee makes distributions to Trust unitholders
quarterly.
Gross proceeds means the aggregate amount
received by Whiting from sales of oil, natural gas and natural
gas liquids produced from the underlying properties (other than
amounts received for certain future non-consent operations).
Gross proceeds does not include any amount for oil, natural gas
or natural gas liquids lost in production or marketing or used
by Whiting in drilling, production and plant operations. Gross
proceeds includes
take-or-pay
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or ratable take payments for future production in
the event that they are not subject to repayment due to
insufficient subsequent production or purchases.
Net proceeds means gross proceeds less
Whitings share of the following:
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all payments to mineral or landowners, such as royalties or
other burdens against production, delay rentals, shut-in oil and
natural gas payments, minimum royalty or other payments for
drilling or deferring drilling;
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any taxes paid by the owner of an underlying property to the
extent not deducted in calculating gross proceeds, including
estimated and accrued general property (ad valorem), production,
severance, sales, gathering, excise and other taxes;
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the aggregate amounts paid by Whiting upon settlement of the
hedge contracts on a quarterly basis, as specified in the hedge
contracts;
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any extraordinary taxes or windfall profits taxes that may be
assessed in the future that are based on profits realized or
prices received for production from the underlying properties;
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costs paid by an owner of an oil and natural gas property
comprising the underlying properties under any joint operating
agreement;
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costs and expenses, costs and liabilities of workovers,
operating and producing oil, natural gas and natural gas
liquids, including allocated expenses such as labor, vehicle and
travel costs and materials and any plugging and abandonment
liabilities other than costs and expenses for certain future
non-consent operations;
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costs or charges associated with gathering, treating and
processing oil, natural gas and natural gas liquids;
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a producing overhead charge in accordance with existing
operating agreements;
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to the extent Whiting is the operator of an underlying property
and there is no operating agreement covering such underlying
property, the overhead charges allocated by Whiting to such
underlying property calculated in the same manner Whiting
allocates overhead to other similarly owned property;
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costs for recording the conveyance and costs estimated to record
the termination
and/or
release of the conveyance;
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costs paid to the counterparty under the hedge contracts or to
the persons that provide credit to maintain any hedge contracts,
excluding any hedge settlement amounts;
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amounts previously included in gross proceeds but subsequently
paid as a refund, interest or penalty; and
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costs and expenses for renewals or extensions of leases.
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All of the hedge payments received by Whiting from the
counterparty upon settlements of hedge contracts and certain
other non-production revenues, as detailed in the conveyance,
will offset the operating expenses outlined above in calculating
the net proceeds. If the hedge payments received by Whiting and
certain other non-production revenues exceed the operating
expenses during a quarterly period, the ability to use such
excess amounts to offset operating expenses may be deferred,
with interest accruing on such amounts at the prevailing money
market rate,
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until the next quarterly period when such amounts are less than
such expenses. If any excess amounts have not been used to
offset costs at the time when 9.11 MMBOE (8.20 MMBOE
at the 90% NPI) have been produced and sold from the underlying
properties, which is the time when the NPI will terminate, then
unitholders will not be entitled to receive the benefit of such
excess amounts.
Although capital expenditures for the testing, drilling,
completion, equipping, plugging back or recompletion of any well
that is a part of the underlying properties cannot be deducted
from gross proceeds pursuant to the terms of the conveyance
agreement, Whiting incurred capital expenditures of
$1.0 million in 2010 on the underlying properties. These
expenditures were not deducted from gross proceeds or the
distributions in 2010 but may have the effect of ultimately
accelerating the receipt of NPI net proceeds and thereby
benefiting Trust unitholders by accelerating their return on
investment. The Trust cannot provide any assurance that this
will occur or that future capital expenditures will be
consistent with historical levels.
Pursuant to the terms of the applicable operating agreements,
Whiting deducts from the gross proceeds an overhead fee to
operate those underlying properties for which Whiting has been
designated as the operator. Additionally, for those underlying
properties for which Whiting is the operator but for which there
is no operating agreement, Whiting deducts from the gross
proceeds an overhead fee calculated in the same manner Whiting
allocates overhead to other similarly owned properties, as is
customary in the oil and gas industry. The operating overhead
activities include various engineering, legal, and
administrative functions. The Trusts portion of the
monthly charge averaged $415 per month per active operated well,
which totaled $1.8 million for the four distributions made
during the year ended December 31, 2010. The fee is
adjusted annually pursuant to COPAS guidelines and will increase
or decrease each year based on changes in the year-end index of
average weekly earnings of crude petroleum and natural gas
workers.
In the event that the net proceeds for any computation period is
a negative amount, the Trust will receive no payment for that
period, and any such negative amount plus accrued interest at
the prevailing money market rate will be deducted from gross
proceeds in the following computation period for purposes of
determining the net proceeds for that following computation
period.
Gross proceeds and net proceeds are calculated on a cash basis,
except that certain costs, primarily ad valorem taxes and
expenditures of a material amount, may be determined on an
accrual basis.
Commodity
Hedge Contracts
Whiting has entered into certain costless collar hedge
contracts, and Whiting has in turn conveyed to the Trust the
rights to future hedge payments Whiting makes or receives under
such costless collar hedge contracts. These contracts were
entered into to reduce the exposure to volatility in the
underlying properties oil and gas revenues due to
fluctuations in crude oil and natural gas prices, and to achieve
more predictable cash flows. Historically, prices received for
oil and gas production have been volatile because of seasonal
weather patterns, supply and demand factors, worldwide political
factors and general economic conditions. Costless collars are
designed to establish floor and ceiling prices on anticipated
future oil and gas production. While the use of these derivative
instruments limits the downside risk of adverse price movements,
they may also limit future revenues from favorable price
movements. The hedge contracts are placed with a single trading
counterparty, JPMorgan Chase Bank National Association. Whiting
cannot provide assurance that this trading counterparty will not
become a credit risk in the
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future. No additional hedges are allowed to be placed on Trust
assets, and the Trust does not enter into derivative contracts
for trading or speculative purposes.
Crude oil costless collar arrangements settle based on the
average of the closing settlement price for each commodity
business day in the contract period. Natural gas costless collar
arrangements settle based on the closing settlement price on the
second to last scheduled trading day of the month prior to
delivery. In a collar arrangement, the counterparty is required
to make a payment to Whiting for the difference between the
fixed floor price and the settlement price if the settlement
price is below the fixed floor price. Whiting is required to
make a payment to the counterparty for the difference between
the fixed ceiling price and the settlement price if the
settlement price is above the fixed ceiling price.
The amounts received by Whiting from the hedge contract
counterparty upon settlements of the hedge contracts will reduce
the operating expenses related to the underlying properties in
calculating the net proceeds. In addition, the aggregate amounts
paid by Whiting on settlement of the hedge contracts can reduce
the amount of net proceeds paid to the Trust. Whitings
crude oil and natural gas price risk management positions in
collar arrangements through December 31, 2012 (which
collars have the potential to affect Whitings future
distributions to the Trust subsequent to December 31,
2010) are detailed in Quantitative and Qualitative
Disclosures About Market Risk in Item 7A of this
Annual Report on
Form 10-K.
Additional
Provisions
If a controversy arises as to the sales price of any production,
then for purposes of determining gross proceeds:
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Amounts withheld or placed in escrow by a purchaser are not
considered to be received by Whiting until actually collected;
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amounts received by Whiting and promptly deposited with a
nonaffiliated escrow agent will not be considered to have been
received until disbursed to Whiting by the escrow agent; and
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amounts received by Whiting and not deposited with an escrow
agent will be considered to have been received.
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The Trustee is not obligated to return any cash received from
the NPI. Any overpayments made to the Trust by Whiting due to
adjustments to prior calculations of net proceeds or otherwise
will reduce future amounts payable to the Trust until Whiting
recovers the overpayments plus interest at the prevailing money
market rate. Whiting may make such adjustments to prior
calculations of net proceeds without the consent of the Trust
unitholders or the Trustee but is required to provide the
Trustee with notice of such adjustments and supporting data.
As the designated operator of a property comprising the
underlying properties, Whiting may enter into farm-out,
operating, participation and other similar agreements to develop
the property. Whiting may enter into any of these agreements
without the consent or approval of the Trustee or any Trust
unitholder.
Whiting has the right to abandon any well or property if it
reasonably believes the well or property ceases to produce or is
not capable of producing in commercially paying quantities. In
making such decisions, Whiting is required under the applicable
conveyance to operate the underlying properties as a reasonably
prudent operator in
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the same manner it would if these properties were not burdened
by the NPI. Upon termination of the lease, the portion of the
NPI relating to the abandoned property will be extinguished.
Whiting must maintain books and records sufficient to determine
the amounts payable under the NPI to the Trust. Quarterly and
annually, Whiting must deliver to the Trustee a statement of the
computation of net proceeds for each computation period. The
Trustee has the right to inspect and copy the books and records
maintained by Whiting during normal business hours and upon
reasonable notice.
Federal
Income Tax Matters
The following is a summary of certain U.S. federal income
tax matters that may be relevant to the Trust unitholders. This
summary is based upon current provisions of the Internal Revenue
Code of 1986, as amended, which we refer to as the
Code, existing and proposed Treasury regulations
thereunder and current administrative rulings and court
decisions, all of which are subject to changes that may or may
not be retroactively applied. No attempt has been made in the
following summary to comment on all U.S. federal income tax
matters affecting the Trust or the Trust unitholders.
The summary is limited to Trust unitholders who are individual
citizens or residents of the United States. Accordingly, the
following summary has limited application to domestic
corporations and persons subject to specialized federal income
tax treatment such as, without limitation, tax-exempt
organizations, regulated investment companies, insurance
companies, and foreign persons or entities. Each Trust
unitholder should consult his own tax advisor with respect to
his particular circumstances.
Classification
and Taxation of the Trust
Tax counsel to the Trust advised the Trust at the time of
formation that, for U.S. federal income tax purposes, in
its opinion the Trust would be treated as a grantor trust and
not as an unincorporated business entity. No ruling has been or
will be requested from the Internal Revenue Service, which we
refer to as the IRS or another taxing authority. The
remainder of the discussion below is based on tax counsels
opinion, at the time of formation, that the Trust will be
classified as a grantor trust for U.S. federal income tax
purposes. As a grantor trust, the Trust is not subject to
U.S. federal income tax at the Trust level. Rather, each
Trust unitholder is considered for federal income tax purposes
to own its proportionate share of the Trusts assets
directly as though no Trust were in existence. The income of the
Trust is deemed to be received or accrued by the Trust
unitholder at the time such income is received or accrued by the
Trust, rather than when distributed by the Trust. Each Trust
unitholder is subject to tax on its proportionate share of the
income and gain attributable to the assets of the Trust and is
entitled to claim its proportionate share of the deductions and
expenses attributable to the assets of the Trust, subject to
applicable limitations, in accordance with the Trust
unitholders tax method of accounting and taxable year
without regard to the taxable year or accounting method employed
by the Trust.
On the basis of that advice, the Trust will file annual
information returns, reporting to the Trust unitholders all
items of income, gain, loss, deduction and credit. The Trust
will allocate items of income, gain, loss, deductions and
credits to Trust unitholders based on record ownership at each
quarterly record date. It is possible that the IRS or another
tax authority could disagree with this allocation method and
could assert that income and deductions of the Trust should be
determined and allocated on a daily, prorated or other basis,
which could require adjustments to the
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tax returns of the Trust unitholders affected by the issue and
result in an increase in the administrative expense of the Trust
in subsequent periods.
Classification
of the Net Profits Interest
Tax counsel to the Trust also advised the Trust at the time of
formation that, for U.S. federal income tax purposes, based
upon representations made by Whiting regarding the expected
economic life of the underlying properties and the expected
duration of the NPI, in its opinion the NPI should be treated as
a production payment under Section 636 of the
Code, or otherwise as a debt instrument. On the basis of that
advice, the Trust treats the NPI as indebtedness subject to
Treasury regulations applicable to contingent payment debt
instruments, and by purchasing Trust units, a Trust unitholder
agrees to be bound by the Trusts application of those
regulations, including the Trusts determination of the
rate at which interest will be deemed to accrue on the NPI. No
assurance can be given that the IRS or another tax authority
will not assert that the NPI should be treated differently. Any
such different treatment could affect the timing and character
of income, gain or loss in respect of an investment in Trust
units and could require a Trust unitholder to accrue income at a
rate different than that determined by the Trust.
Reporting
Requirements for Widely-Held Fixed Investment
Trusts
Some Trust units are held by middlemen, as such term is broadly
defined in the Treasury regulations (and includes custodians,
nominees, certain joint owners and brokers holding an interest
for a custodian street name, collectively referred to herein as
middlemen). Therefore, the Trustee considers the
Trust to be a non-mortgage widely held fixed investment trust
(WHFIT) for U.S. federal income tax purposes.
The Bank of New York Mellon Trust Company, N.A., 919
Congress Avenue, Austin, Texas 78701, telephone number
1-800-852-1422,
is the representative of the Trust that will provide the tax
information in accordance with applicable Treasury regulations
governing the information reporting requirements of the Trust as
a WHFIT. Notwithstanding the foregoing, the middlemen holding
Trust units on behalf of unitholders, and not the Trustee of the
Trust, are solely responsible for complying with the information
reporting requirements under the Treasury regulations with
respect to such Trust units, including the issuance of IRS
Forms 1099 and certain written tax statements. Unitholders
whose Trust units are held by middlemen should consult with such
middlemen regarding the information that will be reported to
them by the middlemen with respect to the Trust units. Any
generic tax information provided by the Trustee of the Trust is
intended to be used only to assist Trust unitholders in the
preparation of their federal and state income tax returns.
Available
Trust Tax Information
In compliance with the Treasury regulations reporting
requirements for non-mortgage widely-held fixed investment
trusts and the dissemination of Trust tax reporting information,
the Trustee provides a generic tax information reporting booklet
which is intended to be used only to assist Trust unitholders in
the preparation of their 2010 federal and state income tax
returns. The projected payment schedule for the NPI is included
with the tax information booklet. This tax information booklet
can be obtained at www.businesswire.com/cnn/whx.htm.
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Environmental
Matters and Regulation
The operations of the properties comprising the underlying
properties are subject to stringent and complex federal, state
and local laws and regulations governing environmental
protection as well as the discharge of materials into the
environment. These laws and regulations may, among other things:
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restrict the types, quantities and concentration of various
substances that can be released into the environment in
connection with oil and natural gas drilling and production
activities;
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limit or prohibit drilling activities on certain lands lying
within wilderness, wetlands and other protected areas;
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require remedial measures to mitigate pollution from former and
ongoing operations, such as requirements to close pits and plug
abandoned wells; and
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enjoin some or all of the operations of the underlying
properties deemed in non-compliance with permits issued pursuant
to such environmental laws and regulations.
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Failure to comply with these laws and regulations may trigger a
variety of administrative, civil and criminal enforcement
measures, including the assessment of monetary penalties, the
imposition of remedial requirements and the issuance of orders
enjoining future operations or imposing additional compliance
requirements on such operations. Certain environmental statutes
impose strict joint and several liability for costs required to
clean up and restore sites where hazardous substances have been
disposed or otherwise released. Moreover, these laws, rules and
regulations may also restrict the rate of oil and natural gas
production below the rate that would otherwise be possible. The
regulatory burden on the oil and natural gas industry increases
the cost of doing business in the industry and consequently
affects profitability. Additionally, Congress and federal and
state agencies frequently revise environmental laws and
regulations, and any changes that result in more stringent and
costly waste handling, disposal and cleanup requirements for the
oil and natural gas industry could have a significant impact on
the operating costs of the properties comprising the underlying
properties.
The following is a summary of the existing laws, rules and
regulations to which the operations of the properties comprising
the underlying properties are subject that are material to the
operation of the underlying properties.
Waste Handling. The Resource Conservation and
Recovery Act (RCRA) and comparable state statutes,
regulate the generation, transportation, treatment, storage,
disposal and cleanup of hazardous and non-hazardous wastes.
Under the auspices of the federal Environmental Protection
Agency, or EPA, the individual states administer some or all of
the provisions of RCRA, sometimes in conjunction with their own,
more stringent requirements. Drilling fluids, produced waters
and most of the other wastes associated with the exploration,
development and production of crude oil or natural gas are
currently regulated under RCRAs non-hazardous waste
provisions. However, it is possible that certain oil and natural
gas exploration and production wastes now classified as
non-hazardous could be classified as hazardous wastes in the
future. Any such change could result in an increase in the costs
to manage and dispose of wastes, which could have a material
adverse effect on the cash distributions to the Trust
unitholders.
Comprehensive Environmental Response, Compensation and
Liability Act. The Comprehensive Environmental
Response, Compensation and Liability Act of 1980, CERCLA, also
known as the Superfund law, imposes
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joint and several liability, without regard to fault or legality
of conduct, on classes of persons who are considered to be
responsible for the release of a hazardous substance into the
environment. These persons include the owner or operator of the
site where the release occurred, and anyone who disposed or
arranged for the disposal of a hazardous substance released at
the site. Under CERCLA, such persons may be subject to joint and
several liability for the costs of cleaning up the hazardous
substances that have been released into the environment, for
damages to natural resources and for the costs of certain health
studies. In addition, it is not uncommon for neighboring
landowners and other third-parties to file claims for personal
injury and property damage allegedly caused by the hazardous
substances released into the environment.
The underlying properties of the Trust may have been used for
oil and natural gas exploration and production for many years.
Although Whiting believes that it has utilized operating and
waste disposal practices that were standard in the industry at
the time, hazardous substances, wastes or hydrocarbons may have
been released on or under the properties, or on or under other
locations, including off-site locations, where such substances
have been taken for disposal. In addition, the underlying
properties of the Trust may have been operated by third parties
or by previous owners or operators whose treatment and disposal
of hazardous substances, wastes or hydrocarbons was not under
Whitings control. These properties and the substances
disposed or released on them may be subject to CERCLA, RCRA and
analogous state laws. Under such laws, Whiting could be required
to remove previously disposed substances and wastes, remediate
contaminated property, perform remedial plugging or pit closure
operations to prevent future contamination or to pay some or all
of the costs of any such action.
Water Discharges. The Federal Water Pollution
Control Act, or the Clean Water Act (the CWA), and
analogous state laws, impose restrictions and strict controls
with respect to the discharge of pollutants, including spills
and leaks of oil and other substances, into state waters or
waters of the United States. The discharge of pollutants into
regulated waters is prohibited, except in accordance with the
terms of a permit issued by the EPA or an analogous state
agency. Spill prevention, control and countermeasure
requirements under federal law require appropriate containment
berms and similar structures to help prevent the contamination
of navigable waters in the event of a petroleum hydrocarbon tank
spill, rupture or leak. In addition, the CWA and analogous state
laws require individual permits or coverage under general
permits for discharges of storm water runoff from certain types
of facilities. Federal and state regulatory agencies can impose
administrative, civil and criminal penalties for non-compliance
with discharge permits or other requirements of the CWA and
analogous state laws and regulations.
Global Warming and Climate Control. On
December 15, 2009, the EPA published its findings that
emissions of carbon dioxide, methane and other greenhouse gases
(GHGs) present an endangerment to public health and
the environment because emissions of such gases are, according
to the EPA, contributing to warming of the Earths
atmosphere and other climatic changes. These findings allow the
EPA to adopt and implement regulations that would restrict
emissions of GHGs under existing provisions of the federal Clean
Air Act. Accordingly, the EPA has adopted regulations that could
trigger permit review for GHG emissions from certain stationary
sources. The EPA has also issued regulations that require the
establishment and reporting of an inventory of GHG emissions
from specified stationary sources, including certain onshore oil
and natural gas exploration, development and production
facilities. The adoption and implementation of any regulations
imposing reporting obligations on, or limiting emissions of GHG
gases from, equipment and operations could require Whiting to
incur costs to reduce emissions of GHGs associated with its
operations or could adversely affect demand for the natural gas
it produces.
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More than one-third of the states have begun taking actions to
control
and/or
reduce emissions of GHGs, primarily through the planned
development of GHG emission inventories
and/or
regional GHG cap and trade programs. Although most of the
state-level initiatives have to date focused on large sources of
GHG emissions, such as coal-fired electric plants, it is
possible that smaller sources of emissions could become subject
to GHG emission limitations or allowance purchase requirements
in the future.
Air Emissions. The Federal Clean Air Act, and
comparable state laws, regulate emissions of various air
pollutants from various industrial sources through air emissions
permitting programs and also impose other monitoring and
reporting requirements. Operators of the underlying properties
may be required to incur certain capital expenditures in the
future for air pollution control equipment in connection with
obtaining and maintaining pre-construction and operating permits
and approvals for air emissions. In addition, EPA has developed,
and continues to develop, stringent regulations governing
emissions of toxic air pollutants at specified sources. Federal
and state regulatory agencies can impose administrative, civil
and criminal penalties for non-compliance with air permits or
other requirements of the federal Clean Air Act and associated
state laws and regulations.
OSHA and Other Laws and Regulation. Whiting is
subject to the requirements of the federal Occupational Safety
and Health Act, (OSHA) and comparable state
statutes. The OSHA hazard communication standard, the EPA
community
right-to-know
regulations under the Title III of CERCLA and similar state
statutes require that Whiting organize
and/or
disclose information about hazardous materials used or produced
in its operations. Whiting believes that it is in substantial
compliance with these applicable requirements and with other
OSHA and comparable requirements.
Consideration of Environmental Issues in Connection with
Governmental Approvals. Whitings operations
frequently require licenses, permits
and/or other
governmental approvals. Several federal statutes, including the
Outer Continental Shelf Lands Act and the National Environmental
Policy Act require federal agencies to evaluate environmental
issues in connection with granting such approvals
and/or
taking other major agency actions. The Outer Continental Shelf
Lands Act, for instance, requires the U.S. Department of
Interior to evaluate whether certain proposed activities would
cause serious harm or damage to the marine, coastal or human
environment. Similarly, the National Environmental Policy Act
requires the Department of Interior and other federal agencies
to evaluate major agency actions having the potential to
significantly impact the environment. In the course of such
evaluations, an agency would have to prepare an environmental
assessment and, potentially, an environmental impact statement.
Whiting believes that it is in substantial compliance with all
existing environmental laws and regulations applicable to the
current operations of the underlying properties and that its
continued compliance with existing requirements will not have a
material adverse effect on the cash distributions to the Trust
unitholders. For instance, Whiting did not incur any material
capital expenditures for remediation or pollution control
activities for the year ended December 31, 2010 with
respect to these properties. Additionally, Whiting has informed
the Trust that Whiting is not aware of any environmental issues
or claims that will require material capital expenditures during
2011 with respect to these properties. However, there is no
assurance that the passage of more stringent laws or
implementing regulations in the future will not have a negative
impact on the operations of these properties and the cash
distributions to the Trust unitholders.
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The
amounts of cash distributions by the Trust are subject to
fluctuation as a result of changes in oil, natural gas and
natural gas liquid prices.
The reserves attributable to the underlying properties and the
quarterly cash distributions of the Trust are highly dependent
upon the prices realized from the sale of oil, natural gas and
natural gas liquids. Prices of oil, natural gas and natural gas
liquids can fluctuate widely on a
quarter-to-quarter
basis in response to a variety of factors that are beyond the
control of the Trust and Whiting. These factors include, among
others:
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changes in global supply and demand for oil and gas;
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the actions of the Organization of Petroleum Exporting Countries;
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the price and quantity of imports of foreign oil and gas;
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political and economic conditions, including embargoes, in
oil-producing countries or affecting other oil-producing
activity;
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the level of global oil and gas exploration and production
activity;
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the level of global oil and gas inventories;
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weather conditions;
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technological advances affecting energy consumption;
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domestic and foreign governmental regulations;
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proximity and capacity of oil and gas pipelines and other
transportation facilities;
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the price and availability of competitors supplies of oil
and gas in captive market areas; and
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the price and availability of alternative fuels.
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Lower prices of oil, natural gas and natural gas liquids will
reduce the amount of the net proceeds to which the Trust is
entitled and may ultimately reduce the amount of oil, natural
gas and natural gas liquids that is economic to produce from the
underlying properties. As a result, the operator of any of the
underlying properties could determine during periods of low
commodity prices to shut in or curtail production from the
underlying properties. In addition, the operator of these
properties could determine during periods of low commodity
prices to plug and abandon marginal wells that otherwise may
have been allowed to continue to produce for a longer period
under conditions of higher prices. Because these properties are
mature, decreases in commodity prices could have a more
significant effect on the economic viability of these properties
as compared to more recently discovered properties. The
commodity price sensitivity of these mature wells is due to a
culmination of factors that vary from well to well, including
the additional costs associated with water handling and
disposal, chemicals, surface equipment maintenance, downhole
casing repairs and reservoir pressure maintenance activities
that are necessary to maintain production. As a result, the
volatility of commodity prices may cause the amount of future
cash distributions to Trust unitholders to fluctuate, and a
substantial decline in the price of oil, natural gas or natural
gas liquids will reduce the amount of cash available for
distribution to the Trust unitholders.
-20-
Moreover, government regulations, such as regulation of natural
gas gathering and transportation and possible price controls,
can affect commodity prices in the long term.
Financial
returns to purchasers of Trust units will vary in part based on
how quickly 9.11 MMBOE are produced and sold from the
underlying properties, and it is not known when that will
occur.
The NPI will terminate at the time when 9.11 MMBOE have
been produced and sold from the underlying properties (which
amount is the equivalent of 8.20 MMBOE in respect of the
Trusts right to receive 90% of the net proceeds from such
reserves pursuant to the NPI). The reserve report prepared by
the Trusts independent petroleum engineer dated as of
December 31, 2010 (the reserve report) projects
that 9.11 MMBOE will have been produced and sold from the
underlying properties by November 30, 2015. However, the
exact rate of production cannot be predicted with certainty and
such amount may be produced before or after the date projected
by the reserve report. If production attributable to the
underlying properties is slower than estimated, then financial
returns to Trust unitholders will be lower assuming constant
prices because cash distributions attributable to such
production will occur at a later date.
The
reserves attributable to the underlying properties are depleting
assets and production from those reserves will diminish over
time. Furthermore, the Trust is precluded from acquiring other
oil and natural gas properties or net profits interests to
replace the depleting assets and production.
The net proceeds payable to the Trust from the NPI are derived
from the sale of oil, natural gas and natural gas liquids
produced from the underlying properties and proceeds, if any,
received by Whiting upon settlement of the hedge contracts. The
reserves attributable to the underlying properties are depleting
assets, which means that those reserves will decline over time.
For example, the current year reserve report reflects an
aggregate depletion percentage of 93.8%, which is the percentage
of the estimated ultimate total production from the underlying
properties on a full economic life basis that has been produced
from the properties inception through December 31,
2010. Total oil and natural gas production attributable to the
underlying properties declined 9.2% from 2008 to 2009 and 7.7%
from 2009 to 2010. Also based on the 2010 reserve report,
production attributable to the underlying properties is expected
to decline at rates ranging from 9% to 11% annually from 2011
and 2015. However, cash distributions to unitholders may decline
at a faster rate than the rate of production due to fixed and
semi-variable costs attributable to the underlying properties.
Also, the anticipated rate of decline is an estimate and actual
decline rates will likely vary from those estimated.
The NPI will terminate at the time when 9.11 MMBOE
(8.20 MMBOE at the 90% NPI) have been produced and sold
from the underlying properties, which is projected by the
reserve report to occur by November 20, 2015. As of
December 31, 2010, on a cumulative accrual basis
3.90 MMBOE of the Trusts total 8.20 MMBOE have
been produced and sold and a cumulative 0.02 MMBOE have
been divested. Furthermore, the Trust agreement provides that
the Trusts business activities are limited to owning the
NPI and any activity reasonably related to such ownership,
including activities required or permitted by the terms of the
conveyance related to the NPI. As a result, the Trust is not
permitted to acquire other oil and natural gas properties or NPI
to replace the depleting assets and production attributable to
the NPI.
Future maintenance projects on the underlying properties beyond
those which are currently estimated may affect the quantity of
proved reserves that can be economically produced from the
underlying properties. The timing
-21-
and size of these projects will depend on, among other factors,
the market prices of oil, natural gas and natural gas liquids.
If operators of the underlying properties do not implement
required maintenance projects when warranted, the future rate of
production decline of proved reserves may be higher than the
rate currently expected by Whiting or estimated in the reserve
report. In addition, Whiting is not required to make any capital
expenditures.
Because the net proceeds payable to the Trust are derived from
the sale of depleting assets, the portion of the distributions
to unitholders attributable to depletion should be considered a
return of capital as opposed to a return on investment.
Eventually, the NPI may cease to produce in commercial
quantities and the Trust may, therefore, cease to receive any
distributions of net proceeds.
Actual
reserves and future production may be less than current
estimates, which could reduce cash distributions by the Trust
and the value of the Trust units.
The value of the Trust units and the amount of future cash
distributions to the Trust unitholders will depend upon, among
other things, the accuracy of the production and reserves
estimated to be attributable to the underlying properties and
the NPI. Estimating production and reserves is inherently
uncertain. Ultimately, actual production, revenues and
expenditures for the underlying properties will vary both
positively and negatively from estimates and those variations
could be material. Petroleum engineers consider many factors and
make assumptions in estimating production and reserves. Those
factors and assumptions include:
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historical production from the area compared with production
rates from other producing areas;
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the assumed effect of governmental regulation; and
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assumptions about future prices of oil, natural gas and natural
gas liquids, including differentials, production and development
expenses, gathering and transportation costs, severance and
excise taxes and capital expenditures.
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Changes in these assumptions can materially increase or decrease
production and reserve estimates. The estimated reserves
attributable to the NPI and the estimated future net revenues
attributable to the NPI are based on estimates of reserve
quantities and revenues for the underlying properties. The
quantities of reserves attributable to the underlying properties
and the NPI may decrease in the future as a result of future
decreases in the price of oil, natural gas or natural gas
liquids.
Risks
associated with the production, gathering, transportation and
sale of oil, natural gas and natural gas liquids could adversely
affect cash distributions by the Trust and the value of the
Trust units.
The revenues of the Trust, the value of the Trust units and the
amount of cash distributions to the Trust unitholders will
depend upon, among other things, oil, natural gas and natural
gas liquid production and prices and the costs incurred to
exploit oil and natural gas reserves attributable to the
underlying properties. Drilling, production or transportation
accidents that temporarily or permanently halt the production
and sale of oil, natural gas and natural gas liquids at any of
the underlying properties will reduce Trust distributions by
reducing the amount of net proceeds available for distribution.
For example, accidents may occur that result in personal
injuries, property damage, damage to productive formations or
equipment and environmental damages. Any costs incurred in
connection with any such accidents that are not insured against
will have the effect of reducing the net proceeds
-22-
available for distribution to the Trust. In addition,
curtailments or damage to pipelines used to transport oil,
natural gas and natural gas liquid production to markets for
sale could reduce the amount of net proceeds available for
distribution. Any such curtailment or damage to the gathering
systems could also require finding alternative means to
transport the oil, natural gas and natural gas liquid production
from the underlying properties, which alternative means could
result in additional costs that will have the effect of reducing
net proceeds available for distribution.
The
Trust and the Trust unitholders have no voting or managerial
rights with respect to the underlying properties. As a result,
neither the Trust nor the unitholders have any ability to
influence the operation of the underlying
properties.
Oil and natural gas properties are typically managed pursuant to
an operating agreement among the working interest owners of oil
and natural gas properties. The typical operating agreement
contains procedures whereby the owners of the working interests
in the property designate one of the interest owners to be the
operator of the property. Under these arrangements, the operator
is typically responsible for making decisions relating to
drilling activities, sale of production, compliance with
regulatory requirements and other matters that affect the
property. Neither the Trustee nor the Trust unitholders have any
contractual ability to influence or control the field operations
of, and sale of oil and natural gas from, the underlying
properties. Also, the Trust unitholders have no voting rights
with respect to the operators of these properties and,
therefore, have no managerial, contractual or other ability to
influence the activities of the operators of these properties.
Whiting
has limited control over activities on certain of the underlying
properties Whiting does not operate, which could reduce
production from the underlying properties and cash available for
distribution to Trust unitholders.
Whiting is currently designated as the operator of approximately
64% of the underlying properties based on the December 31,
2010 standardized measure of discounted future net cash flows.
However, for the 36% of the underlying properties that Whiting
does not operate, Whiting does not have control over normal
operating procedures or expenditures relating to such
properties. The failure of an operator to adequately perform
operations or an operators breach of the applicable
agreements could reduce production from the underlying
properties and the cash available for distribution to Trust
unitholders. The success and timing of operational activities on
properties operated by others therefore depends upon a number of
factors outside of Whitings control, including the
operators timing and amount of capital expenditures,
expertise and financial resources, inclusion of other
participants in drilling wells, and use of technology. Because
Whiting does not have a majority interest in most of the
non-operated properties comprising the underlying properties,
Whiting may not be in a position to remove the operator in the
event of poor performance.
Whiting
is not required to make capital expenditures on the underlying
properties at historical levels or at all. If Whiting does not
make capital expenditures, then the timing of production from
the underlying properties may not be accelerated.
Whiting has made capital expenditures on the underlying
properties, which has increased production from the underlying
properties. However, Whiting has no contractual obligation to
make capital expenditures on the underlying properties in the
future. Furthermore, for properties on which Whiting is not
designated as the operator,
-23-
the decision whether to make capital expenditures is made by the
operator and Whiting has no control over the timing or amount of
those capital expenditures. Whiting also has the right to
non-consent and not participate in the capital expenditures on
these properties, in which case Whiting and the Trust will not
receive the production resulting from such capital expenditures.
Accordingly, it is likely that capital expenditures with respect
to the underlying properties will vary from and may be less than
historical levels.
Whiting
may abandon individual wells or properties that it reasonably
believes to be uneconomic.
Whiting may abandon any well if it reasonably believes that the
well can no longer produce oil or natural gas in commercially
economic quantities. This could result in termination of the NPI
relating to the abandoned well.
The
amount of cash available for distribution by the Trust is
reduced by the amount of any royalties, lease operating
expenses, production and property taxes, maintenance expenses,
post-production costs and producing overhead, and payments made
with respect to the hedge contracts.
Production costs on the underlying properties are deducted in
the calculation of the Trusts share of net proceeds. In
addition, production and property taxes and any costs or
payments associated with post-production costs are deducted in
the calculation of the Trusts share of net proceeds.
Accordingly, higher or lower production expenses, taxes and
post-production costs directly decrease or increase the amount
received by the Trust in respect of its NPI. The amount of net
proceeds subject to the NPI is also reduced by all payments made
by Whiting to the hedge contract counterparty upon settlement of
the hedge contracts.
If production costs of the underlying properties and payments
made by Whiting to the hedge contract counterparty exceed the
proceeds of production, the Trust will not receive net proceeds
until future proceeds from production exceed the total of the
excess costs plus accrued interest during the deficit period.
If the
payments received by Whiting under the hedge contracts and
certain other non-production revenue exceed operating expenses
during a quarterly period, then the ability to use such excess
amounts to offset operating expenses will be deferred until the
next quarterly period when such amounts are less than such
expenses.
If the hedge payments received by Whiting and certain other
non-production revenue exceed the operating expenses during a
quarterly period, the ability to use such excess amounts to
offset operating expenses will be deferred until the next
quarterly period when such amounts are less than such expenses.
If such amounts are deferred, then the applicable quarterly
distribution will be less than it would have otherwise been.
However, if any excess amounts have not been used to offset
costs at the time when 9.11 MMBOE have been produced and
sold from the underlying properties, which is the time when the
NPI will terminate, then unitholders will not be entitled to
receive the benefit of such excess amounts. Such a scenario
could occur if oil and natural gas prices decline significantly
through December 31, 2012 and remained low for the
remainder of the term.
-24-
An
increase in the differential between the NYMEX or other
benchmark price of oil and natural gas and the wellhead price
received could reduce cash distributions by the Trust and the
value of Trust units.
The prices received for oil and natural gas production from the
underlying properties is usually sold at a discount to the
relevant benchmark prices, such as NYMEX, that are used for
calculating hedge positions. The difference between the
benchmark price and the price received is called a differential.
The differential may vary significantly due to market
conditions, the quality and location of production and other
factors. Whiting cannot accurately predict oil and natural gas
differentials. Increases in the differential between the
benchmark price for oil and natural gas and the wellhead price
received could reduce cash distributions by the Trust and the
value of the Trust units.
Shortages
or increases in costs of oil field equipment, services and
qualified personnel could reduce the amount of cash available
for distribution.
The demand for qualified and experienced field personnel to
conduct field operations, geologists, geophysicists, engineers
and other professionals in the oil and natural gas industry can
fluctuate significantly, often in correlation with oil and
natural gas prices, causing periodic shortages. Historically,
there have been shortages of drilling rigs and other oilfield
equipment as demand for rigs and equipment has increased along
with the number of wells being drilled. These factors also cause
significant increases in costs for equipment, services and
personnel. Higher oil and natural gas prices generally stimulate
demand and result in increased prices for drilling rigs, crews
and associated supplies, equipment and services. Shortages of
field personnel and equipment or price increases could
significantly decrease the amount of cash available for
distribution to the Trust unitholders, or restrict operations on
the underlying properties.
The
hedge contracts will limit the potential for increases in cash
distributions due to oil and natural gas price increases through
December 31, 2012 and will not provide any price support
after December 31, 2012.
Whiting has entered into hedge contracts, which are structured
as costless collar arrangements that will hedge approximately
71% and 65%, respectively, of the oil and natural gas volumes
expected to be produced from the underlying properties through
December 31, 2012. These hedge contracts, however, do not
cover all of the oil and natural gas volumes that are expected
to be produced during the term of the Trust. Because of the
differential between NYMEX or other benchmark prices of oil and
natural gas and the wellhead price received, hedge contracts may
not totally offset the effects of price fluctuations. Whiting
has not entered into any hedge contracts relating to oil and
natural gas volumes expected to be produced after 2012, and the
terms of the conveyance of the NPI prohibit Whiting from
entering into new hedging arrangements. As a result, the amounts
of the cash distributions may fluctuate significantly after 2012
as a result of changes in commodity prices because there will be
no hedge contracts in place to reduce the effects of any changes
in commodity prices. The hedge contracts may also limit the
amount of cash available for distribution if prices increase. In
addition, the hedge contracts are subject to the nonperformance
of the counterparty and other risks. For a discussion of the
hedge contracts, see Quantitative and Qualitative
Disclosures About Market Risk in Item 7A of this
Annual Report on
Form 10-K.
-25-
Under
certain circumstances, the Trust provides that the Trustee may
be required to sell the NPI and dissolve the Trust prior to the
expected termination of the Trust. As a result, Trust
unitholders may not recover their investment.
The Trustee must sell the NPI if the holders of a majority of
the Trust units approve the sale or vote to dissolve the Trust.
The Trustee must also sell the NPI if the annual gross proceeds
attributable to the NPI are less than $1.0 million for each
of any two consecutive years. The sale of the NPI will result in
the dissolution of the Trust. The net proceeds of any such sale
will be distributed to the Trust unitholders.
The NPI will terminate at the time when 9.11 MMBOE
(8.20 MMBOE at the 90% NPI) have been produced and sold
from the underlying properties. The Trust unitholders will not
be entitled to receive any net proceeds from the sale of
production from the underlying properties following the
termination of the NPI. Therefore, the market price of the Trust
units will likely diminish towards the end of the term of the
NPI because the cash distributions from the Trust will cease at
the termination of such NPI and the Trust will have no right to
any additional production from the underlying properties after
the term of the NPI.
The
disposal by Whiting of its remaining Trust units may reduce the
market price of the Trust units.
Whiting owns 15.8% of the Trust units. If Whiting sells these
units, then the market price of the Trust units may be reduced.
Whiting and the Trust have entered into a registration rights
agreement pursuant to which the Trust has agreed to file a
registration statement or shelf registration statement to
register the resale of the remaining Trust units held by Whiting
and any transferee of the Trust units upon request by such
holders.
The
market price for the Trust units may not reflect the value of
the NPI held by the Trust.
The trading price for publicly traded securities similar to the
Trust units tends to be tied to recent and expected levels of
cash distributions. The amounts available for distribution by
the Trust will vary in response to numerous factors outside the
control of the Trust, including prevailing prices for sales of
oil, natural gas and natural gas liquid production attributable
to the underlying properties. Consequently, the market price for
the Trust units may not necessarily be indicative of the value
that the Trust would realize if it sold the NPI to a third-party
buyer. In addition, such market price may not necessarily
reflect the fact that since the assets of the Trust are
depleting assets, a portion of each cash distribution paid on
the Trust units should be considered by investors as a return of
capital, with the remainder being considered as a return on
investment. As a result, distributions made to a unitholder over
the life of these depleting assets may not equal or exceed the
purchase price paid by the unitholder.
Conflicts
of interest could arise between Whiting and the Trust
unitholders.
The interests of Whiting and the interests of the Trust and the
Trust unitholders with respect to the underlying properties
could at times differ. For example, Whiting has the right,
subject to significant limitations, to cause the Trust to
release a portion of the NPI in connection with a sale of a
portion of the oil and natural gas properties comprising the
underlying properties to which such NPI relates. In such an
event, the Trust is entitled to receive its proportionate share
of the proceeds from the sale attributable to the NPI released.
Additionally, the Trust has no employees and is reliant on
Whitings employees to operate those underlying properties
for which Whiting is designated as the operator. Whitings
employees are also responsible for the operation of other oil
and gas properties
-26-
Whiting owns, which may require a significant portion or all of
their time and resources. Whiting has broad discretion over the
timing and amount of operating expenditures and activities,
including workover expenses and activities, which could result
in higher costs being attributed to the NPI. The documents
governing the Trust generally do not provide a mechanism for
resolving these conflicting interests.
The
Trust is managed by a Trustee who cannot be replaced except at a
special meeting of Trust unitholders.
The business and affairs of the Trust are managed by the
Trustee. The voting rights of a Trust unitholder are more
limited than those of stockholders of most public corporations.
For example, there is no requirement for annual meetings of
Trust unitholders or for an annual or other periodic re-election
of the Trustee. The Trust agreement provides that the Trustee
may only be removed and replaced by the holders of a majority of
the outstanding Trust units at a special meeting of Trust
unitholders called by either the Trustee or the holders of not
less than 10% of the outstanding Trust units. Whiting owns
approximately 15.8% of the outstanding Trust units. As a result,
it may be difficult to remove or replace the Trustee without the
approval of Whiting.
Trust
unitholders have limited ability to enforce provisions of the
NPI.
The Trust agreement permits the Trustee to sue Whiting on behalf
of the Trust to enforce the terms of the conveyance creating the
NPI. If the Trustee does not take appropriate action to enforce
provisions of the conveyance, the recourse of a Trust unitholder
likely would be limited to bringing a lawsuit against the
Trustee to compel the Trustee to take specified actions. The
Trust agreement expressly limits the Trust unitholders
ability to directly sue Whiting or any other third party other
than the Trustee. As a result, the unitholders will not be able
to sue Whiting to enforce these rights.
Courts
outside of Delaware may not recognize the limited liability of
the Trust unitholders provided under Delaware law.
Under the Delaware Statutory Trust Act, Trust unitholders
are entitled to the same limitation of personal liability
extended to stockholders of private corporations under the
General Corporation Law of the State of Delaware. Courts in
jurisdictions outside of Delaware, however, may not give effect
to such limitation.
The
operations of the underlying properties may result in
significant costs and liabilities with respect to environmental
and operational safety matters, which could reduce the amount of
cash available for distribution to Trust
unitholders.
Significant costs and liabilities can be incurred as a result of
environmental and safety requirements applicable to the oil and
natural gas exploration, development and production activities
of the underlying properties. These costs and liabilities could
arise under a wide range of federal, state and local
environmental and safety laws, regulations, and enforcement
policies, which legal requirements have tended to become
increasingly strict over time. Failure to comply with these laws
and regulations may result in the assessment of administrative,
civil and criminal penalties, imposition of cleanup and site
restoration costs and liens, and to a lesser extent, issuance of
injunctions to limit or cease operations. In addition, claims
for damages to persons, property or natural resources may result
from environmental and other impacts on the operations of the
underlying properties.
-27-
Strict, joint and several liability may be imposed under certain
environmental laws and regulations, which could result in
liability for the conduct of others or for the consequences of
ones own actions that were in compliance with all
applicable laws at the time those actions were taken. New laws,
regulations or enforcement policies could be more stringent and
impose unforeseen liabilities or significantly increase
compliance costs. If it were not possible to recover the
resulting costs for such liabilities or non-compliance through
insurance or increased revenues, then these costs could have a
material adverse effect on the cash distributions to the Trust
unitholders.
The
operations of the underlying properties are subject to complex
federal, state, local and other laws and regulations that could
adversely affect the cash distributions to the Trust
unitholders.
The development and production operations of the underlying
properties are subject to complex and stringent laws and
regulations. In order to conduct the operations of the
underlying properties in compliance with these laws and
regulations, Whiting and the other operators must obtain and
maintain numerous permits, approvals and certificates from
various federal, state, local and governmental authorities.
Whiting and the other operators may incur substantial costs and
experience delays in order to maintain compliance with these
existing laws and regulations, which could decrease the cash
distributions to the Trust unitholders. In addition, the costs
of compliance may increase or the operations of the underlying
properties may be otherwise adversely affected if existing laws
and regulations are revised or reinterpreted, or if new laws and
regulations become applicable to such operations. Such costs
could have a material adverse effect on the cash distributions
to the Trust unitholders.
The operations of the underlying properties are subject to
federal, state and local laws and regulations as interpreted and
enforced by governmental authorities possessing jurisdiction
over various aspects of the exploration for, and the production
of, oil and natural gas. Failure to comply with such laws and
regulations, as interpreted and enforced, could have a material
adverse effect on the cash distributions to the Trust
unitholders.
Climate
change legislation or regulations restricting emissions of
greenhouse gasses could result in increased
operating costs and reduced demand for oil and gas which could
reduce the amount of cash available for distribution to Trust
unitholders.
On December 15, 2009, the EPA published its findings that
emissions of carbon dioxide, methane and other greenhouse gases
(GHGs) present an endangerment to public health and
the environment because emissions of such gases are, according
to the EPA, contributing to warming of the Earths
atmosphere and other climatic changes. These findings allow the
EPA to adopt and implement regulations that would restrict
emissions of GHGs under existing provisions of the federal Clean
Air Act. Accordingly, the EPA has adopted regulations that could
trigger permit review for GHG emissions from certain stationary
sources. The EPA has also issued regulations that require the
establishment and reporting of an inventory of GHG emissions
from specified stationary sources, including certain onshore oil
and natural gas exploration, development and production
facilities. The adoption and implementation of any regulations
imposing reporting obligations on, or limiting emissions of GHG
gases from, equipment and operations could require Whiting to
incur costs to reduce emissions of GHGs associated with its
operations or could adversely affect demand for the natural gas
it produces.
More than one-third of the states have begun taking actions to
control
and/or
reduce emissions of GHGs, primarily through the planned
development of GHG emission inventories
and/or
regional GHG cap and trade programs. Although most of the
state-level initiatives have to date focused on large sources of
GHG emissions, such
-28-
as coal-fired electric plants, it is possible that smaller
sources of emissions could become subject to GHG emission
limitations or allowance purchase requirements in the future.
Finally, it should be noted that some scientists have concluded
that increasing concentrations of GHGs in the atmosphere may
produce climate changes that have significant physical effects,
such as increased frequency and severity of storms, droughts,
and floods and other climatic events; if any such effects were
to occur, they could have an adverse effect on the Trusts
assets and the amount of cash available for distribution to
Trust unitholders.
The
Trust has not requested a ruling from the IRS regarding the tax
treatment of ownership of the Trust units. If the IRS were to
determine (and be sustained in that determination) that the
Trust is not a grantor trust for federal income tax
purposes, or that the NPI is not a debt instrument for federal
income tax purposes, the Trust unitholders may receive different
and less advantageous tax treatment than they
anticipated.
If the NPI were not treated as a debt instrument, the deductions
allowed to an individual Trust unitholder in their recovery of
basis in the NPI may be itemized deductions, the deductibility
of which would be subject to limitations that may or may not
apply depending upon the unitholders circumstances.
Neither Whiting nor the Trust has requested a ruling from the
IRS regarding these tax questions, and neither Whiting nor the
Trust can assure you that such a ruling would be granted if
requested or that the IRS will not challenge this position on
audit. Trust unitholders should be aware of the possible state
tax implications of owning Trust units, and should consult their
own tax advisors for advice regarding the state as well as
federal tax implications of owning Trust units.
The
Trusts NPI may be characterized as an executory contract
in bankruptcy, which could be rejected in bankruptcy, thus
relieving Whiting from its obligations to make payments to the
Trust with respect to the NPI.
Whiting has recorded the conveyance of the NPI in the states
where the underlying properties are located in the real property
records in each county where these properties are located. The
NPI is a non-operating, non-possessory interest carved out of
the oil and natural gas leasehold estate, but certain states
have not directly determined whether an NPI is a real or a
personal property interest. Whiting believes that the delivery
and recording of the conveyance should create a fully conveyed
and vested property interest under the applicable states
laws, but certain states have not directly determined whether
this would be the result. If in a bankruptcy proceeding in which
Whiting becomes involved as a debtor a determination were made
that the conveyance constitutes an executory contract and the
NPI is not a fully conveyed property interest under the laws of
the applicable state, and if such contract were not to be
assumed in a bankruptcy proceeding involving Whiting, the Trust
would be treated as an unsecured creditor of Whiting with
respect to such NPI in the pending bankruptcy proceeding.
If the
financial position of Whiting degrades in the future, Whiting
may not be able to satisfy its obligations to the
Trust.
Whiting operates approximately 64% of the underlying properties
based on the December 31, 2010 standardized measure of
discounted future net cash flows. The conveyance provides that
Whiting will be obligated to market, or cause to be marketed,
the production related to underlying properties for which it
operates. In addition,
-29-
Whiting is obligated to use the proceeds it receives upon the
settlement of the hedge contracts to offset operating expenses
relating to the underlying properties, with certain restrictions.
Whiting has entered into hedge contracts, consisting of costless
collar arrangements, with JPMorgan Chase Bank National
Association to reduce the exposure of the revenue from oil and
natural gas production from the underlying properties to
fluctuations in crude oil and natural gas prices in order to
achieve more predictable cash flow. Crude oil collar
arrangements settle based on the average of the settlement price
for each commodity business day in the contract period, while
natural gas collar arrangements settle based on an end of month
price. In the collar arrangements, the counterparty is required
to make a payment to Whiting for the difference between the
fixed floor price and the settlement price if the settlement
price is below the fixed floor price. Whiting is required to
make a payment to the counterparty for the difference between
the fixed ceiling price and the settlement price if the
settlement price is above the fixed ceiling price.
Whitings ability to perform its obligations related to the
operation of the underlying properties, its obligations to the
counterparty related to the hedge contracts and its obligations
to the Trust will depend on Whitings future financial
condition and economic performance, which in turn will depend
upon the supply and demand for oil and natural gas, prevailing
economic conditions and upon financial, business and other
factors, many of which are beyond the control of Whiting.
Whiting cannot provide any assurance that its financial
condition and economic performance will not deteriorate in the
future. For example, Whitings net loss for 2009 was
$117.2 million, and although it increased to net income of
$272.7 million for 2010, a substantial or extended decline
in oil or natural gas prices may materially and adversely affect
Whitings future business, financial condition, results of
operations, liquidity or ability to finance planned capital
expenditures.
The
Trusts receipt of payments based on the hedge contracts
depends upon the financial position of the hedge contract
counterparty and Whiting. A default by the hedge contract
counterparty or Whiting could reduce the amount of cash
available for distribution to the Trust
unitholders.
In the event that the counterparty to the hedge contracts
defaults on its obligations to make payments to Whiting under
the hedge contracts, the cash distributions to the Trust
unitholders could be materially reduced as the hedge payments
are intended to provide additional cash to the Trust during
periods of lower crude oil and natural gas prices. In addition,
because the hedge contracts are with a single counterparty,
JPMorgan Chase Bank National Association, the risk of default is
concentrated with one financial institution. Whiting cannot
provide any assurance that this counterparty will not become a
credit risk in the future. The hedge contracts also have default
terms applicable to Whiting, including customary cross default
provisions. If Whiting were to default, the counterparty to the
hedge contracts could terminate the hedge contracts and the cash
distributions to Trust unitholders could be materially reduced
during periods of lower crude oil and natural gas prices.
Under
certain circumstances, the Trust provides that the Trustee may
be required to reconvey to Whiting a portion of the NPI, which
may impact how quickly 9.11 MMBOE are produced from the
underlying properties for purposes of the NPI.
If Whiting is notified by a person with whom Whiting is a party
to a contract containing a prior reversionary interest that
Whiting is required to convey any of the underlying properties
to such person or cease production from any well, then Whiting
may provide such conveyance with respect to such underlying
property or permanently
-30-
cease production from such well. Such a reversionary interest
typically results from the provisions of a joint operating
agreement that governs the drilling of wells on jointly owned
property and financial arrangements for instances where all
owners may not want to make the capital expenditure necessary to
drill a new well. The reversionary interest is created because
an owner that does not consent to capital expenditures will not
have to pay its share of the capital expenditure, but instead
will relinquish its share of proceeds from the well until the
consenting owners receive payout (or a multiple of payout) of
their capital expenditures. In such case, Whiting may request
the Trustee to reconvey to Whiting the NPI with respect to any
such underlying property or well. The Trust will not receive any
consideration for such reconveyance of a portion of the NPI.
Such reconveyance of a portion of the NPI may extend the time it
takes for 9.11 MMBOE (8.20 MMBOE at the 90% NPI) to be
produced from the underlying properties for purposes of the NPI.
|
|
Item 1B.
|
Unresolved
Staff Comments.
|
None.
Description
of the Underlying Properties
The underlying properties consist of Whitings net
interests in certain oil and natural gas producing properties as
of the date of the conveyance of the NPI to the Trust, which are
located primarily in the Rocky Mountains, Mid-Continent, Permian
Basin and Gulf Coast regions of the United States. The
underlying properties include interests in 3,077 gross
(373.1 net) producing oil and natural gas wells located in 169
fields on approximately 204,900 gross (75,000 net) acres in
14 states. Whiting has acquired interests in these
properties through various acquisitions that have occurred
during its 28 year existence prior to the conveyance. For
the year ended December 31, 2010, the net production
attributable to the underlying properties was 1,332 MBOE or
3.7 MBOE/d. Whiting operates approximately 64% of the
underlying properties based on the December 31, 2010
standardized measure of discounted future net cash flows.
Whitings interests in the oil and natural gas properties
comprising the underlying properties require Whiting to bear its
proportionate share, along with the other working interest
owners, of the costs of development and operation of such
properties. Many of the properties comprising the underlying
properties that are operated by Whiting are burdened by
non-working interests owned by third parties, consisting
primarily of royalty interests retained by the owners of the
land subject to the working interests. These landowners
royalty interests typically entitle the landowner to receive at
least 12.5% of the revenue derived from oil and natural gas
production from wells drilled on the landowners land,
without any deduction for drilling costs or other costs related
to production of oil and natural gas. A working interest
percentage represents a working interest owners
proportionate ownership interest in a property in relation to
all other working interest owners in that property, whereas a
net revenue interest is a working interest owners
percentage of production after reducing such interest by the
percentage of burdens on production such as royalties and
overriding royalties.
The NPI entitles the Trust to receive 90% of the net proceeds
from the sale of 9.11 MMBOE (8.20 MMBOE at the 90%
NPI) of production from the underlying properties. As of
December 31, 2010, on a cumulative accrual basis
3.90 MMBOE of the Trusts total 8.20 MMBOE have
been produced and sold, a cumulative 0.02 MMBOE have
-31-
been divested, and the remaining balance is expected to be
produced by November 30, 2015, based on the Trusts
year-end 2010 reserve report. However, the reserve report is
based on the assumptions included therein. See Risk
Factors in Item 1A of this Annual Report on
Form 10-K
for additional discussion. The rate of future production cannot
be predicted with certainty, and 9.11 MMBOE
(8.20 MMBOE at the 90% NPI) may be produced before or after
the currently projected date. The proved reserves attributable
to the underlying properties include all proved reserves
expected to be economically produced during the full life of the
properties, whereas the Trust is entitled to only receive 90% of
the net proceeds from the sale of production of oil, natural gas
and natural gas liquids attributable to the underlying
properties during the term of the NPI.
Whitings interest in the underlying properties, after
deducting the NPI, entitles it to 10% of the net proceeds from
the sale of oil, natural gas and natural gas liquids production
attributable to the underlying properties during the term of the
NPI and all of the net proceeds thereafter. The Trust units
retained by Whiting represent 15.8% of the Trust units
outstanding. Whitings retained ownership interests in the
underlying properties and its ownership of Trust units
considered together entitle Whiting to receive approximately
24.2% of the net proceeds from the underlying properties during
the term of the Trust, thereby providing Whiting an incentive to
operate (or cause to be operated) the underlying properties in
an efficient and cost-effective manner. In addition, Whiting has
agreed to operate these properties as a reasonably prudent
operator in the same manner that it would operate them if these
properties were not burdened by the NPI, and Whiting has agreed
to use commercially reasonable efforts to cause the other
operators to operate these properties in the same manner.
In general, the producing wells to which the underlying
properties relate have established production profiles. Based on
the reserve report, annual production from the underlying
properties is expected to decline at rates ranging from 9% to
11% annually from 2011 through 2015. However, cash distributions
to unitholders may decline at a faster rate than the rate of
production due to fixed and semi-variable costs attributable to
the underlying properties.
Reserves
As of December 31, 2010, all of our oil and gas reserves
are attributable to properties within the United States. The
following table summarizes estimated proved reserves (developed
and undeveloped) and the standardized measure of discounted
future net cash flows as of December 31, 2010 based on
average fiscal-year prices (calculated as the unweighted
arithmetic average of the
first-day-of-the-month
price for each month within the
-32-
12-month
period ended December 31, 2010) attributable to the
Trust and underlying properties full economic life
(dollars in thousands):
Summary
of Oil and Gas Reserves as of Fiscal-Year End Based on Average
Fiscal-Year Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Whiting USA Trust
I(2)
|
|
|
Underlying Properties
|
|
|
|
(90% NPI through November 2015)
|
|
|
(Full Economic Life)
|
|
|
|
Oil(3)
|
|
|
Natural Gas
|
|
|
|
|
|
Oil(3)
|
|
|
Natural Gas
|
|
|
|
|
|
|
(MBbl)
|
|
|
(Mcf)
|
|
|
MBOE
|
|
|
(MBbl)
|
|
|
(Mcf)
|
|
|
MBOE
|
|
|
Proved reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed
|
|
|
2,732
|
|
|
|
9,547
|
|
|
|
4,323
|
|
|
|
8,524
|
|
|
|
24,255
|
|
|
|
12,566
|
|
Undeveloped
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total proved December 31, 2010
|
|
|
2,732
|
|
|
|
9,547
|
|
|
|
4,323
|
|
|
|
8,524
|
|
|
|
24,255
|
|
|
|
12,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized
measure(1)
|
|
|
|
|
|
|
|
|
|
$
|
105,707
|
|
|
|
|
|
|
|
|
|
|
$
|
180,645
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Standardized measure as of
December 31, 2010. No provision for federal or state income
taxes has been provided because taxable income is passed through
to the unitholders of the Trust. Therefore, the standardized
measure of the Trust and of the underlying properties is equal
to their corresponding pre-tax PV 10% values.
|
|
(2)
|
|
The underlying properties
estimated proved reserves as of December 31, 2010 on a 90%
basis were 4,323 MBOE, which reserve amount includes only
those quantities of proved reserves in the underlying properties
that are available to satisfy the interests of Trust unitholders
and does not include the remaining 10% of proved reserves in the
underlying properties to which only Whiting would be entitled.
|
|
(3)
|
|
Oil includes natural gas liquids.
|
The above tables do not include any proved undeveloped reserve
quantities as of December 31, 2010 because the underlying
properties consist of mature producing properties that are
essentially fully developed. Technical studies have not
identified any drilling locations that meet the criteria of
proved undeveloped reserves, nor has any future capital been
committed for the development of proved undeveloped reserves on
the underlying properties.
Proved reserves. Estimates of proved reserves
are inherently imprecise and are continually subject to revision
based on production history, results of additional exploration
and development, price changes and other factors. Oil and gas
reserve quantities and related discounted future net cash flows
have been derived from oil and gas prices calculated using an
average of the
first-day-of-the
month price for each month within the most recent
12 months, pursuant to current SEC and FASB guidelines.
Assumptions used to estimate reserve quantities and related
discounted future net cash flows also include costs for
estimated future production expenditures required to produce the
proved reserves as of December 31, 2010. Future net cash
flows are discounted at an annual rate of 10%. There is no
provision for federal income taxes with respect to the future
net cash flows attributable to the underlying properties or to
the NPI because future net revenues are not subject to taxation
at the Trust level. See Federal Income Tax Matters
in Item 1 of this Annual Report on
Form 10-K
for more information.
A rollforward of changes in net proved reserves attributable to
the Trust from January 1, 2008 to December 31, 2010
and the calculation of the standardized measure of the related
discounted future net revenues are contained in the Supplemental
Oil And Gas Reserve Information (Unaudited) in the notes to the
financial statements of the Trust included in this Annual Report
on
Form 10-K.
Whiting has not filed reserve estimates covering the underlying
properties with any other federal authority or agency.
-33-
In 2010, revisions to previous estimates increased proved
reserves by a net amount of 32 MBOE. Included in these
revisions were 1.4 Bcf of upward adjustments to natural gas
primarily due to higher gas prices of $4.17 per Mcf in reserve
estimates at December 31, 2010, as compared to gas prices
of $3.15 per Mcf at December 31, 2009. This upward revision
in natural gas was almost entirely offset, however, by
201 MBbl of downward adjustments to crude oil reserves.
Crude oil reserves declined in 2010 primarily due to adjustments
to production accruals, which decreases were partially offset by
higher oil prices of $68.77 per Bbl in reserve estimates at
December 31, 2010, as compared to $51.58 per Bbl of oil at
December 31, 2009.
Preparation of reserves estimates. Whiting has
advised the Trust that it maintains adequate and effective
internal controls over the reserve estimation process as well as
the underlying data upon which reserve estimates are based. The
primary inputs to the reserve estimation process are comprised
of technical information, financial data, ownership interests
and production data. All field and reservoir technical
information, which is updated annually, is assessed for validity
when the reservoir engineers hold technical meetings with
geoscientists, operations and land personnel to discuss field
performance. Current revenue and expense information is obtained
from Whitings accounting records, which are subject to
external quarterly reviews, annual audits and their own set of
internal controls over financial reporting. Internal controls
over financial reporting are assessed for effectiveness annually
using the criteria set forth in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. All current financial
data such as commodity prices, lease operating expenses,
production taxes and field commodity price differentials are
updated in the reserve database and then analyzed to ensure that
they have been entered accurately and that all updates are
complete. Whitings current ownership in mineral interests
and well production data are also subject to the aforementioned
internal controls over financial reporting, and they are
incorporated in the reserve database as well and verified to
ensure their accuracy and completeness. Once the reserve
database has been entirely updated with current information, and
all relevant technical support material has been assembled, the
Trusts independent engineering firm Cawley,
Gillespie & Associates, Inc. (CG&A)
meets with Whitings technical personnel in Whitings
Denver and Midland offices to review field performance.
Following these reviews the reserve database is furnished to
CG&A so that they can prepare their independent reserve
estimates and final report. Access to Whitings reserve
database is restricted to specific members of the reservoir
engineering department.
CG&A is a Texas Registered Engineering Firm. The primary
contact at CG&A is Mr. Robert Ravnaas, Executive Vice
President. Mr. Ravnaas is a State of Texas Licensed
Professional Engineer. See Appendix 1 and Exhibit 99
of this Annual Report on
Form 10-K
for the Report of Cawley, Gillespie & Associates, Inc.
and further information regarding the professional
qualifications of Mr. Ravnaas.
Whitings Vice President of Reservoir Engineering and
Acquisitions is responsible for overseeing the preparation of
the reserves estimates. He has over 37 years of experience,
the majority of which has involved reservoir engineering and
reserve estimation, holds a Bachelors Degree in Petroleum
Engineering from the University of Wyoming, holds an MBA from
the University of Denver and is a registered Professional
Engineer. He has also served on the national Board of Directors
of the Society of Petroleum Evaluation Engineers.
As noted above, the current reserve report projects that
9.11 MMBOE attributable to the NPI will be produced from
the underlying properties by November 30, 2015, which
differs from the October 31, 2017 projected date in the
December 31, 2009 reserve report. This change is primarily
due to the higher price assumptions being used in the
independent engineers report as of December 31, 2010
as compared to the reserve report prepared as of
-34-
December 31, 2009. The application of the higher prices in
the reserve estimates extends the estimated economic producing
lives and increases the estimated overall recoverable reserve
quantities of wells producing at lower rates. The projected time
to produce the remaining reserves attributable to the Trust is
therefore reduced. Numerous uncertainties are inherent in
estimating reserve volumes and values, and the estimates are
subject to change as additional information becomes available.
The reserves actually recovered and the timing of production of
the reserves may vary significantly from the estimates. In
addition, the reserves and net revenues attributable to the NPI
include only 90% of the reserves attributable to the underlying
properties that are expected to be produced within the term of
the NPI.
Producing
Acreage and Well Counts
For the following data, gross refers to the total
wells or acres in the oil and natural gas properties in which
Whiting owns a working interest and net refers to
gross wells or acres multiplied by the percentage working
interest owned by Whiting and in turn attributable to the
underlying properties. Although many wells produce both oil and
natural gas, a well is categorized as an oil well or a natural
gas well based upon the ratio of oil to natural gas production.
The underlying properties are interests in developed properties
located in oil and natural gas producing regions outlined in the
chart below. The following is a summary of the number of fields
and approximate acreage of these properties by region at
December 31, 2010. Undeveloped acreage is not significant.
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|
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|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Total Acreage
|
|
Regions
|
|
Fields
|
|
|
Gross
|
|
|
Net
|
|
|
Rocky Mountains
|
|
|
61
|
|
|
|
74,742
|
|
|
|
30,197
|
|
Mid-Continent
|
|
|
57
|
|
|
|
69,450
|
|
|
|
31,878
|
|
Permian Basin
|
|
|
28
|
|
|
|
25,269
|
|
|
|
7,783
|
|
Gulf Coast
|
|
|
23
|
|
|
|
35,472
|
|
|
|
5,187
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
169
|
|
|
|
204,933
|
|
|
|
75,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the producing wells on the
underlying properties as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operated Wells
|
|
|
Non-Operated Wells
|
|
|
Total Wells
|
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Oil
|
|
|
276
|
|
|
|
174.6
|
|
|
|
2,104
|
|
|
|
83.4
|
|
|
|
2,380
|
|
|
|
258.0
|
|
Natural Gas
|
|
|
75
|
|
|
|
52.1
|
|
|
|
622
|
|
|
|
63.0
|
|
|
|
697
|
|
|
|
115.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
351
|
|
|
|
226.7
|
|
|
|
2,726
|
|
|
|
146.4
|
|
|
|
3,077
|
|
|
|
373.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the number of developmental wells
drilled on the underlying properties during the last three
years. A dry well is an exploratory, development or extension
well that proves to be incapable of producing either oil or gas
in sufficient quantities to justify completion as an oil or gas
well. A productive well is an exploratory, development or
extension well that is not a dry well. The information should
not be considered indicative of future performance, nor should
it be assumed that there is necessarily any correlation between
the number of productive wells drilled and quantities of
reserves found. Whiting did not drill any exploratory wells on
-35-
the underlying properties during the periods presented. There
were three wells being drilled as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Gross
|
|
|
Net
|
|
|
Productive
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil wells
|
|
|
9
|
|
|
|
2.5
|
|
|
|
4
|
|
|
|
0.1
|
|
|
|
11
|
|
|
|
1.2
|
|
Natural gas wells
|
|
|
3
|
|
|
|
|
|
|
|
2
|
|
|
|
0.2
|
|
|
|
5
|
|
|
|
0.8
|
|
Dry
|
|
|
1
|
|
|
|
0.1
|
|
|
|
0
|
|
|
|
0.0
|
|
|
|
3
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
13
|
|
|
|
2.6
|
|
|
|
6
|
|
|
|
0.3
|
|
|
|
19
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil
and Natural Gas Production
The table below shows total oil and gas production, average
sales prices and average production costs attributable to
underlying properties. The underlying properties
information is presented in the table below on a cash basis, as
this basis of accounting is consistent with the Trusts
financial statements which have been prepared on a modified cash
basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Net
production(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil production (MBbls)
|
|
|
797
|
|
|
|
838
|
|
|
|
884
|
|
Natural gas production (MMcf)
|
|
|
3,213
|
|
|
|
3,632
|
|
|
|
4,228
|
|
Total production (MBOE)
|
|
|
1,332
|
|
|
|
1,443
|
|
|
|
1,589
|
|
Average daily production (MBOE/d)
|
|
|
3.7
|
|
|
|
3.9
|
|
|
|
4.3
|
|
Average Sales Prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (per Bbl)
|
|
$
|
66.58
|
|
|
$
|
47.86
|
|
|
$
|
92.97
|
|
Natural gas (per Mcf)
|
|
$
|
4.37
|
|
|
$
|
3.58
|
|
|
$
|
8.16
|
|
Production costs per
BOE(2)
|
|
$
|
17.07
|
|
|
$
|
16.65
|
|
|
$
|
16.41
|
|
|
|
|
(1)
|
|
No field contained 15% or more of
the total proved reserve volumes at December 31, 2010, 2009
or 2008.
|
|
(2)
|
|
Production costs reported above
exclude from lease operating expenses ad valorem taxes of
$1.0 million ($0.78/BOE), $0.9 million ($0.65/BOE) and
$1.3 million ($0.82/BOE) for the years ended
December 31, 2010, 2009 and 2008, respectively.
|
Producing wells the Trust has an interest in are part of 14
enhanced oil recovery waterflood projects, and aggregate
production from such enhanced oil recovery fields averaged 657
BOE/d during 2010 or 18% of our 2010 daily production. For these
areas, we need to use enhanced recovery techniques in order to
maintain oil and gas production from these fields.
-36-
Delivery
Commitments
Neither the Trust nor the underlying properties are committed to
deliver fixed quantities of oil or gas in the future under
existing contracts or agreements.
Major
Producing Areas
The underlying properties are located in several major onshore
producing basins in the continental United States. Whiting
believes this broad distribution provides a buffer against
regional trends that may negatively impact production or prices.
Based on the standardized measure of discounted future net cash
flows at December 31, 2010, approximately 64% of these
properties were operated by Whiting. Based on annual 2010
production attributable to the underlying properties,
approximately 60% was oil and natural gas liquids and 40% was
natural gas. These properties are located in mature fields and
have established production profiles. However, production and
distributions to the Trust will decline over time.
Mid-Continent Region. The underlying
properties in the Mid-Continent region are located in Arkansas,
Oklahoma, Kansas and Michigan. These properties include 57
fields of which Whiting operates wells in 28 of these fields.
There are two significant fields located in Arkansas. The
Magnolia Smackover Pool Unit, the largest single field in the
underlying properties, produces from the Smackover Lime. The
second Arkansas field is the Stephens-Smart field, producing
from the Buckrange and Travis Peak. The major fields and areas
in Oklahoma are located in the Anadarko Basin and include Putnam
Field, Mocane-Laverne Gas Area, Sho-Vel-Tum Field and Nobscot
Northwest Field, which primarily produce from the Oswego,
Hunton, Penn, Morrow, Red Fork and Cottage Grove zones. Case
Field is the major Michigan field in the region and produces
from the Silurian Niagaran zone. For the year ended
December 31, 2010, the net production attributable to the
underlying properties in the region was 515.9 MBOE or
1.4 MBOE/d.
Rocky Mountains Region. The underlying
properties in the Rocky Mountains region are located in two
distinct areas. The first, from which crude oil is primarily
produced, includes the Williston Basin in North Dakota and
Montana as well as the Bighorn and Powder River Basins of
Wyoming, while the second, from which natural gas is primarily
produced, includes southwest Wyoming, Colorado and Utah. These
properties include 61 fields of which Whiting operates wells in
31 of these fields. The major North Dakota fields in this region
include Bell Field and Fryberg Field that produce from Tyler
sandstone; Whiskey Joe, Teddy Roosevelt, Sherwood and Davis
Creek Fields that produce from various intervals in the Madison;
Hiline Unit that produces from the Lodgepole; and Big Dipper
Field that produces from the Duperow and Red River zones. In
Montana, the major fields include the Bainville Field and
Palomino Fields that produce primarily from the Nisku zone, and
Oxbow Field that produces from the Nisku and Red River zones.
The major Wyoming fields in this region include the Sage Creek
Field in the Bighorn Basin that produces from the Tensleep and
Madison zones and the Kiehl Field in the Powder River Basin,
which produces from the Minnelusa formation and is under
waterflood. The Ignacio Blanco Field is the major Colorado field
in this region and produces from the Fruitland Coal zone. For
the year ended December 31, 2010, the net production
attributable to the underlying properties in the region was
468.3 MBOE or 1.3 MBOE/d.
Permian Basin Region. The Permian Basin Region
of West Texas and New Mexico is one of the major hydrocarbon
producing provinces in the continental United States. The
underlying properties in the Permian Basin region are located in
Texas and New Mexico. These properties include 28 fields of
which Whiting operates wells in
-37-
10 of these fields. The major fields in this region include
Iatan East Howard Field, which produces from the
San Andres, Glorieta and Clearfork zones; the Fullerton
Field, which is unitized and produces from the Clearfork zone;
and Patricia Field, which produces from the Sprayberry and
Fusselman zones. For the year ended December 31, 2010, the
net production attributable to the underlying properties in the
region was 193.7 MBOE or 0.5 MBOE/d.
Gulf Coast Region. The underlying properties
in the Gulf Coast region are located in Texas, Louisiana,
Mississippi and Alabama. These properties include 23 onshore
fields of which Whiting operates wells in one of these fields.
The major field in this region is the Mestena Grande Field
located in Texas, which produces from the Queen City zone. For
the year ended December 31, 2010, the net production
attributable to the underlying properties in the region was
154.4 MBOE or 0.5 MBOE/d.
Abandonment
and Sale of Underlying Properties
Whiting has the right to abandon its interest in any well or
property comprising a portion of the underlying properties if,
in its opinion, such well or property ceases to produce or is
not capable of producing in commercially paying quantities. To
reduce or eliminate the potential conflict of interest between
Whiting and the Trust in determining whether a well is capable
of producing in commercially paying quantities, Whiting has
agreed to operate the underlying properties as a reasonably
prudent operator in the same manner that it would operate if
these properties were not burdened by the NPI, and Whiting has
agreed to use commercially reasonable efforts to cause the other
operators to operate these properties in the same manner. For
the years ended December 31, 2010, 2009 and 2008, twenty,
seventeen and seven gross wells, respectively, were plugged and
abandoned on the underlying properties, based on the
determination that such wells were no longer economic to operate.
In addition, Whiting may, without the consent of the Trust
unitholders, require the Trust to release the NPI associated
with any lease that accounts for less than or equal to 0.25% of
the total production from the underlying properties in the prior
12 months and provided that the NPI covered by such
releases cannot exceed, during any
12-month
period, an aggregate fair market value to the Trust of $500,000.
These releases will be made only in connection with a sale by
Whiting of the relevant underlying properties and are
conditioned upon the Trust receiving an amount equal to the fair
value to the Trust of such NPI. Any net sales proceeds paid to
the Trust are distributable to Trust unitholders for the quarter
in which they are received. During 2010, Whiting received
aggregate sale proceeds of $3,172 in exchange for its
divestiture of Trust properties that held 0.7 MBOE of
proved reserves. Whiting includes all such proceeds from Trust
property divestitures in its NPI distributions to the Trust.
Title
to Properties
The underlying properties are subject to certain burdens that
are described in more detail below. To the extent that these
burdens and obligations affect Whitings rights to
production and the value of production from the underlying
properties, they have been taken into account in calculating the
Trusts interests and in estimating the size and the value
of the reserves attributable to the underlying properties.
Whitings interests in the oil and natural gas properties
comprising the underlying properties are typically subject, in
one degree or another, to one or more of the following:
|
|
|
|
|
royalties, overriding royalties and other burdens, express and
implied, under oil and natural gas leases;
|
-38-
|
|
|
|
|
overriding royalties, production payments and similar interests
and other burdens created by Whiting or its predecessors in
title;
|
|
|
|
a variety of contractual obligations arising under operating
agreements, farm-out agreements, production sales contracts and
other agreements that may affect the underlying properties or
their title;
|
|
|
|
liens that arise in the normal course of operations, such as
those for unpaid taxes, statutory liens securing unpaid
suppliers and contractors, and contractual liens under operating
agreements that are not yet delinquent or, if delinquent, are
being contested in good faith by appropriate proceedings;
|
|
|
|
pooling, unitization and communitization agreements,
declarations and orders;
|
|
|
|
easements, restrictions,
rights-of-way
and other matters that commonly affect property;
|
|
|
|
conventional rights of reassignment that obligate Whiting to
reassign all or part of a property to a third party if Whiting
intends to release or abandon such property; and
|
|
|
|
rights reserved to or vested in the appropriate governmental
agency or authority to control or regulate the underlying
properties and the NPI therein.
|
Whiting has informed the Trustee that Whiting believes the
burdens and obligations affecting the properties comprising the
underlying properties are conventional in the industry for
similar properties. Whiting also has informed the Trustee that
Whiting believes that the existing burdens and obligations do
not, in the aggregate, materially interfere with the use of the
underlying properties and do not materially adversely affect the
value of the NPI.
Whiting acquired the underlying properties in various
transactions that have occurred during its 28 year
existence prior to the conveyance. At the time of its
acquisitions of the underlying properties, Whiting undertook a
title examination of these properties.
Net profits interests are non-operating, non-possessory
interests carved out of the oil and natural gas leasehold
estate, but some jurisdictions have not directly determined
whether a NPI is a real or a personal property interest. Whiting
has recorded the conveyance of the NPI in the relevant real
property records of all applicable jurisdictions. Whiting has
informed the Trustee that Whiting believes the delivery and
recording of the conveyance creates a fully conveyed and vested
property interest under the applicable states laws, but
because there is no direct authority to this effect in some
jurisdictions, this may not always be the result. Whiting has
also informed the Trustee that Whiting believes that it is
possible the NPI may not be treated as a real property interest
under the laws of certain of the jurisdictions where the
underlying properties are located. Whiting has also informed the
Trustee that Whiting believes that, if, during the term of the
Trust, Whiting becomes involved as a debtor in a bankruptcy
proceeding, the NPI relating to the underlying properties in
most, if not all, of the jurisdictions should be treated as a
fully conveyed property interest. In such a proceeding, however,
a determination could be made that the conveyance constitutes an
executory contract and that the NPI is not a fully conveyed
property interest under the laws of the applicable jurisdiction,
and if such contract were not to be assumed in a bankruptcy
proceeding involving Whiting, the Trust would be treated as an
unsecured creditor of Whiting with respect to such NPI in the
pending bankruptcy proceeding. Although no assurance can be
given, Whiting has informed the Trustee that Whiting believes
that the
-39-
conveyance of the NPI relating to the underlying properties in
most, if not all, of the jurisdictions of which these properties
are located should not be subject to rejection in a bankruptcy
proceeding as an executory contract.
|
|
Item 3.
|
Legal
Proceedings.
|
Currently, there are not any legal proceedings pending to which
the Trust is a party or of which any of its property is the
subject.
|
|
Item 4.
|
Removed
and Reserved.
|
-40-
|
|
Item 5.
|
Market
for Registrants Common Equity, Related Unitholder Matters
and Issuer Purchases of Equity Securities.
|
The Trust units commenced trading on the New York Stock Exchange
on April 30, 2008 under the symbol WHX. Prior
to April 30, 2008, there was no established public trading
market for the Trust units. The high and low sales prices per
unit for each quarter in 2010 and 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31,
|
|
|
2010
|
|
2009
|
|
|
High
|
|
Low
|
|
High
|
|
Low
|
|
First Quarter (January 1 through March 31)
|
|
$
|
18.99
|
|
|
$
|
16.52
|
|
|
$
|
14.75
|
|
|
$
|
8.36
|
|
Second Quarter (April 30 through June 30)
|
|
$
|
23.94
|
|
|
$
|
15.01
|
|
|
$
|
13.13
|
|
|
$
|
10.00
|
|
Third Quarter (July 1 through September 30)
|
|
$
|
22.25
|
|
|
$
|
15.79
|
|
|
$
|
15.43
|
|
|
$
|
10.05
|
|
Fourth Quarter (October 1 through December 31)
|
|
$
|
24.24
|
|
|
$
|
20.00
|
|
|
$
|
17.99
|
|
|
$
|
14.40
|
|
At December 31, 2010, the 13,863,889 units outstanding
were held by three unitholders of record.
Distributions
Each quarter, the Trustee determines the amount of funds
available for distribution to the Trust unitholders. Available
funds are the excess cash, if any, received by the Trust from
the NPI and other sources (such as interest earned on any
amounts reserved by the Trustee) that quarter, over the
Trusts expenses for that quarter. Available funds are
reduced by any cash the Trustee decides to hold as a reserve
against future liabilities. Quarterly cash distributions during
the term of the Trust are made by the Trustee generally no later
than 60 days following the end of each quarter (or the next
succeeding business day) to the Trust unitholders of record on
the 50th day following the end of each quarter (or the next
succeeding business day). The table below presents the net cash
proceeds for each quarter of 2010 and 2009 attributable to the
90% NPI, the estimated Trust expenses, Montana state income
taxes reserved for by the Trustee and the resulting
distributable income per Trust unit (dollars in thousands,
except distributable income per unit).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Montana State
|
|
|
|
|
|
|
Net Cash Proceeds
|
|
|
Estimated
|
|
|
Income Tax
|
|
|
Distributable
|
|
2010 Quarterly Distributions
|
|
(90% NPI)
|
|
|
Trust Expense
|
|
|
Withholdings
|
|
|
Income per Unit
|
|
|
First Quarter
|
|
$
|
9,466
|
|
|
$
|
200
|
|
|
$
|
71
|
|
|
$
|
0.663181
|
|
Second Quarter
|
|
|
10,023
|
|
|
|
250
|
|
|
|
55
|
|
|
|
0.700986
|
|
Third Quarter
|
|
|
10,551
|
|
|
|
250
|
|
|
|
37
|
|
|
|
0.740332
|
|
Fourth Quarter
|
|
|
8,402
|
|
|
|
100
|
|
|
|
56
|
|
|
|
0.594796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,442
|
|
|
$
|
800
|
|
|
$
|
219
|
|
|
$
|
2.699295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-41-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Montana State
|
|
|
|
|
|
|
Net Cash Proceeds
|
|
|
Estimated
|
|
|
Income Tax
|
|
|
Distributable
|
|
2009 Quarterly Distributions
|
|
(90% NPI)
|
|
|
Trust Expense
|
|
|
Withholdings
|
|
|
Income per Unit
|
|
|
First Quarter
|
|
$
|
11,148
|
|
|
$
|
175
|
|
|
$
|
58
|
|
|
$
|
0.787316
|
|
Second Quarter
|
|
|
9,683
|
|
|
|
300
|
|
|
|
20
|
|
|
|
0.675401
|
|
Third Quarter
|
|
|
8,732
|
|
|
|
300
|
|
|
|
35
|
|
|
|
0.605667
|
|
Fourth Quarter
|
|
|
8,784
|
|
|
|
275
|
|
|
|
68
|
|
|
|
0.608855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
38,347
|
|
|
$
|
1,050
|
|
|
$
|
181
|
|
|
$
|
2.677239
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to year end, on March 1, 2011, a distribution of
$0.667847 per Trust unit was paid to Trust unitholders owning
Trust units as of February 21, 2011. The distribution
consisted of net cash proceeds of $9.3 million paid by
Whiting to the Trust, which included cash receipts of
$1.4 million (90% of $1.6 million) for commodity
derivative contracts settled for October 1, 2010 through
December 31, 2010, less a provision of $250,000 for
estimated Trust expenses and $57,719 for Montana state income
tax withholdings.
Equity
Compensation Plans
The Trust does not have any employees and, therefore, does not
maintain any equity compensation plans.
Recent
Sales of Unregistered Securities
None.
Purchases
of Equity Securities
There were no purchases of Trust units by the Trust or any
affiliated purchaser during the fourth quarter of 2010.
-42-
|
|
Item 6.
|
Selected
Financial Data.
|
The Trust was formed on October 18, 2007. The conveyance of
the NPI, however, did not occur until April 30, 2008. As a
result, the Trust did not recognize any income or make any
distributions during the first quarter of 2008. The following
table sets forth selected data for the Trust for the years ended
December 31, 2010, 2009 and 2008 and as of
December 31, 2010, 2009 and 2008 based on the Trusts
audited financial statements (dollars and shares in thousands,
except distributable income per unit).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
Year Ended
|
|
|
December 31, 2010
|
|
December 31, 2009
|
|
December 31, 2008
|
|
Income from net profits interest
|
|
$
|
38,442
|
|
|
$
|
38,348
|
|
|
$
|
58,281
|
|
Distributable income
|
|
$
|
37,422
|
|
|
$
|
37,117
|
|
|
$
|
56,980
|
|
Distributable income per unit
|
|
$
|
2.699295
|
|
|
$
|
2.677239
|
|
|
$
|
4.109980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2010
|
|
2009
|
|
2008
|
|
Trust corpus
|
|
$
|
61,999
|
|
|
$
|
79,346
|
|
|
$
|
97,798
|
|
Total assets at year-end
|
|
$
|
62,144
|
|
|
$
|
79,583
|
|
|
$
|
97,930
|
|
Trust units outstanding
|
|
|
13,864
|
|
|
|
13,864
|
|
|
|
13,864
|
|
|
|
Item 7.
|
Trustees
Discussion and Analysis of Financial Condition and Results of
Operation.
|
This document contains forward-looking statements, which give
our current expectations or forecasts of future events. Please
refer to Forward-Looking Statements which follows
the Table of Contents of this
Form 10-K
for an explanation of these types of statements.
Overview
The Trust does not conduct any operations or activities. The
Trusts purpose is, in general, to hold the NPI, to
distribute to the Trust unitholders cash that the Trust receives
in respect of the NPI, and to perform certain administrative
functions in respect of the NPI and the Trust units. The Trust
derives substantially all of its income and cash flows from the
NPI, which is in turn subject to commodity hedge contracts.
Although oil prices fell significantly after reaching a high in
the third quarter of 2008, they have experienced a rebound in
the second half of 2009 and first nine months of 2010 (as only
the first nine months of oil prices affect 2010 NPI
distributions). Additionally, natural gas prices have fallen
significantly since their peak in the third quarter of 2008 and
have remained low throughout 2009, but gas prices have begun to
slightly increase during the first nine months of 2010 (as only
the first eight months of gas prices affect 2010 NPI
distributions). The following table highlights these price
trends by listing quarterly average NYMEX crude oil and natural
gas prices for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2009
|
|
2010
|
|
|
Q3
|
|
Q4
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Q4
|
|
Q1
|
|
Q2
|
|
Q3
|
|
Crude Oil
|
|
$
|
118.13
|
|
|
$
|
58.75
|
|
|
$
|
43.21
|
|
|
$
|
59.62
|
|
|
$
|
68.29
|
|
|
$
|
76.17
|
|
|
$
|
78.79
|
|
|
$
|
77.99
|
|
|
$
|
76.21
|
|
Natural Gas
|
|
$
|
10.27
|
|
|
$
|
6.96
|
|
|
$
|
4.92
|
|
|
$
|
3.50
|
|
|
$
|
3.40
|
|
|
$
|
4.16
|
|
|
$
|
5.30
|
|
|
$
|
4.09
|
|
|
$
|
4.39
|
|
-43-
Lower oil and gas prices on production from the underlying
properties could cause the following: (i) a reduction in
the amount of net proceeds to which the Trust is entitled;
(ii) a reduction in the amount of oil, natural gas and
natural gas liquids that is economic to produce from the
underlying properties; and (iii) an extension of the length
of time required to produce 9.11 MMBOE (8.20 MMBOE at
the 90% NPI) due to some wells thereby reaching their economic
limits sooner.
For a discussion of the estimated date when 9.11 MMBOE
(8.20 MMBOE at the 90% NPI) will be produced and sold from
the underlying properties and when the Trust will soon
thereafter wind up its affairs and terminate, see
Description of the Underlying Properties in
Item 2 of this Annual Report on
Form 10-K.
For a discussion of material changes to proved reserves, see
Reserves in Item 2 of this Annual Report on
Form 10-K.
Additionally, for a discussion of the need to use enhanced
recovery techniques, see Oil and Natural Gas
Production in Item 2 of this Annual Report on
Form 10-K.
Results
of Trust Operations
The Trust was formed in October 2007. The conveyance of the NPI,
however, did not occur until April 2008. As a result, the Trust
did not recognize any income or make any distributions during
the first quarter of 2008. The following is a summary of income
from net profits interest received by the Trust for the years
ended December 31, 2010 and 2009, consisting of the
February, May, August and November distributions for each
respective year, as well as income from net profits interest for
the year ended December 31, 2008, consisting of the May,
August and November NPI distributions for that year (dollars in
thousands, except per Bbl, per Mcf and per BOE amounts):
Trust
Results
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Sales Volumes:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil from underlying properties (MBbls)
|
|
|
804
|
(a)
|
|
|
847
|
(b)
|
|
|
640
|
(c)
|
Natural gas from underlying properties (MMcf)
|
|
|
3,335
|
(a)
|
|
|
3,664
|
(b)
|
|
|
2,832
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total production (MBOE)
|
|
|
1,360
|
|
|
|
1,458
|
|
|
|
1,112
|
|
Average Sales Prices:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil (per Bbl)
|
|
$
|
65.39
|
|
|
$
|
48.29
|
|
|
$
|
102.04
|
|
Effect of oil hedges on average price (per Bbl)
|
|
|
0.25
|
|
|
|
14.21
|
|
|
|
(0.28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil net of hedging (per Bbl)
|
|
$
|
65.64
|
|
|
$
|
62.50
|
|
|
$
|
101.76
|
|
Natural gas (per Mcf)
|
|
$
|
4.26
|
|
|
$
|
4.13
|
|
|
$
|
8.94
|
|
Effect of natural gas hedges on average price (per Mcf)
|
|
|
1.23
|
|
|
|
1.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural gas net of hedging (per Mcf)
|
|
$
|
5.49
|
|
|
$
|
5.39
|
|
|
$
|
8.94
|
|
Costs (per BOE):
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
$
|
17.39
|
|
|
$
|
17.96
|
|
|
$
|
17.38
|
|
Production taxes
|
|
$
|
3.47
|
|
|
$
|
2.70
|
|
|
$
|
5.71
|
|
-44-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil sales
|
|
$
|
52,558
|
(a)
|
|
$
|
40,922
|
(b)
|
|
$
|
65,276
|
(c)
|
Natural gas sales
|
|
|
14,193
|
(a)
|
|
|
15,133
|
(b)
|
|
|
25,322
|
(c)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
66,751
|
|
|
$
|
56,055
|
|
|
$
|
90,598
|
|
Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
$
|
23,643
|
|
|
$
|
26,179
|
|
|
$
|
19,319
|
|
Production taxes
|
|
|
4,718
|
|
|
|
3,930
|
|
|
|
6,346
|
|
Cash settlement payments (gains received) on commodity
derivatives
|
|
|
(4,323
|
)
|
|
|
(16,663
|
)
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs
|
|
$
|
24,038
|
|
|
$
|
13,446
|
|
|
$
|
25,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds
|
|
$
|
42,713
|
|
|
$
|
42,609
|
|
|
$
|
64,757
|
|
Net profits percentage
|
|
|
90
|
%
|
|
|
90
|
%
|
|
|
90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from net profits interest
|
|
$
|
38,442
|
|
|
$
|
38,348
|
|
|
$
|
58,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Oil and gas sales volumes and
related revenues for the year ended December 31, 2010
(consisting of Whitings February, May, August and November
2010 NPI distributions to the Trust) generally represent crude
oil production from October 2009 through September 2010 and
natural gas production from September 2009 through August 2010.
|
|
(b)
|
|
Oil and gas sales volumes and
related revenues for the year ended December 31, 2009
(consisting of Whitings February, May, August and November
2009 NPI distributions to the Trust) generally represent crude
oil production from October 2008 through September 2009 and
natural gas production from September 2008 through August 2009.
|
|
(c)
|
|
Oil and gas sales volumes and
related revenues for the year ended December 31, 2008
(consisting of Whitings May, August and November 2008 NPI
distributions to the Trust) generally represent crude oil
production from January through September 2008 and natural gas
production from January through August 2008.
|
Comparison
of Results of the Trust for the Years Ended December 31,
2010 and 2009
Income from Net Profits Interest. Income from
net profits interest is recorded on a cash basis when NPI
proceeds are received by the Trust from Whiting. NPI proceeds
that Whiting remits to the Trust are based on the oil and gas
production Whiting has received payment for within one month
following the end of the most recent fiscal quarter. Whiting
receives payment for its crude oil sales generally within
30 days following the month in which it is produced, and
Whiting receives payment for its natural gas sales generally
within 60 days following the month in which it is produced.
Income from net profits interest is generally a function of oil
and gas revenues, lease operating expenses, production taxes and
cash settlements on commodity derivatives as follows:
Revenues. Oil and natural gas revenues
increased $10.7 million or 19% in 2010 compared to 2009.
Revenues are a function of average sales prices and volumes
sold. In 2010, oil and gas revenues and NPI distributions were
positively impacted by a substantial increase in realized
commodity prices. The average price realized for oil before the
effects of hedging increased 35% between periods, and the
average price realized for natural gas before the
-45-
effects of hedging increased 3%. Partially offsetting the
significant increase in commodity prices was a decrease in
production volumes sold between periods. Oil sales volumes
decreased 5% or 43 MBOE, and gas sales volumes decreased 9%
or 329 MMcf for the year ended December 31, 2010 as
compared to 2009, primarily due to normal field production
decline. Oil and gas production attributable to the underlying
properties is estimated to decline at rates ranging from 9% to
11% annually from 2011 to 2015, based on the reserve report
prepared by the Trusts independent reservoir engineers as
of December 31, 2010.
Lease Operating Expenses. Lease operating
expenses decreased $2.5 million or 10% from 2009 to 2010
due to a lower amount of operating costs charged to wells that
are not operated by Whiting, a decline in labor costs on
Whiting-operated properties and a decrease in gathering fees
between periods. Lease operating expenses per BOE decreased from
$17.96 in 2009 to $17.39 for 2010. The 3% decrease on a BOE
basis was primarily caused by a lower amount of operating costs
charged to wells that are not operated by Whiting.
Production Taxes. Production taxes are
generally calculated as a percentage of oil and gas revenues
before the effects of hedging. Tax credits and exemptions
allowed in the various taxing jurisdictions are generally
utilized to their potential. Production taxes during 2010
increased $0.8 million or 20% compared to 2009, primarily
due to higher oil and natural gas sales between periods.
Production taxes as a percent of oil and gas revenues for 2010
and 2009 were 7.1% and 7.0%, respectively.
Cash Settlements on Commodity
Derivatives. Whiting entered into certain
costless collar hedge contracts for the benefit of the Trust
prior to the conveyance. If current market prices are lower than
a collars price floor when the cash settlement amount is
calculated, Whiting receives cash proceeds from the contract
counterparty. Conversely, if current market prices are higher
than a collars price ceiling when the cash settlement
amount is calculated, Whiting is required to pay the contract
counterparty. Cash settlements relating to the hedges resulted
in a gain of $4.3 million for the year ended
December 31, 2010, which had the effect of increasing
average sales prices net of hedging by $0.25 per Bbl of oil and
$1.23 per Mcf of natural gas. For the same period in 2009, cash
settlements relating to these hedges resulted in a gain of
$16.7 million, or $14.21 per Bbl of oil and $1.26 per Mcf
of natural gas.
Distributable Income. For the year ended
December 31, 2010, the Trusts distributable income
was $37.4 million and was based on income from net profits
interest of $38.4 million less general and administrative
expenses of $0.9 million and Montana state income tax
withholdings of $0.2 million. This compares to
distributable income of $37.1 million during 2009, which
was based on income from net profits interest of
$38.3 million less general and administrative expenses of
$0.9 million and $0.2 million in Montana state income
tax withholdings.
Comparison
of Results of the Trust for the Years Ended December 31,
2009 and 2008
Income from Net Profits Interest. Income from
net profits interest is recorded on a cash basis when NPI
proceeds are received by the Trust from Whiting. NPI proceeds
that Whiting remits to the Trust are based on the oil and gas
production Whiting has received payment for within one month
following the end of the most recent fiscal quarter. Whiting
receives payment for its crude oil sales generally within
30 days following the month in which it is produced, and
Whiting receives payment for its natural gas sales generally
within 60 days following the month in
-46-
which it is produced. Income from net profits interest is
generally a function of oil and gas revenues, lease operating
expenses, production taxes and cash settlements on commodity
derivatives as follows:
Revenues. Oil and natural gas revenues
decreased $34.5 million or 38% in 2009 compared to 2008.
Revenues are a function of average sales prices and volumes
sold. In 2009, oil and gas revenues and NPI distributions were
negatively impacted by a substantial decline in realized
commodity prices. The average price realized for oil before the
effects of hedging decreased 53% between periods, and the
average price realized for natural gas before the effects of
hedging decreased 54%. Partially offsetting the significant
decline in commodity prices was an increase in production
volumes sold between periods. Oil sales volumes increased 32% or
208 MBOE, and gas sales volumes increased 29% or
832 MMcf for the year ended December 31, 2009 as
compared to 2008. These volume increases were due to the fact
that there were four NPI distributions and therefore twelve
months of oil and gas production during 2009 compared to only
three NPI distributions, which included nine months of oil and
eight months of gas production, during 2008. There were only
three NPI distributions during 2008 because the NPI was conveyed
effective for production from the underlying properties
beginning January 1, 2008. Despite this increase in
production volumes between periods, oil and gas production
attributable to the underlying properties is estimated to
decline at rates ranging from 9% to 11% from 2011 to 2015, based
on the reserve report as of December 31, 2010.
Lease Operating Expenses. Lease operating
expenses increased $6.9 million or 36% from 2008 to 2009
because there were four NPI distributions and therefore twelve
months of LOE during 2009, as compared to three NPI
distributions and only nine months of LOE during 2008. Lease
operating expenses per BOE increased from $17.38 in 2008 to
$17.96 for 2009. The 3% increase on a BOE basis was primarily
caused by the timing of receipts and cash disbursements for
expenditures.
Production Taxes. Production taxes are
generally calculated as a percentage of oil and gas revenues
before the effects of hedging. All credits and exemptions
allowed in the various taxing jurisdictions are fully utilized.
Production taxes during 2009 decreased $2.4 million or 38%
compared to 2008, primarily due to lower oil and natural gas
sales between periods. Production taxes as a percent of oil and
gas revenues, however, remained constant for both 2009 and 2008
at 7.0%.
Cash Settlements on Commodity
Derivatives. Whiting entered into certain
costless collar hedge contracts for the benefit of the Trust
prior to the conveyance. If current market prices are lower than
a collars price floor when the cash settlement amount is
calculated, Whiting receives cash proceeds from the contract
counterparty. Conversely, if current market prices are higher
than a collars price ceiling when the cash settlement
amount is calculated, Whiting is required to pay the contract
counterparty. Cash settlements relating to the hedges resulted
in a gain of $16.7 million for the twelve months ended
December 31, 2009, which had the effect of increasing
average sales prices net of hedging by $14.21 per Bbl for oil
and $1.26 per Mcf of gas. Cash settlements relating to the
hedges resulted in a deduction of $175,949, or $0.28 per Bbl of
oil, compared to 2008.
Distributable Income. For the year ended
December 31, 2009, the Trusts distributable income
was $37.1 million and was based on income from net profits
interest of $38.3 million less general and administrative
expenses of $1.1 million and Montana state income tax
withholdings of $0.2 million. This compares to
distributable income of $57.0 million during 2008, which
was based on income from net profits interest of
$58.3 million less general and administrative expenses of
$0.9 million and $0.4 million for Montana state income
tax withholdings.
-47-
Results
of Underlying Property Operations
Because the 2008 Trust results do not include a full
12 months of NPI distributions and related property
results, the Trust is providing financial information with
respect to the underlying properties for the years ended
December 31, 2009 and 2008 so that investors can review
complete comparative results of operations for the 2009 and 2008
fiscal periods. The underlying properties results of
operations for the years ended December 31, 2009 and 2008
are presented on a cash basis of accounting in the table below
and in the related discussion in Comparison of Results of
the Underlying Properties for the Year Ended December 31,
2009 and 2008, and this cash basis presentation is
consistent with the Trusts 2009 and 2008 financial
statements, which have been prepared on a modified cash basis.
The 2009 cash basis results generally consist of crude oil sales
earned from December 2008 through November 2009 but received
during 2009, and natural gas sales earned from November 2008
through October 2009 but received in 2009. The 2008 cash basis
results generally consist of crude oil sales earned from
December 2007 through November 2008 but received during 2008,
and natural gas sales earned from November 2007 through October
2008 but received in 2008.
-48-
The table below sets forth revenues and direct operating
expenses, as well as operating data, relating to the underlying
properties for each of the years ended December 31, 2009
and 2008. Results for 2008 include the effects of hedging
activities subsequent to the April 30, 2008 conveyance. The
following table also provides average sales prices, per BOE
data, and capital expenditures relating to the underlying
properties for each period (dollars in thousands, except per
Bbl, per Mcf, and per BOE amounts):
Underlying
Properties Results
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009(1)
|
|
|
2008(1)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
Oil sales
|
|
$
|
40,097
|
|
|
$
|
82,208
|
|
Natural gas sales
|
|
|
13,001
|
|
|
|
34,514
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
53,098
|
|
|
$
|
116,722
|
|
|
|
|
|
|
|
|
|
|
Direct operating expenses:
|
|
|
|
|
|
|
|
|
Lease operating
|
|
$
|
24,972
|
|
|
$
|
27,383
|
|
Production taxes
|
|
|
3,806
|
|
|
|
8,100
|
|
Cash settlement payments (gains received) on commodity
derivatives
|
|
|
(14,321
|
)
|
|
|
(3,719
|
)
|
|
|
|
|
|
|
|
|
|
Total direct operating expenses
|
|
$
|
14,457
|
|
|
$
|
31,764
|
|
|
|
|
|
|
|
|
|
|
Excess of revenues over direct operating expenses
|
|
$
|
38,641
|
|
|
$
|
84,958
|
|
|
|
|
|
|
|
|
|
|
Operating data:
|
|
|
|
|
|
|
|
|
Oil (MBbls)
|
|
|
838
|
|
|
|
884
|
|
Natural gas sales (MMcf)
|
|
|
3,632
|
|
|
|
4,228
|
|
|
|
|
|
|
|
|
|
|
Total production (MBOE)
|
|
|
1,443
|
|
|
|
1,589
|
|
Average Sales Price:
|
|
|
|
|
|
|
|
|
Oil (per Bbl)
|
|
$
|
47.86
|
|
|
$
|
92.97
|
|
Effect of oil hedges (per Bbl)
|
|
|
10.16
|
|
|
|
3.86
|
|
|
|
|
|
|
|
|
|
|
Oil net of hedging (per Bbl)
|
|
$
|
58.02
|
|
|
$
|
96.83
|
|
|
|
|
|
|
|
|
|
|
Natural gas (per Mcf)
|
|
$
|
3.58
|
|
|
$
|
8.16
|
|
Effect of natural gas hedges (per Mcf)
|
|
|
1.60
|
|
|
|
0.07
|
|
|
|
|
|
|
|
|
|
|
Natural gas net of hedging (per Mcf)
|
|
$
|
5.18
|
|
|
$
|
8.23
|
|
|
|
|
|
|
|
|
|
|
Per BOE data:
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
$
|
17.30
|
|
|
$
|
17.23
|
|
Production taxes
|
|
$
|
2.64
|
|
|
$
|
5.10
|
|
Drilling and development capital expenditures (in
thousands)(2)
|
|
$
|
1,074
|
|
|
$
|
5,381
|
|
|
|
|
(1)
|
|
The results of operations for 2009
and 2008 are presented on a cash basis of accounting.
|
|
(2)
|
|
The Trust cannot provide any
assurance that future capital expenditures will be consistent
with historical levels.
|
-49-
Comparison
of Results of the Underlying Properties for the Years Ended
December 31, 2009 and 2008
Revenues. Oil and natural gas revenues
decreased $63.6 million or 55% from 2008 to 2009. Sales are
a function of average sales prices and volumes sold. In 2009,
oil and gas revenues were negatively impacted by a substantial
decline in realized commodity prices. The average price realized
for oil before the effects of hedging decreased 49% from 2008 to
2009, and the average price realized for natural gas before the
effects of hedging decreased 56% between periods. In addition,
oil sales volumes decreased 5% or 46 MBbls between periods
due to normal field production decline, and gas sales volumes
decreased 14% or 595 MMcf between periods also due to
normal field decline. Oil and gas production attributable to the
underlying properties is estimated to decline at rates ranging
from 9% to 11% annually from 2011 to 2015, based on the reserve
report prepared by the Trusts independent reservoir
engineers as of December 31, 2010.
Lease Operating Expenses. Lease operating
expenses decreased $2.4 million or 9% from 2008 to 2009,
which was consistent with the 9% decrease in overall oil and gas
production. Accordingly, lease operating expenses per BOE
remained consistent between periods, increasing only 0.4% from
$17.23 during 2008 to $17.30 during 2009.
Production Taxes. Production taxes are
generally calculated as a percentage of oil and gas revenues.
Tax credits and exemptions allowed in the various taxing
jurisdictions are generally utilized to their potential.
Production taxes for 2009 decreased $4.3 million or 53%
over the same period in 2008, primarily due to lower oil and
natural gas sales. Production taxes for the year ended
December 31, 2009 and 2008 were 7.2% and 6.9%,
respectively, of oil and gas sales.
Cash Settlements on Commodity
Derivatives. Whiting entered into certain
costless collar hedge contracts on April 30, 2008 in which
the rights to any future hedge payments made or received were
conveyed to the Trust. Cash settlements relating to the conveyed
hedges resulted in a gain of $14.3 million during the year
ended December 31, 2009, which had the effect of increasing
average sales prices net of hedging during 2009 by $10.16 per
Bbl of oil and $1.60 per Mcf of natural gas. Cash settlements
relating to these hedges resulted in a gain of $3.7 million
during the year ended December 31, 2008, which had the
effect of increasing average sales prices net of hedging during
2008 by $3.86 per Bbl of oil and $0.07 per Mcf of natural gas.
Excess of Revenues Over Direct Operating
Expenses. Excess of revenues over direct
operating expenses decreased $46.3 million from 2008 to
2009. The reasons for this decrease included a 9% decrease in
equivalent volumes sold, and a 40% decrease in oil prices net of
hedging and a 37% decrease in gas prices net of hedging between
periods. The decreased production and pricing was partially
offset by reduced lease operating expense and production taxes.
Liquidity
and Capital Resources
The Trust has no source of liquidity or capital resources other
than cash flows from the NPI. Other than Trust administrative
expenses, including any reserves established by the Trustee for
future liabilities, the Trusts only use of cash is for
distributions to Trust unitholders. Administrative expenses
include payments to the Trustee and the Delaware Trustee as well
as a quarterly fee to Whiting pursuant to an administrative
services agreement. Each quarter, the Trustee determines the
amount of funds available for distribution. Available funds are
the excess cash, if any, received by the Trust from the NPI and
other sources (such as interest earned on any amounts reserved
by the
-50-
Trustee) that quarter, over the Trusts expenses for that
quarter. Available funds are reduced by any cash the Trustee
decides to hold as a reserve against future liabilities. The
Trustee may borrow funds required to pay liabilities if the
Trustee determines that the cash on hand and the cash to be
received are insufficient to cover the Trusts liabilities.
If the Trustee borrows funds, the Trust unitholders will not
receive distributions until the borrowed funds are repaid.
Income to the Trust from the NPI is based on the calculation and
definitions of gross proceeds and net
proceeds contained in the conveyance, the form of which is
listed as an exhibit to this report, and reference is hereby
made to the conveyance for the actual definitions of gross
proceeds and net proceeds.
Although capital expenditures for the testing, drilling,
completion, equipping, plugging back or recompletion of any well
that is a part of the underlying properties cannot be deducted
from gross proceeds pursuant to the terms of the conveyance
agreement, Whiting incurred capital expenditures of
$1.0 million on the underlying properties during 2010 that
were not deducted from gross proceeds or distributions in 2010,
compared to $1.1 million in 2009 and $5.4 million in
2008, but which may have the effect of ultimately accelerating
the receipt of NPI net proceeds and thereby benefiting Trust
unitholders by accelerating their return on investment. The
Trust cannot provide any assurance that this will occur or that
future capital expenditures will be consistent with those
historical levels.
On February 8, 2011, Whiting established a
$1.0 million letter of credit for the Trustee in order to
provide a mechanism for the Trustee to pay the operating
expenses of the Trust in the unlikely event that Whiting should
fail to fund the Trust in the future. This letter of credit will
not be used to fund NPI distributions to unitholders.
The Trust does not have any transactions, arrangements or other
relationships with unconsolidated entities or persons that could
materially affect the Trusts liquidity or the availability
of capital resources.
Off-Balance
Sheet Arrangements
The Trust has no off-balance sheet arrangements. The Trust has
not guaranteed the debt of any other party, nor does the Trust
have any other arrangements or relationships with other entities
that could potentially result in unconsolidated debt, losses or
contingent obligations other than the commodity hedge contracts
disclosed in the section Quantitative and Qualitative
Disclosures About Market Risk in Item 7A of this
Annual Report on
Form 10-K.
Contractual
Obligations
Pursuant to the Trust agreement, the Trust is obligated to pay
the Trustee an administrative fee of $160,000 per year, and the
Trust is obligated to pay the Delaware Trustee a fee of $3,500
per year. Additionally, pursuant to the terms of the
administrative services agreement with Whiting, the Trust is
obligated throughout the term of the Trust to pay Whiting
quarterly an administrative services fee of $50,000 for
accounting, engineering, legal and other professional services
performed by Whiting on behalf of the Trust. The administrative
services agreement will expire upon the termination of the NPI
unless terminated early by mutual agreement of the Trustee and
Whiting.
New
Accounting Pronouncements
In December 2008, the SEC issued Modernization of Oil and Gas
Reporting: Final Rule, which published the final rules and
interpretations updating its oil and gas reporting requirements.
The final rule includes updates to
-51-
definitions in the existing oil and gas rules to make them
consistent with the petroleum resource management system, which
is a widely accepted standard for the management of petroleum
resources that was developed by several industry organizations.
Key revisions include the ability to include nontraditional
resources in reserves, the use of new technology for determining
reserves, permitting disclosure of probable and possible
reserves, and changes to the pricing used to determine reserves
in that companies must use a
12-month
average price. The average is calculated using the
first-day-of-the-month
price for each of the 12 months that make up the reporting
period. The Trust adopted the new rules effective
December 31, 2009, and as a result (i) prepared its
reserve estimates as of December 31, 2009 and 2010 based on
the new reserve definitions, (ii) estimated its
December 31, 2009 and 2010 reserve quantities using the
12-month
average price and (iii) included additional disclosures in
Item 2 of this Annual Report on
Form 10-K,
as required by the new rule. The adoption of this new rule,
however, had no impact on the Trusts statements of assets,
liabilities and trust corpus, statements of distributable
income, or statements of changes in trust corpus.
In January 2010, the FASB issued Accounting Standards Update
No. 2010-03,
Oil and Gas Reserve Estimation and Disclosures (ASU
2010-03),
which provides amendments to FASB ASC topic Extractive
Activities-Oil and Gas. The objective of ASU
2010-03 is
to align the oil and gas reserve estimation and disclosure
requirements of the FASB ASC with the requirements in the
SECs Modernization of Oil and Gas Reporting: Final
Rule. The Trust adopted ASU
2010-03
effective December 31, 2009, and as a result (i) has
estimated its December 31, 2009 and 2010 reserve quantities
using the
12-month
average price, (ii) has prepared its reserve estimates as
of December 31, 2009 and 2010 based on the new and amended
reserve definitions in ASU
2010-03 that
conform to the SECs revised reserve definitions, and
(iii) has calculated its future cash inflows, which are
incorporated into the standardized measure of future cash flows,
using
12-month
average rather than year-end oil and gas prices. The adoption of
ASU 2010-03,
however, had no impact on the Trusts statements of assets,
liabilities and trust corpus, statements of distributable
income, or statements of changes in trust corpus.
Critical
Accounting Policies and Estimates
The financial statements of the Trust are significantly affected
by its basis of accounting and estimates related to its oil and
gas properties and proved reserves, as summarized below.
Basis of Accounting. The Trusts
financial statements are prepared on a modified cash basis,
which is a comprehensive basis of accounting other than GAAP.
This method of accounting is consistent with reporting of
taxable income to the Trust unitholders. The most significant
differences between the Trusts financial statements and
those prepared in accordance with GAAP are:
a) Income from net profits interest is recognized when NPI
distributions are received by the Trust rather than accrued in
the month of production that they are earned;
b) Distributions to Trust unitholders are recorded when
paid by the Trust rather than accrued when owed;
c) Trust general and administrative expenses (which include
the Trustees fees as well as accounting, engineering,
legal, and other professional fees) are recorded when paid by
the Trust rather than when incurred; and
-52-
d) Cash reserves for Trust expenses may be established by
the Trustee for certain expenditures that would not be recorded
as contingent liabilities under GAAP.
While these statements differ from financial statements prepared
in accordance with GAAP, the modified cash basis of reporting
revenues and distributions is considered to be the most
meaningful because quarterly distributions to the Trust
unitholders are based on net cash receipts. This comprehensive
basis of accounting other than GAAP corresponds to the
accounting permitted for royalty trusts by the
U.S. Securities and Exchange Commission, as specified by
Staff Accounting Bulletin Topic 12:E, Financial
Statements of Royalty Trusts. For further information
regarding the Trusts basis of accounting, see Note 2
to the Financial Statements included in this Annual Report on
Form 10-K.
All amounts included in the Trusts financial statements
are based on cash amounts received or disbursed, or on the
carrying value of the net profits interests, which was derived
from the historical cost of the interests at the date of their
transfer from Whiting, less accumulated amortization to date.
Accordingly, there are no fair value estimates included in the
Trusts financial statements.
Oil and Gas Reserves. The proved oil and gas
reserves for the underlying properties are estimated by
independent petroleum engineers. Reserve engineering is a
subjective process that is dependent upon the quality of
available data and the interpretation thereof. Estimates by
different engineers often vary, sometimes significantly. In
addition, physical factors such as the results of drilling,
testing and production subsequent to the date of an estimate, as
well as economic factors such as changes in product prices and
production costs, may justify revision of such estimates.
Accordingly, oil and gas quantities ultimately recovered and the
timing of production may be substantially different from
estimates.
The standardized measure of discounted future net cash flows is
prepared using assumptions required by the FASB and SEC. Such
assumptions include using average fiscal-year oil and gas prices
(calculated as the unweighted arithmetic average of the
first-day-of-the-month
price for each month within the
12-month
reporting period) and year-end costs for estimated future
production expenditures. Discounted future net cash flows are
calculated using a 10% discount rate. Changes in any of these
assumptions could have a significant impact on the standardized
measure. The standardized measure does not necessarily result in
an estimate of the current fair market value of proved reserves.
Amortization of Net Profits Interest. We
amortize the investment in net profits interest using the
units-of-production
method. Our rate of recording amortization is dependent upon our
estimates of total proved reserves, which incorporates various
assumptions and future projections. If the estimates of total
proved reserves decline significantly, the rate at which we
record amortization expense would increase, reducing Trust
corpus. Such a decline in reserves may result from lower
commodity prices, which may make it uneconomic to produce from
higher cost fields. We are unable to predict changes in reserve
quantity estimates as such quantities are dependent on future
economic and operational conditions.
Impairment of Investment in Net Profits
Interest. We review the value of our investment
in net profits interest whenever the Trustee judges that events
and circumstances indicate that the recorded carrying value of
the investment in net profits interest may not be recoverable.
Potential impairments of the investment in net profits interest
are determined by comparing future net undiscounted cash flows
to the net book value at the end of each period. If the net
capitalized cost exceeds undiscounted future cash flows, the
cost of the investment in net profits
-53-
interest is written down to fair value, which is
determined using net discounted future cash flows from the net
profits interest. Different pricing assumptions or discount
rates could result in a different calculated impairment.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
Commodity
Hedge Contracts
The primary asset of and source of income to the Trust is the
term NPI, which generally entitles the Trust to receive 90% of
the net proceeds from oil and gas production from the underlying
properties. Consequently, the Trust is exposed to market risk
from fluctuations in oil and gas prices. Through 2012, however,
the NPI is subject to commodity hedge contracts in the form of
costless collars entered into by Whiting, which reduce its
exposure to commodity price volatility. The Trust does not enter
into derivative contracts for speculative or trading purposes.
The revenues derived from the underlying properties depend
substantially on prevailing crude oil, natural gas and natural
gas liquid prices. As a result, commodity prices also affect the
amount of cash flow available for distribution to the Trust
unitholders. Lower prices may also reduce the amount of oil,
natural gas and natural gas liquids that Whiting can
economically produce. Whiting sells the oil, natural gas and
natural gas liquid production from the underlying properties
under floating market price contracts each month. Whiting has
entered into certain hedge contracts through December 31,
2012 to manage the exposure to crude oil and natural gas price
volatility, which is associated with revenues generated from the
underlying properties, and to achieve more predictable cash
flows. However, these contracts limit the amount of cash
available for distribution if prices increase above the fixed
ceilings. The hedge contracts consist of costless collar
arrangements placed with a single trading counterparty, JPMorgan
Chase Bank National Association. Whiting cannot provide
assurance that this trading counterparty will not become a
credit risk in the future. No additional hedges are allowed to
be placed on Trust assets.
Crude oil costless collar arrangements settle based on the
average of the closing settlement price for each commodity
business day in the contract period. Natural gas costless collar
arrangements settle based on the closing settlement price on the
second to last scheduled trading day of the month prior to
delivery. In a collar arrangement, the counterparty is required
to make a payment to Whiting for the difference between the
fixed floor price and the settlement price if the settlement
price is below the fixed floor price. Whiting is required to
make a payment to the counterparty for the difference between
the fixed ceiling price and the settlement price if the
settlement price is above the fixed ceiling price.
Whitings crude oil and natural gas price risk management
positions in collar
-54-
arrangements through December 31, 2012 (which collars have
the potential to affect Whitings future distributions to
the Trust) are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil Collars
|
|
Natural Gas Collars
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Average Price
|
|
|
|
Average Price
|
|
|
Volumes
|
|
(per Bbl)
|
|
Volumes
|
|
(per Mcf)
|
|
|
(Bbls)
|
|
Floor/Ceiling
|
|
(Mcf)
|
|
Floor/Ceiling
|
|
Three Months Ending March 31, 2011
|
|
|
122,934
|
|
|
$
|
74.00/$139.68
|
|
|
|
472,800
|
|
|
$
|
7.00/$17.40
|
|
Three Months Ending June 30, 2011
|
|
|
120,198
|
|
|
$
|
74.00/$140.08
|
|
|
|
458,109
|
|
|
$
|
6.00/$13.05
|
|
Three Months Ending September 30, 2011
|
|
|
117,510
|
|
|
$
|
74.00/$140.15
|
|
|
|
444,489
|
|
|
$
|
6.00/$13.65
|
|
Three Months Ending December 31, 2011
|
|
|
114,726
|
|
|
$
|
74.00/$140.75
|
|
|
|
428,361
|
|
|
$
|
7.00/$14.25
|
|
Three Months Ending March 31, 2012
|
|
|
112,236
|
|
|
$
|
74.00/$141.27
|
|
|
|
413,820
|
|
|
$
|
7.00/$15.55
|
|
Three Months Ending June 30, 2012
|
|
|
109,716
|
|
|
$
|
74.00/$141.73
|
|
|
|
402,609
|
|
|
$
|
6.00/$13.60
|
|
Three Months Ending September 30, 2012
|
|
|
107,226
|
|
|
$
|
74.00/$141.70
|
|
|
|
390,519
|
|
|
$
|
6.00/$14.45
|
|
Three Months Ending December 31, 2012
|
|
|
105,084
|
|
|
$
|
74.00/$142.21
|
|
|
|
379,839
|
|
|
$
|
7.00/$13.40
|
|
The collared hedges shown above have the effect of providing a
protective floor while allowing Trust unitholders to share in
upward pricing movements. Consequently, while these hedges are
designed to decrease exposure to price decreases, they also have
the effect of limiting the benefit of price increases beyond the
ceiling. For the crude oil contracts listed above, a
hypothetical $10.00 change in the NYMEX price above the ceiling
price or below the floor price applied to the notional amounts
would cause an aggregate change in the cash settlement payments
(gains received) on all oil commodity derivatives of
$9.1 million to Whiting, of which 90% would be transferred
to the Trust. For the natural gas contracts listed above, a
hypothetical $1.00 change in the NYMEX price above the ceiling
price or below the floor price applied to the notional amounts
would cause an aggregate change in the cash settlement payments
(gains received) on all natural gas commodity derivatives of
$3.4 million to Whiting, of which 90% would be transferred
to the Trust. These hypothetical cash settlement payments (gains
received) would be recognized as contracts expire in future
periods through 2012.
The amounts received by Whiting from the counterparty upon
settlements of these hedge contracts will reduce the operating
expenses related to the underlying properties when calculating
the net proceeds. However, if the hedge payments received by
Whiting under the hedge contracts and other non-production
revenue exceed operating expenses during a quarterly period, the
ability to use such excess amounts to offset operating expenses
may be deferred, with interest accruing on such amounts at the
prevailing money market rate, until the next quarterly period
where the hedge payments and the other non-production revenue
are less than such expenses. In addition, the aggregate amounts
paid by Whiting on settlement of the hedge contracts will reduce
the amount of net proceeds paid to the Trust.
-55-
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustee and Unit Holders of
Whiting USA Trust I
c/o The
Bank of New York Mellon Trust Company, N.A., Trustee
Austin, Texas
We have audited the accompanying statements of assets,
liabilities and trust corpus modified cash basis of
Whiting USA Trust I (the Trust) as of
December 31, 2010 and 2009, and the related statements of
distributable income and changes in trust corpus- modified cash
basis for the years ended December 31, 2010, 2009, and
2008. These financial statements are the responsibility of the
Trustee. Our responsibility is to express an opinion on the
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 2 to the financial statements, these
financial statements were prepared on the modified cash basis of
accounting, which is a comprehensive basis of accounting other
than accounting principles generally accepted in the United
States of America. In our opinion, such financial statements
present fairly, in all material respects, the assets,
liabilities and trust corpus of Whiting USA Trust I as of
December 31, 2010 and 2009, and its distributable income
and changes in trust corpus for the years ended
December 31, 2010, 2009, and 2008, on the comprehensive
basis of accounting described in Note 2 to the financial
statements.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Trusts internal control over financial reporting as of
December 31, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 15, 2011 expressed an
unqualified opinion on the Trusts internal control over
financial reporting.
DELOITTE & TOUCHE LLP
Austin, Texas
March 15, 2011
-56-
WHITING
USA TRUST I
(In
thousands, except unit data)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
ASSETS
|
Cash and short-term investments
|
|
$
|
145
|
|
|
$
|
237
|
|
Investment in net profits interest, net
|
|
|
61,999
|
|
|
|
79,346
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
62,144
|
|
|
$
|
79,583
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND TRUST CORPUS
|
Reserve for Trust expenses
|
|
$
|
145
|
|
|
$
|
237
|
|
Trust corpus (13,863,889 Trust units issued and outstanding )
|
|
|
61,999
|
|
|
|
79,346
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and Trust corpus
|
|
$
|
62,144
|
|
|
$
|
79,583
|
|
|
|
|
|
|
|
|
|
|
Statements
of Distributable Income
(In thousands, except distributable income per unit
data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Income from net profits interest
|
|
$
|
38,442
|
|
|
$
|
38,348
|
|
|
$
|
58,281
|
|
General and administrative expenses
|
|
|
(892
|
)
|
|
|
(944
|
)
|
|
|
(793
|
)
|
Cash reserves (withheld) used for future Trust expenses
|
|
|
91
|
|
|
|
(106
|
)
|
|
|
(132
|
)
|
State income tax withholding
|
|
|
(219
|
)
|
|
|
(181
|
)
|
|
|
(376
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable income
|
|
$
|
37,422
|
|
|
$
|
37,117
|
|
|
$
|
56,980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributable income per unit
|
|
$
|
2.699295
|
|
|
$
|
2.677239
|
|
|
$
|
4.109980
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements
of Changes in Trust Corpus
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Trust corpus, beginning of period
|
|
$
|
79,346
|
|
|
$
|
97,798
|
|
|
$
|
|
|
Investment in net profits interest
|
|
|
|
|
|
|
|
|
|
|
111,223
|
|
Distributable income
|
|
|
37,422
|
|
|
|
37,117
|
|
|
|
56,980
|
|
Distributions to unitholders
|
|
|
(37,422
|
)
|
|
|
(37,117
|
)
|
|
|
(56,980
|
)
|
Amortization of investment in net profits interest
|
|
|
(17,347
|
)
|
|
|
(18,452
|
)
|
|
|
(13,425
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trust corpus, end of period
|
|
$
|
61,999
|
|
|
$
|
79,346
|
|
|
$
|
97,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these modified
cash basis financial statements.
-57-
WHITING
USA TRUST I
|
|
1.
|
Organization
of the Trust
|
Formation of the Trust Whiting USA
Trust I (the Trust) is a statutory trust formed
in October 2007 under the Delaware Statutory Trust Act,
pursuant to a trust agreement (the Trust agreement)
among Whiting Oil and Gas Corporation and Equity Oil Company, as
trustors, The Bank of New York Trust Company, N.A., as
Trustee (subsequently renamed The Bank of New York Mellon
Trust Company, N.A., and hereinafter referred to as
Trustee), and Wilmington Trust Company as
Delaware Trustee (the Delaware Trustee). The initial
capitalization of the Trust estate was funded by Whiting
Petroleum Corporation (Whiting) in November 2007.
Effective September 30, 2009, Equity Oil Company merged
into Whiting Oil and Gas Corporation (Whiting Oil and
Gas) with Whiting Oil and Gas as the surviving
corporation. Whiting Oil and Gas, as referred to herein, is a
subsidiary of Whiting and the successor to Equity Oil Company.
The Trust was created to acquire and hold a term net profits
interest (NPI) for the benefit of the Trust
unitholders pursuant to a conveyance to the Trust from Whiting
Oil and Gas. The term NPI is an interest in underlying oil and
natural gas properties located in the Rocky Mountains,
Mid-Continent, Permian Basin and Gulf Coast regions (the
underlying properties). The NPI is the only asset of
the Trust, other than cash held for Trust expenses. These oil
and gas properties include interests in 3,077 gross (373.1
net) producing oil and gas wells.
The NPI is passive in nature, and the Trustee has no management
control over and no responsibility relating to the operation of
the underlying properties. The NPI entitles the Trust to receive
90% of the net proceeds from the sale of production from the
underlying properties. The NPI will terminate when
9.11 MMBOE have been produced and sold from the underlying
properties (which amount is the equivalent of 8.20 MMBOE in
respect of the Trusts right to receive 90% of the net
proceeds from such reserves pursuant to the NPI), and the Trust
will soon thereafter wind up its affairs and terminate. As of
December 31, 2010, on a cumulative accrual basis
3.90 MMBOE of the Trusts total 8.20 MMBOE have
been produced and sold and a cumulative 0.02 MMBOE have
been sold in divestitures. The remaining reserve quantities are
projected to be produced by November 30, 2015, based on the
reserve report for the underlying properties as of
December 31, 2010.
The Trustee can authorize the Trust to borrow money to pay Trust
administrative or incidental expenses that exceed cash held by
the Trust. The Trustee may authorize the Trust to borrow from
the Trustee, Whiting, or the Delaware Trustee as a lender
provided the terms of the loan are similar to the terms it would
grant to a similarly situated commercial customer with whom it
did not have a fiduciary relationship. The Trustee may also
deposit funds awaiting distribution in an account with itself
and make other short-term investments with the funds distributed
to the Trust.
Initial Issuance of Trust Units and Net Profits Interest
Conveyance In April 2008, the registration
statement on
Form S-1/S-3
(Registration
No. 333-147543)
filed by Whiting and the Trust in connection with the initial
public offering of the Trust units was declared effective by the
SEC. Subsequently, the Trust issued 13,863,889 Trust units to
Whiting in exchange for the conveyance of the term NPI from
Whiting Oil and Gas, as discussed above. Immediately thereafter,
Whiting completed an initial public offering of units of
beneficial interest in the Trust,
-58-
WHITING
USA TRUST I
NOTES TO
MODIFIED CASH BASIS FINANCIAL
STATEMENTS (Continued)
selling 11,677,500 Trust units to the public. Whiting retained
an ownership in 2,186,389 Trust units, or 15.8% of the total
Trust units issued and outstanding.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Term Net Profits Interest The Trust uses the
modified cash basis of accounting to report Trust receipts from
the term NPI and payments of expenses incurred. The actual cash
distributions to the Trust are made based on the terms of the
conveyance that created the Trusts NPI. The term NPI
entitles the Trust to receive revenues (oil, gas and natural gas
liquid sales) less expenses (the amount by which all royalties,
lease operating expenses including well workover costs,
production and property taxes, payments made by Whiting to the
hedge counterparty upon settlements of hedge contracts,
maintenance expenses, post-production costs including plugging
and abandonment, and producing overhead, exceed hedge payments
received by Whiting under hedge contracts and other
non-production revenue) of the underlying properties multiplied
by 90% (term NPI percentage). Actual cash receipts may vary due
to timing delays of cash receipts from the property operators or
purchasers and due to wellhead and pipeline volume balancing
agreements or practices.
Modified Cash Basis of Accounting The
financial statements of the Trust, as prepared on a modified
cash basis, reflect the Trusts assets, liabilities, Trust
corpus, earnings and distributions, as follows:
a) Income from net profits interest is recorded when NPI
distributions are received by the Trust;
b) Distributions to Trust unitholders are recorded when
paid by the Trust;
c) Trust general and administrative expenses (which include
the Trustees fees as well as accounting, engineering,
legal, and other professional fees) and are recorded when paid;
d) Cash reserves for Trust expenses may be established by
the Trustee for certain expenditures that would not be recorded
as contingent liabilities under GAAP;
e) Amortization of the investment in net profits interest
is calculated based on the units-of- production method. Such
amortization is charged directly to Trust corpus and does not
affect cash earnings; and
f) The Trust evaluates impairment of the investment in net
profits interest by comparing the undiscounted cash flows
expected to be realized from the investment in net profits
interest to the NPI carrying value. If the expected future
undiscounted cash flows are less than the carrying value, the
Trust recognizes an impairment loss for the difference between
the carrying value and the estimated fair value of the
investment in net profits interest. At December 31, 2010
and 2009, the Trustee believes no such impairment has occurred.
The determination of whether the NPI is impaired requires a
significant amount of judgment by the Trustee and is based on
the best information available to the Trustee at the time of the
evaluation. If market conditions deteriorate, write-downs could
be required in the future.
-59-
WHITING
USA TRUST I
NOTES TO
MODIFIED CASH BASIS FINANCIAL
STATEMENTS (Continued)
While these statements differ from financial statements prepared
in accordance with GAAP, the modified cash basis of reporting
revenues and distributions is considered to be the most
meaningful because quarterly distributions to the Trust
unitholders are based on net cash receipts. This comprehensive
basis of accounting other than GAAP corresponds to the
accounting permitted for royalty trusts by the SEC as specified
by FASB ASC topic Extractive Activities Oil
and Gas: Financial Statements of Royalty Trusts.
Most accounting pronouncements apply to entities whose financial
statements are prepared in accordance with GAAP, directing such
entities to accrue or defer revenues and expenses in a period
other than when such revenues were received or expenses were
paid. Because the Trusts financial statements are prepared
on the modified cash basis as described above, however, most
accounting pronouncements are not applicable to the Trusts
financial statements.
Cash and Short-Term Investments. Cash and
short-term investments include all highly liquid short-term
investments with original maturities of three months or less.
Concentration of Credit Risk. The underlying
properties from which the NPI is derived principally sell their
oil and natural gas production to end users, marketers and other
purchasers that have access to nearby pipeline facilities. The
following table presents the percentages of oil and natural gas
sales from the underlying properties sold to each significant
purchaser for the years ended December 31, 2010, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Lion Oil Company
|
|
|
14
|
%
|
|
|
12
|
%
|
|
|
13
|
%
|
Teppco Crude Oil LLC
|
|
|
6
|
%
|
|
|
12
|
%
|
|
|
14
|
%
|
The loss of one or all of these purchasers does not present a
material risk because there is significant competition among
purchasers of crude oil and natural gas in the areas of the
underlying properties, and if they were to lose one or both of
their largest purchasers, several entities could purchase crude
oil and natural gas produced from the underlying properties with
little or no interruption to their business.
The underlying properties oil and gas revenues, which are
included in the NPI net proceeds computation, are subject to
commodity hedge contracts through December 31, 2012. The
hedge contracts consist of costless collar arrangements that are
placed with a single trading counterparty, JPMorgan Chase Bank
National Association, and there is no assurance that this
trading counterparty will not become a credit risk in the future.
Use of Estimates. The preparation of financial
statements requires estimates and assumptions that affect
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses
during the reporting period. Significant estimates affecting
these financial statements include estimates of proved oil and
gas reserves, which are used to compute the Trusts
amortization of net profits interest and its impairment
assessments. Although the Trustee believes that these estimates
are reasonable, actual results could differ from those estimates.
-60-
WHITING
USA TRUST I
NOTES TO
MODIFIED CASH BASIS FINANCIAL
STATEMENTS (Continued)
Recent Accounting Pronouncements. In December
2008, the SEC issued Modernization of Oil and Gas Reporting:
Final Rule, which published the final rules and
interpretations updating its oil and gas reporting requirements.
The final rule includes updates to definitions in the existing
oil and gas rules to make them consistent with the petroleum
resource management system, which is a widely accepted standard
for the management of petroleum resources that was developed by
several industry organizations. Key revisions include the
ability to include nontraditional resources in reserves, the use
of new technology for determining reserves, permitting
disclosure of probable and possible reserves, and changes to the
pricing used to determine reserves in that companies must use a
12-month
average price. The average is calculated using the
first-day-of-the-month
price for each of the 12 months that make up the reporting
period. The Trust adopted the new rules effective
December 31, 2009, and as a result (i) prepared its
reserve estimates as of December 31, 2009 and 2010 based on
the new reserve definitions, (ii) estimated its
December 31, 2009 and 2010 reserve quantities using the
12-month
average price and (iii) included additional disclosures in
Item 2 of this Annual Report on
Form 10-K,
as required by the new rule. The adoption of this new rule,
however, had no impact on the Trusts statements of assets,
liabilities and trust corpus, statements of distributable
income, or statements of changes in trust corpus.
In January 2010, the FASB issued Accounting Standards Update
No. 2010-03,
Oil and Gas Reserve Estimation and Disclosures (ASU
2010-03),
which provides amendments to FASB ASC topic Extractive
Activities-Oil and Gas. The objective of ASU
2010-03 is
to align the oil and gas reserve estimation and disclosure
requirements of the FASB ASC with the requirements in the
SECs Modernization of Oil and Gas Reporting: Final
Rule. The Trust adopted ASU
2010-03
effective December 31, 2009, and as a result (i) has
estimated its December 31, 2009 and 2010 reserve quantities
using the
12-month
average price, (ii) has prepared its reserve estimates as
of December 31, 2009 and 2010 based on the new and amended
reserve definitions in ASU
2010-03 that
conform to the SECs revised reserve definitions, and
(iii) has calculated its future cash inflows, which are
incorporated into the standardized measure of discounted future
net cash flows, using
12-month
average rather than year-end oil and gas prices. The adoption of
ASU 2010-03,
however, had no impact on the Trusts statements of assets,
liabilities and trust corpus, statements of distributable
income, or statements of changes in trust corpus.
|
|
3.
|
Investment
in Net Profits Interest
|
Whiting Oil and Gas conveyed the NPI to the Trust in exchange
for 13,863,889 Trust units. The investment in net profits
interest was recorded at the historical cost of Whiting on
April 30, 2008, the date of conveyance, and was determined
to be $123.6 million, of which $111.2 million (90% of
the NPI) was attributed to the Trust. Accumulated amortization
as of December 31, 2010 and 2009 was $49.2 million and
$31.9 million, respectively.
-61-
WHITING
USA TRUST I
NOTES TO
MODIFIED CASH BASIS FINANCIAL
STATEMENTS (Continued)
|
|
4.
|
Income
from Net Profits Interest
|
The Trust received income from net profits interest as follows
(dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil sales
|
|
$
|
52,558
|
(a)
|
|
$
|
40,922
|
(c)
|
|
$
|
65,276
|
(e)
|
Natural gas sales
|
|
|
14,193
|
(b)
|
|
|
15,133
|
(d)
|
|
|
25,322
|
(f)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
66,751
|
|
|
$
|
56,055
|
|
|
$
|
90,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expense
|
|
$
|
23,643
|
|
|
$
|
26,179
|
|
|
$
|
19,319
|
|
Production taxes
|
|
|
4,718
|
|
|
|
3,930
|
|
|
|
6,346
|
|
Cash settlement payments (gains received) on commodity
derivatives
|
|
|
(4,323
|
)
|
|
|
(16,663
|
)
|
|
|
176
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Costs
|
|
$
|
24,038
|
|
|
$
|
13,446
|
|
|
$
|
25,841
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds
|
|
$
|
42,713
|
|
|
$
|
42,609
|
|
|
$
|
64,757
|
|
Net profits percentage
|
|
|
90
|
%
|
|
|
90
|
%
|
|
|
90
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from net profits interest
|
|
$
|
38,442
|
|
|
$
|
38,348
|
|
|
$
|
58,281
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
Because of the one-month interval
between the time crude oil volumes are produced and the receipt
of oil sales proceeds by Whiting, oil sales for the year ended
December 31, 2010 (consisting of Whitings February,
May, August and November 2010 NPI distributions to the Trust)
generally represent crude oil production from October 2009
through September 2010.
|
|
(b)
|
|
Because of the two-month interval
between the time natural gas volumes are produced and the
receipt of gas sales proceeds by Whiting, natural gas sales for
the year ended December 31, 2010 (consisting of
Whitings February, May, August and November 2010 NPI
distributions to the Trust) generally represent gas production
from September 2009 through August 2010.
|
|
(c)
|
|
Because of the one-month interval
between the time crude oil volumes are produced and the receipt
of oil sales proceeds by Whiting, oil sales for the year ended
December 31, 2009 (consisting of Whitings February,
May, August and November 2009 NPI distributions to the Trust)
generally represent crude oil production from October 2008
through September 2009.
|
|
(d)
|
|
Because of the two-month interval
between the time natural gas volumes are produced and the
receipt of gas sales proceeds by Whiting, natural gas sales for
the year ended December 31, 2009 (consisting of
Whitings February, May, August and November 2009 NPI
distributions to the Trust) generally represent gas production
from September 2008 through August 2009.
|
|
(e)
|
|
Because of the one-month interval
between the time crude oil volumes are produced and the receipt
of oil sales proceeds by Whiting, oil sales for the year ended
December 31, 2008 (consisting of Whitings May, August
and November 2008 NPI distributions to the Trust) generally
represent crude oil production from January 2008 through
September 2008.
|
-62-
WHITING
USA TRUST I
NOTES TO
MODIFIED CASH BASIS FINANCIAL
STATEMENTS (Continued)
|
|
|
(f)
|
|
Because of the two-month interval
between the time natural gas volumes are produced and the
receipt of gas sales proceeds by Whiting, natural gas sales for
the year ended December 31, 2008 (consisting of
Whitings May, August and November 2008 NPI distributions
to the Trust) generally represent gas production from January
2008 through August 2008.
|
The Trust is a grantor trust and therefore is not subject to
federal income taxes. Accordingly, no recognition has been given
to federal income taxes in the Trusts financial statements
or in the Trusts standardized measure of discounted future
net cash flows. The Trust unitholders are treated as the owners
of Trust income and corpus, and the entire federal taxable
income of the Trust is reported by the Trust unitholders on
their respective tax returns.
For Montana state income tax purposes, Whiting must withhold
from the NPI payable to the Trust, an amount equal to 6% of the
net amount payable to the Trust from the sale of oil and gas in
Montana. Whiting withheld $0.2 million related to Montana
state income taxes for each of the years ended December 31,
2010 and 2009, and withheld $0.4 million in Montana income
taxes for the year ended December 31, 2008. For North
Dakota, Oklahoma, Arkansas, Michigan, New Mexico, Alabama,
Louisiana, Colorado, Kansas, Utah and Mississippi, neither the
Trust nor Whiting is withholding the income tax due such states
on distributions made to an individual resident or nonresident
Trust unitholder, as long as the Trust is taxed as a grantor
trust under the Internal Revenue Code.
|
|
6.
|
Distribution
to Unitholders
|
Actual cash distributions to the Trust unitholders depend on the
volumes of and prices received for oil, natural gas and natural
gas liquids produced from the underlying properties, among other
factors. Quarterly cash distributions during the term of the
Trust are made by the Trustee generally no later than
60 days following the end of each quarter (or the next
succeeding business day) to the Trust unitholders of record on
the 50th day following the end of each quarter. Such
amounts equal the excess, if any, of the cash received by the
Trust during the quarter, over the expenses of the Trust paid
during such quarter, subject to adjustments for changes made by
the Trustee during such quarter in any cash reserves established
for future expenses of the Trust.
|
|
7.
|
Related
Party Transactions
|
Capital Expenditures During the years ended
December 31, 2010, 2009 and 2008, Whiting incurred
$1.0 million, $1.1 million and $5.4 million,
respectively, of capital expenditures on the underlying
properties, which are costs net to Whitings interest in
the wells, related to the drilling and completing of oil and gas
wells, capital workovers, facility upgrades and well
recompletions performed to secure production from new horizons.
These expenditures may have the effect of ultimately increasing
current and future period NPI net proceeds and thereby
benefiting the Trust unitholders by accelerating their return on
investment. Pursuant to the terms of the conveyance agreement,
however, Whiting did not deduct, nor will it deduct in the
future, such capital expenditures from the NPI
-63-
WHITING
USA TRUST I
NOTES TO
MODIFIED CASH BASIS FINANCIAL
STATEMENTS (Continued)
gross proceeds or related distributions to the Trust. The Trust
cannot provide any assurance that this will occur or that future
capital expenditures will be consistent with historical levels.
Operating Overhead Pursuant to the terms of
the applicable joint operating agreements, Whiting deducts from
the gross proceeds an overhead fee to operate those underlying
properties for which Whiting has been designated as the
operator. Additionally, for those underlying properties for
which Whiting is the operator but for which there is no
operating agreement, Whiting deducts from the gross proceeds an
overhead fee calculated in the same manner Whiting allocates
overhead to other similarly owned properties, as is customary in
the oil and gas industry. Operating overhead activities include
various engineering, legal, and administrative functions. The
fee is adjusted annually pursuant to COPAS guidelines and will
increase or decrease each year based on changes in the year-end
index of average weekly earnings of crude petroleum and natural
gas workers. The following table presents the Trusts
portion of these overhead charges for the years ended
December 31, 2010, 2009 and 2008 (dollars in thousands
except per well data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Total overhead charges
|
|
$
|
1,788
|
|
|
$
|
1,746
|
|
|
$
|
1,416
|
|
Overhead charge per month per active operated well
|
|
$
|
415
|
|
|
$
|
404
|
|
|
$
|
391
|
|
Administrative Services Fee Under the terms
of the administrative services agreement, the Trust pays a
quarterly administration fee of $50,000 to Whiting 60 days
following the end of each calendar quarter. General and
administrative expenses in the Trusts statements of
distributable income for the year ended December 31, 2010
and 2009 each include $200,000 for quarterly administrative fees
paid to Whiting, while the year ended December 31, 2008
includes $150,000 of such administrative fees.
Trustee Administrative Fee Under the terms of
the Trust agreement, the Trust pays an annual administrative fee
to the Trustee of $160,000, paid in four quarterly installments
of $40,000 each and is billed in arrears. General and
administrative expenses in the Trusts statements of
distributable income for the years ended December 31, 2010
and 2009 each include $160,000 for administrative fees paid to
the Trustee, while the year ended December 31, 2008
includes $80,000 of such administrative fees.
The Trustee has evaluated subsequent events through the date
that these financial statements were issued. The following
information is disclosed as a nonrecognized subsequent event:
On March 1, 2011, a distribution of $0.667847 per Trust
unit was paid to Trust unitholders owning Trust units as of
February 21, 2011. The distribution consisted of net cash
proceeds of $9.3 million paid by Whiting to the Trust,
which included cash receipts of $1.4 million (90% of
$1.6 million) for commodity derivative contracts settled
from October 1, 2010 through December 31, 2010, less a
provision of $250,000 for estimated Trust expenses and $57,719
for Montana state income tax withholdings.
-64-
WHITING
USA TRUST I
NOTES TO
MODIFIED CASH BASIS FINANCIAL
STATEMENTS (Continued)
On February 8, 2011, Whiting established a
$1.0 million letter of credit for the Trustee in order to
provide a mechanism for the Trustee to pay the operating
expenses of the Trust in the unlikely event that Whiting should
fail to fund the Trust in the future. This letter of credit will
not be used to fund NPI distributions to unitholders.
|
|
9.
|
Supplemental
Oil and Gas Reserve Information
(Unaudited)
|
Estimates of proved reserves attributable to the Trust and the
related valuations were based 100% on reports prepared by the
Trusts independent petroleum engineers Cawley,
Gillespie & Associates, Inc. Proved reserve estimates
included herein conform to the definitions prescribed by the
FASB and SEC. The estimates of proved reserves are inherently
imprecise and are continually subject to revision based on
production history, results of additional exploration and
development, price changes and other factors.
As of December 31, 2010, all of the underlying
properties oil and gas reserves are attributable to
properties within the United States. Proved reserves
attributable to the Trust and related standardized measure
valuations are prepared on an accrual basis for all periods
presented, which is the basis on which Whiting and the
underlying properties maintain their production records and is
different from the cash basis on which the Trust production
records are computed.
-65-
WHITING
USA TRUST I
NOTES TO
MODIFIED CASH BASIS FINANCIAL
STATEMENTS (Continued)
The following is a summary of the changes in quantities of
proved oil and gas reserves attributable to the Trust for the
years ended December 31, 2008, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Natural
|
|
|
|
|
|
|
Oil(4)
|
|
|
Gas
|
|
|
|
|
|
|
(MBbl)
|
|
|
(MMcf)
|
|
|
MBOE
|
|
|
Balance January 1,
2008(1)
|
|
|
5,110
|
|
|
|
18,559
|
|
|
|
8,203
|
|
Revisions to previous estimates
|
|
|
(594
|
)
|
|
|
3,277
|
|
|
|
(47
|
)
|
Extensions and discoveries
|
|
|
69
|
|
|
|
197
|
|
|
|
102
|
|
Production
|
|
|
(800
|
)
|
|
|
(3,779
|
)
|
|
|
(1,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31,
2008(1)
|
|
|
3,785
|
|
|
|
18,254
|
|
|
|
6,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revisions to previous estimates
|
|
|
597
|
|
|
|
(3,816
|
)
|
|
|
(40
|
)
|
Extensions and discoveries
|
|
|
10
|
|
|
|
6
|
|
|
|
11
|
|
Divestitures(2)
|
|
|
(4
|
)
|
|
|
(102
|
)
|
|
|
(21
|
)
|
Production
|
|
|
(784
|
)
|
|
|
(3,366
|
)
|
|
|
(1,345
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31,
2009(1)
|
|
|
3,604
|
|
|
|
10,976
|
|
|
|
5,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revisions to previous estimates
|
|
|
(201
|
)
|
|
|
1,397
|
|
|
|
32
|
|
Extensions and discoveries
|
|
|
42
|
|
|
|
19
|
|
|
|
45
|
|
Divestitures(2)
|
|
|
|
|
|
|
(4
|
)
|
|
|
(1
|
)
|
Production
|
|
|
(713
|
)
|
|
|
(2,841
|
)
|
|
|
(1,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31,
2010(1)
|
|
|
2,732
|
|
|
|
9,547
|
|
|
|
4,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved developed
reserves(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2008
|
|
|
5,110
|
|
|
|
18,559
|
|
|
|
8,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
3,785
|
|
|
|
18,254
|
|
|
|
6,828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
3,604
|
|
|
|
10,976
|
|
|
|
5,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
2,732
|
|
|
|
9,547
|
|
|
|
4,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Reserves related to the underlying
properties on a full economic life basis as of January 1,
2008 and as of December 31, 2008, 2009 and 2010 were
13.9 MMBOE, 9.0 MMBOE, 9.3 MMBOE and
12.6 MMBOE, respectively.
|
|
(2)
|
|
During 2010 and 2009, Whiting
received sale proceeds of $3,172 and $16,884, respectively, in
exchange for its divestiture of Trust properties that held
1 MBOE and 21 MBOE, respectively, of proved reserves.
Whiting includes all such proceeds from Trust property
divestitures in its NPI distributions to the Trust.
|
-66-
WHITING
USA TRUST I
NOTES TO
MODIFIED CASH BASIS FINANCIAL
STATEMENTS (Continued)
|
|
|
(3)
|
|
These tables do not include
quantities of proved undeveloped reserve as of January 1,
2008 or as of December 31, 2008, 2009 and 2010 because the
underlying properties consist of mature producing properties
that are generally fully developed. Technical studies have not
identified any drilling locations that meet the criteria of
proved undeveloped reserves, nor has any future capital been
committed for the development of proved undeveloped reserves on
the underlying properties.
|
|
(4)
|
|
Oil includes natural gas liquids.
|
Notable changes in proved reserves for the year ended
December 31, 2010 included:
|
|
|
|
|
Revisions to previous estimates. In 2010, revisions
to previous estimates increased proved reserves by a net amount
of 32 MBOE. Included in these revisions were 1.4 Bcf
of upward adjustments to natural gas primarily due to higher gas
prices of $4.17 per Mcf in reserve estimates at
December 31, 2010, as compared to gas prices of $3.15 per
Mcf at December 31, 2009. This upward revision in natural
gas was almost entirely offset, however, by 201 MBbl of
downward adjustments to crude oil reserves. Crude oil reserves
declined in 2010 primarily due to adjustments to production
accruals, which decreases were partially offset by higher oil
prices of $68.77 per Bbl in reserve estimates at
December 31, 2010, as compared to $51.58 per Bbl of oil at
December 31, 2009.
|
Notable changes in proved reserves for the year ended
December 31, 2009 included:
|
|
|
|
|
Revisions to previous estimates. In 2009, revisions
to previous estimates decreased proved reserves by a net amount
of 40 MBOE. Included in these revisions were 3.8 Bcf
of downward adjustments to natural gas primarily due to lower
gas prices of $3.15 per Mcf in reserve estimates at
December 31, 2009, as compared to gas prices of $4.96 per
Mcf at December 31, 2008. This downward revision in natural
gas was almost entirely offset, however, by 597 MBbl of
upward adjustments to crude oil reserves primarily due to higher
oil prices of $51.58 per Bbl in reserve estimates at
December 31, 2009, as compared to $36.27 per Bbl of oil at
December 31, 2008.
|
Notable changes in proved reserves for the year ended
December 31, 2008 included:
|
|
|
|
|
Revisions to previous estimates. In 2008, revisions
to previous estimates decreased proved reserves by a net amount
of 47 MBOE. Included in these revisions were 594 MBbl
of downward adjustments to crude oil primarily due to lower oil
prices of $36.27 per Bbl in reserve estimates at
December 31, 2008, as compared to $86.17 per Bbl of oil at
December 31, 2007, causing a decrease in the estimated
economic life of many of the oil wells. This downward revision
in crude oil reserves was almost entirely offset, however, by
3.3 Bcf of net upward adjustments to natural gas reserve
quantities. This is because the loss of oil reserves from the
price-affected oil wells extended the estimated Trust
termination date at year-end 2008 by four years to
December 31, 2021, and the shorter lives of the oil wells
were then generally replaced by production from natural gas
wells over the extended life of the Trust. As a result, there
was a change in the relative composition of future oil and gas
production leading to the ultimate recovery of the Trusts
8.20 MMBOE, with the natural gas reserves increase of
3.3 Bcf generally offsetting the 594 MBbl decrease in
oil reserves.
|
-67-
WHITING
USA TRUST I
NOTES TO
MODIFIED CASH BASIS FINANCIAL
STATEMENTS (Continued)
The standardized measure of discounted future net cash flows
relating to proved oil and gas reserves and the changes in
standardized measure of discounted future net cash flows
relating to proved oil and natural gas reserves were prepared in
accordance with the provisions of FASB ASC topic Extractive
Activities Oil and Gas. Future cash
inflows as of December 31, 2010 and 2009 were computed by
applying average fiscal-year prices (calculated as the
unweighted arithmetic average of the
first-day-of-the-month
price for each month within the
12-month
period ended December 31, 2010 and 2009) to estimated
future production. Future cash inflows as of December 31,
2008, however, were computed by applying prices at year end to
estimated future production. Future production and development
costs are computed by estimating the expenditures to be incurred
in developing and producing the proved oil and natural gas
reserves at year end, based on year-end costs and assuming the
continuation of existing economic conditions.
The standardized measure of discounted future net cash flows
relating to proved oil and gas reserves attributable to the
Trust is as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Future cash inflows
|
|
$
|
227,682
|
|
|
$
|
220,502
|
|
|
$
|
227,803
|
|
Future production costs
|
|
|
(98,372
|
)
|
|
|
(118,476
|
)
|
|
|
(127,731
|
)
|
Future development costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future net cash flows
|
|
|
129,310
|
|
|
|
102,026
|
|
|
|
100,072
|
|
10% annual discount for estimated timing of cash flows
|
|
|
(23,603
|
)
|
|
|
(24,475
|
)
|
|
|
(29,525
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standardized measure of discounted future net cash
flows(1)
|
|
$
|
105,707
|
|
|
$
|
77,551
|
|
|
$
|
70,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
No provision for federal or state
income taxes has been provided because taxable income is passed
through to the unitholders of the Trust.
|
-68-
WHITING
USA TRUST I
NOTES TO
MODIFIED CASH BASIS FINANCIAL
STATEMENTS (Continued)
The changes in standardized measure of discounted future net
cash flows relating to proved oil and gas reserves attributable
to the Trust are as follows (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Beginning of year
|
|
$
|
77,551
|
|
|
$
|
70,547
|
|
|
$
|
249,763
|
|
Sale of oil and gas produced, net of production costs
|
|
|
(34,352
|
)
|
|
|
(22,664
|
)
|
|
|
(68,220
|
)
|
Sale of minerals in place
|
|
|
3
|
|
|
|
(17
|
)
|
|
|
|
|
Net changes in prices and production costs
|
|
|
52,759
|
|
|
|
23,120
|
|
|
|
(136,572
|
)
|
Extensions and discoveries less related costs
|
|
|
1,164
|
|
|
|
188
|
|
|
|
1,125
|
|
Changes in estimated future development costs, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Revisions of previous quantity estimates
|
|
|
827
|
|
|
|
(678
|
)
|
|
|
(525
|
)
|
Accretion of discount
|
|
|
7,755
|
|
|
|
7,055
|
|
|
|
24,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of year
|
|
$
|
105,707
|
|
|
$
|
77,551
|
|
|
$
|
70,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Future cash inflows included in the standardized measure of
discounted future net cash flows relating to proved oil and
natural gas reserves incorporate weighted average sales prices
(inclusive of adjustments for quality and location) in effect at
December 31, 2010, 2009 and 2008 as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
Oil (per Bbl)
|
|
$
|
68.77
|
|
|
$
|
51.58
|
|
|
$
|
36.27
|
|
Gas (per Mcf)
|
|
$
|
4.17
|
|
|
$
|
3.15
|
|
|
$
|
4.96
|
|
-69-
WHITING
USA TRUST I
NOTES TO
MODIFIED CASH BASIS FINANCIAL
STATEMENTS (Continued)
|
|
10.
|
Selected
Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended(1)
|
Year Ended December 31, 2010
|
|
March 31
|
|
June 30
|
|
September 30
|
|
December 31
|
|
Total
|
|
Income from net profits interest
|
|
$
|
9,466
|
|
|
$
|
10,023
|
|
|
$
|
10,551
|
|
|
$
|
8,402
|
|
|
$
|
38,442
|
|
Distributable income
|
|
$
|
9,194
|
|
|
$
|
9,718
|
|
|
$
|
10,264
|
|
|
$
|
8,246
|
|
|
$
|
37,422
|
|
Distributions per unit
|
|
$
|
0.663181
|
|
|
$
|
0.700986
|
|
|
$
|
0.740332
|
|
|
$
|
0.594796
|
|
|
$
|
2.699295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
Income from net profits interest
|
|
$
|
11,148
|
|
|
$
|
9,683
|
|
|
$
|
8,732
|
|
|
$
|
8,784
|
|
|
$
|
38,348
|
|
Distributable income
|
|
$
|
10,915
|
|
|
$
|
9,364
|
|
|
$
|
8,397
|
|
|
$
|
8,441
|
|
|
$
|
37,117
|
|
Distributions per unit
|
|
$
|
0.787316
|
|
|
$
|
0.675401
|
|
|
$
|
0.605667
|
|
|
$
|
0.608855
|
|
|
$
|
2.677239
|
|
|
|
|
(1)
|
|
Dollars in thousands, except for
distributions per unit.
|
******
-70-
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None.
|
|
Item 9A.
|
Controls
and Procedures.
|
Evaluation of Disclosure Controls and
Procedures. The Trustee maintains disclosure
controls and procedures designed to ensure that information
required to be disclosed by the Trust in the reports that it
files or submits under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within
the time periods specified in the SECs rules and
regulations promulgated by the SEC. Disclosure controls and
procedures include controls and procedures designed to ensure
that information required to be disclosed by the Trust is
accumulated and communicated by Whiting to The Bank of New York
Mellon Trust Company, N.A., as Trustee of the Trust, and
its employees who participate in the preparation of the
Trusts periodic reports as appropriate to allow timely
decisions regarding required disclosure.
As of the end of the period covered by this report, the Trustee
carried out an evaluation of the Trustees disclosure
controls and procedures. Mike Ulrich, as Trust Officer of
the Trustee, has concluded that the disclosure controls and
procedures of the Trust are effective.
Due to the contractual arrangements of (i) the Trust
agreement and (ii) the conveyance of the NPI, the Trustee
relies on (A) information provided by Whiting, including
historical operating data, plans for future operating and
capital expenditures, reserve information and information
relating to projected production, and (B) conclusions and
reports regarding reserves by the Trusts independent
reserve engineers. See Risk Factors The Trust and the
Trust unitholders have no voting or managerial rights with
respect to the underlying properties. As a result, Trust
unitholders have no ability to influence the operation of the
underlying properties and Trustees Discussion
and Analysis of Financial Condition and Results of
Operations in this Annual Report on
Form 10-K,
for a description of certain risks relating to these
arrangements and reliance on information when reported by
Whiting to the Trustee and recorded in the Trusts results
of operation.
Changes in Internal Control over Financial
Reporting. During the quarter ended
December 31, 2010, there has been no change in the
Trustees internal control over financial reporting that
has materially affected, or is reasonably likely to materially
affect, the Trustees internal control over financial
reporting relating to the Trust. The Trustee notes for purposes
of clarification that it has no authority over, and makes no
statement concerning, the internal control over financial
reporting of Whiting.
Trustees Annual Report on Internal Control Over
Financial Reporting. A registrants 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 registrants internal control over
financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the registrant;
(ii) 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 registrant
are being made only in accordance with authorizations of
management and directors of the registrant; and
(iii) provide reasonable assurance regarding prevention or
timely
-71-
detection of unauthorized acquisition, use, or disposition of
the registrants assets that could have a material effect on the
financial statements.
The Trustee is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term
is defined in
Rule 13a-15(f)
promulgated under the Securities and Exchange Act of 1934, as
amended. The Trustee conducted an evaluation of the
effectiveness of the Trusts internal control over
financial reporting based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on the Trustees evaluation under the
framework in Internal Control Integrated
Framework, the Trustee concluded that the Trusts
internal control over financial reporting was effective as of
December 31, 2010.
Deloitte & Touche, LLP, the Trusts independent
registered public accounting firm that audited the financial
statements included in this Annual Report on
Form 10-K,
has issued an attestation report on the effectiveness of the
Trusts internal control over financial reporting.
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.
March 15, 2011
-72-
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Trustee and Unit Holders of
Whiting USA Trust I
c/o The
Bank of New York Mellon Trust Company, N.A., Trustee
Austin, Texas
We have audited the internal control over financial reporting of
Whiting USA Trust I (the Trust) as of
December 31, 2010, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission. The Trustee is responsible for maintaining effective
internal control over financial reporting and for its assessment
of the effectiveness of internal control over financial
reporting, included in the accompanying Trustees Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Trusts 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, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, 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 trusts internal control over financial reporting is a
process designed by, or under the supervision of, the
trusts trustee, and effected by the trustee and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
the comprehensive basis of accounting described in Note 2
to the financial statements. A trusts 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 the comprehensive basis of
accounting described in Note 2 of the financial statements,
and that receipts and expenditures of the trust are being made
only in accordance with authorization of the Trustee; and
(3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or
disposition of the trusts assets that could have a
material effect on the financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper trustee override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Trust maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2010, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
-73-
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
financial statements as of and for the year ended
December 31, 2010 of the Trust and our report dated
March 15, 2011 expressed an unqualified opinion on those
financial statements and included an explanatory paragraph
regarding the Trusts basis of accounting.
DELOITTE & TOUCHE LLP
Austin, Texas
March 15, 2011
-74-
|
|
Item 9B.
|
Other
Information.
|
None.
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
The Trust has no directors or executive
officers. The Trustee is a corporate trustee that
may be removed by the affirmative vote of the holders of not
less than a majority of the outstanding Trust units at a meeting
at which a quorum is present.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act of 1934 requires the
holders of more than 10 percent of the Trust units to file
with the SEC reports regarding their ownership and changes in
ownership of the Trust units. The Trustee is not aware of any
10 percent unitholder having failed to comply with all
Section 16(a) filing requirements in 2010.
Audit
Committee and Nominating Committee
Because the Trust does not have a board of directors, it does
not have an audit committee, an audit committee financial expert
or a nominating committee.
Code of
Ethics
The Trust does not have a principal executive officer, principal
financial officer, principal accounting officer or controller
and, therefore, has not adopted a code of ethics applicable to
such persons. However, employees of the Trustee must comply with
the banks code of ethics.
|
|
Item 11.
|
Executive
Compensation.
|
During the year ended December 31, 2010 the Trustee
received administrative fees from the Trust in the amount of
$160,000. The Trust does not have any executive officers,
directors or employees. Because the Trust does not have a board
of directors, it does not have a compensation committee.
-75-
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Unitholder Matters.
|
(a) Security Ownership of Certain Beneficial Owners.
Based on filings with the SEC, the Trustee is not aware of any
holders of 5% or more of the units except as set forth below.
The following information has been obtained from filings with
the SEC on Schedule 13G.
|
|
|
|
|
|
|
|
|
|
|
Trust Units
|
|
|
|
|
Beneficially
|
|
Percent of
|
Beneficial Owner
|
|
Owned
|
|
Class
|
|
Whiting Petroleum Corporation
|
|
|
2,186,389
|
|
|
|
15.8
|
%
|
1700 Broadway, Suite 2300
|
|
|
|
|
|
|
|
|
Denver, CO
80290-2300
|
|
|
|
|
|
|
|
|
(b) Security Ownership of Management.
Not applicable.
(c) Changes in Control.
The registrant knows of no arrangement, including any pledge by
any person of securities of the registrant or any of its
parents, the operation of which may at a subsequent date result
in a change of control of the registrant.
|
|
Item 13.
|
Certain
Relationships, Related Transactions and Director
Independence.
|
Letter of
Credit
On February 8, 2011, Whiting established a
$1.0 million letter of credit for the Trustee in order to
provide a mechanism for the Trustee to pay the operating
expenses of the Trust in the unlikely event that Whiting should
fail to fund the Trust in the future. This letter of credit will
not be used to fund NPI distributions to unitholders.
Capital
Expenditures
During the year ended December 31, 2010, Whiting incurred
$1.0 million of capital expenditures on the underlying
properties, which are costs net to Whitings interest in
the wells, related to the drilling and completing of oil and gas
wells, capital workovers, facility upgrades and well
recompletions performed to secure production from new horizons.
These expenditures may have the effect of ultimately increasing
current and future period NPI net proceeds and thereby
benefiting the Trust unitholders by accelerating their return on
investment. Pursuant to the terms of the conveyance agreement,
however, Whiting did not deduct, nor will it deduct in the
future, such capital expenditures from the NPI gross proceeds or
related distributions to the Trust.
Operating
Overhead
Pursuant to the terms of the applicable operating agreements,
Whiting deducts from the gross proceeds an overhead fee to
operate those underlying properties for which Whiting has been
designated as the operator. Additionally, for those underlying
properties for which Whiting is the operator but for which there
is no operating agreement, Whiting deducts from the gross
proceeds an overhead fee calculated in the same manner Whiting
-76-
allocates overhead to other similarly owned properties, as is
customary in the oil and gas industry. The operating overhead
activities include various engineering, legal, and
administrative functions. For the year ended December 31,
2010, the Trusts portion of the monthly charge totaled
$1.8 million and averaged $415 per month per active
operated well. The fee is adjusted annually pursuant to COPAS
guidelines and will increase or decrease each year based on
changes in the year-end index of average weekly earnings of
crude petroleum and natural gas workers.
Administrative
Services
Under the terms of the administrative services agreement, the
Trust pays a quarterly administration fee of $50,000 to Whiting
60 days following the end of each calendar quarter. General
and administrative expenses in the Trusts statements of
distributable income for the year ended December 31, 2010
include $200,000 for quarterly administrative fees paid to
Whiting.
The administrative services agreement will expire upon the
termination of the net profits interest unless earlier
terminated by mutual agreement of the Trustee and Whiting.
Trustee
Administration Fee
Under the terms of the Trust agreement, the Trust pays an annual
administrative fee to the Trustee of $160,000, paid in four
quarterly installments of $40,000 each and is billed in arrears.
General and administrative expenses in the Trusts
statements of distributable income for the year ended
December 31, 2010 include $160,000 for quarterly
administrative fees paid to the Trustee.
Registration
Rights
The Trust entered into a registration rights agreement with
Whiting in connection with Whitings conveyance to the
Trust of the net profits interest. In the registration rights
agreement, the Trust agreed, for the benefit of Whiting and any
transferee of its Trust units (each, a holder), to
register the Trust units it holds. Specifically, the Trust
agreed:
|
|
|
|
|
to use its reasonable best efforts to file a registration
statement, including, if so requested, a shelf registration
statement, with the SEC as promptly as practicable following
receipt of a notice requesting the filing of a registration
statement from holders representing a majority of the then
outstanding registrable Trust units;
|
|
|
|
to use its reasonable best efforts to cause the registration
statement or shelf registration statement to be declared
effective under the Securities Act as promptly as practicable
after the filing thereof; and notice requesting the filing of a
registration statement from holders representing a majority of
the then outstanding registrable Trust units;
|
|
|
|
to continuously maintain the effectiveness of the registration
statement under the Securities Act for 90 days (or for
three years if a shelf registration statement is requested)
after the effectiveness thereof or until the Trust units covered
by the registration statement have been sold pursuant to such
registration statement or until all registrable Trust units:
|
|
|
|
have been sold pursuant to Rule 144 under the Securities
Act if the transferee thereof does not receive restricted
securities; or
|
-77-
|
|
|
|
|
have been sold in a private transaction in which the
transferors rights under the registration rights agreement
are not assigned to the transferee of the Trust units.
|
The holders will have the right to require the Trust to file up
to three registration statements and will have piggyback
registration rights in certain circumstances.
In connection with the preparation and filing of any
registration statement, Whiting will bear all costs and expenses
incidental to any registration statement, excluding certain
internal expenses of the Trust, which will be borne by the
Trust, and any underwriting discounts and commissions, which
will be borne by the seller of the Trust units.
Director
Independence
The Trust does not have a board of directors and therefore no
determination been made relative to director independence.
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Item 14.
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Principal
Accountant Fees and Services.
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The Trust does not have an audit committee. Any pre-approval and
approval of all services performed by the principal auditor or
any other professional service firms and related fees are
granted by the Trustee. The Trustee has appointed
Deloitte & Touche, LLP, the member firm of
Deloitte & Touche Tohmatsu, and their respective
affiliates (collectively Deloitte) as the
independent registered public accounting firm to audit the
Trusts financial statements for the fiscal year ended
December 31, 2010. During fiscal 2010 and 2009, Deloitte
served as the Trusts independent registered public
accounting firm.
The following table presents the aggregate fees billed to the
Trust for the fiscal years ended December 31, 2010 and 2009
by Deloitte (dollars in thousands):
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2010
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2009
|
|
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Audit
fees(1)
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$
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190
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$
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190
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Audit-related fees
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|
|
|
|
Tax fees
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|
|
|
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|
|
All other fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fees
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$
|
190
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|
|
$
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190
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(1)
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Fees for audit services in 2010 and
2009 consisted of the audit of the Trusts annual financial
statements and reviews of the Trusts quarterly financial
statements.
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-78-
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Item 15.
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Exhibits
and Financial Statement Schedules
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(a)(1) Financial Statements
The following financial statements are set forth under
Financial Statements and Supplementary Data in
Item 8 of this Annual Report on
Form 10-K
on the pages indicated:
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Page in this
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Form 10-K
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Whiting USA Trust I Financial Statements as
of December 31, 2010 and 2009 and for the Years ended
December 31, 2010, 2009 and 2008
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56
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57
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57
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57
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58
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(a)(2) Schedules
Schedules have been omitted because they are not required, not
applicable or the information required has been included
elsewhere herein.
(a)(3) Exhibits
See Exhibit Index.
-79-
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WHITING USA TRUST I
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By
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THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.
|
Mike Ulrich
Vice President
March 15, 2011
The Registrant, Whiting USA Trust I, has no principal
executive officer, principal financial officer, board of
directors or persons performing similar functions. Accordingly,
no additional signatures are available and none have been
provided. In signing the report above, the Trustee does not
imply that it has performed any such function or that such
function exists pursuant to the terms of the Trust agreement
under which it serves.
-80-
Cawley,
Gillespie & Associates, Inc.
PETROLEUM
CONSULTANTS
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1000 LOUISIANA STREET, SUITE 625 HOUSTON,
TEXAS
77002-5008
713-651-9944
FAX
713-651-9980
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|
306 WEST SEVENTH STREET,
SUITE 302 FORT WORTH, TEXAS 76102-4987
817-336-2461
FAX 817-877-3728
|
|
9601 AMBERGLEN BLVD.,
SUITE 117 AUSTIN,
TEXAS 78729-1106
512-249-7000
FAX 512-233-2618
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|
|
January 10, 2011
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Whiting USA Trust I
1700 Broadway, Suite 2300
Denver, Colorado
80290-2300
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Re:
|
Evaluation Summary SEC Price
Whiting USA Trust I Interests
Proved Producing Reserves
Certain Properties Located in Various States
As of December 31, 2010
|
Pursuant to the Guidelines of the Securities and
Exchange Commission for Reporting Corporate
Reserves and Future Net Revenue
A-1
Whiting USA Trust I
January 10, 2011
Page 2
Gentlemen:
As requested, we are submitting our estimates of proved
producing reserves and forecasts of economics attributable to
the underlying properties, from which a net profits interest has
been formed and conveyed by Whiting Petroleum Corporation to the
Whiting USA Trust I. These certain oil and gas properties
are located in North Dakota, Texas, Oklahoma, Arkansas, Montana,
Wyoming, Michigan, New Mexico, Alabama, Louisiana, Colorado,
Kansas, Utah and Mississippi. Also included in the table below
are the proved reserves attributable to the same underlying
properties estimated to be produced by November 30, 2015,
which is the estimated date of termination for Whiting USA
Trust I. This report, completed January 10, 2011
covers 100% of the proved producing reserves estimated for
Whiting USA Trust I. This report includes results for an
SEC pricing scenario. The results of this evaluation are
presented in the accompanying tabulations, with a composite
summary presented below:
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Proved Developed Producing
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Underlying
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Underlying Properties
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Properties
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Reserves Estimated to be Produced
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Net Reserves
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Full Economic Life
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By November 30, 2015
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Oil
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- Mbbl
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8,100.5
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2,793.8
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Gas
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- MMcf
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24,254.9
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10,607.4
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NGL
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- Mbbl
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423.0
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241.6
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Equivalent*
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- Mbbl
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12,566.0
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4,803.3
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Revenue
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Oil
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- M$
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576,037.3
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198,612.8
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Gas
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- M$
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98,472.9
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44,234.3
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NGL
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- M$
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17,970.8
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10,132.7
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Severance Taxes
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- M$
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51,486.9
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19,375.6
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Ad Valorem Taxes
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- M$
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|
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8,685.9
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3,295.2
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Operating Expenses
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- M$
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|
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310,287.3
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86,631.2
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Investments
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- M$
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0.0
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|
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0.0
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Net Operating Income
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- M$
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|
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322,020.8
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143,677.7
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Discounted @ 10%
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- M$
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|
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180,645.3
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117,452.2
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* |
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Calculated based on an energy equivalent that one bbl of crude
oil equals six Mcf of natural gas and one Bbl of crude oil
equals one Bbl of natural gas liquids. |
The discounted cash flow value shown in the previous table
should not be construed to represent an estimate of the fair
market value by Cawley, Gillespie & Associates, Inc.
A-2
Whiting USA Trust I
January 10, 2011
Page 3
Hydrocarbon
Pricing
As requested for the SEC scenario, initial WTI spot oil and
Henry Hub Gas Daily prices of $79.43 per bbl and $4.38 per
MMBtu, respectively, were adjusted individually to WTI posted
pricing at $76.16 per bbl and Houston Ship Channel pricing at
$4.30 per MMBtu, as of December 31, 2010. Prices were not
escalated in the SEC scenario. Oil price differentials, gas
price differentials and heating values were applied as furnished
by your office.
Expenses
and Taxes
Lease operating expenses and Ad Valorem tax values were forecast
as provided by your office. Lease operating expenses were held
constant in accordance with SEC guidelines. Severance tax rates
were applied at normal state percentages of oil and gas revenue.
Miscellaneous
An on-site
field inspection of the properties has not been performed. The
mechanical operation or conditions of the wells and their
related facilities have not been examined nor have
the wells been tested by Cawley, Gillespie &
Associates, Inc. Possible environmental liability related to the
properties has not been investigated nor considered. The cost of
plugging and the salvage value of equipment at abandonment have
not been included.
The proved reserve classifications used conform to the criteria
of the Securities and Exchange Commission
(SEC). The estimates were prepared based on the
definitions and regulations contained in the United States
Securities and Exchange Commission Modernization of Oil and Gas
Reporting; Final Rule, Title 17 CFR parts 210, 211 et
al. Released January 14, 2009 in the Federal Register.
Proved oil and gas reserves are those quantities of oil and gas,
which, by analysis of geoscience and engineering data, can be
estimated with reasonable certainty to be economically
producible from a given date forward. The reserves and economics
are predicated on regulatory agency classifications, rules,
policies, laws, taxes and royalties in effect as noted herein.
The possible effects of changes in legislation or other federal
or state restrictive actions have not been considered. All
reserve estimates represent our best judgment based on data
available at the time of preparation, and assumptions as to
future economic and regulatory conditions. It should be realized
that the reserves actually recovered, the revenue derived
therefrom and the actual cost incurred could be more or less
than the estimated amounts.
The reserve estimates were based on interpretations of factual
data furnished by your office. We have used all methods and
procedures as we considered necessary under the circumstances to
prepare the report. We believe that the assumptions, data,
methods and procedures were appropriate for the purpose served
by this report. Production data, gas prices, gas price
differentials, expense data, tax values and ownership interests
were also supplied by you and were accepted as furnished. To
some extent information from public records has been used to
check and/or
supplement these data. The basic engineering and geological data
were subject to third party reservations and qualifications.
Nothing has come to our attention, however, that would cause us
to believe that we are not justified in relying on such data.
A-3
Whiting USA Trust I
January 10, 2011
Page 4
The professional qualifications of the undersigned, the
technical person primarily responsible for the preparation of
this report, are included as an attachment to this letter.
Yours very truly,
Robert D. Ravnaas, P.E.
Executive Vice President
Cawley, Gillespie & Associates
Texas Registered Engineering Firm F-693
A-4
Cawley,
Gillespie & Associates, Inc.
PETROLEUM
CONSULTANTS
|
|
|
|
|
1000 LOUISIANA STREET, SUITE 625 HOUSTON,
TEXAS
77002-5008
713-651-9944
FAX
713-651-9980
|
|
306 WEST SEVENTH STREET,
SUITE 302 FORT WORTH, TEXAS 76102-4987
817-336-2461
FAX 817-877-3728
|
|
9601 AMBERGLEN BLVD.,
SUITE 117 AUSTIN,
TEXAS 78729-1106
512-249-7000
FAX 512-233-2618
|
Professional
Qualifications of Robert D. Ravnaas, P.E.
Executive
Vice President of Cawley, Gillespie & Associates
Mr. Ravnaas has been a Petroleum Consultant for Cawley,
Gillespie & Associates (CG&A) since 1983, and
became Executive Vice President in 1999. He has completed
numerous field studies, reserve evaluations and reservoir
simulation, waterflood design and monitoring, unit equity
determinations and producing rate studies. He has testified
before the Texas Railroad Commission in unitization and field
rules hearings. Prior to CG&A he worked as a Production
Engineer for Amoco Production Company. Mr. Ravnaas received
a B.S. with special honors in Chemical Engineering from the
University of Colorado at Boulder, and a M.S. in Petroleum
Engineering from the University of Texas at Austin. He is a
registered professional engineer in Texas, No. 61304, and a
member of the Society of Petroleum Engineers (SPE), the Society
of Petroleum Evaluation Engineers, the American Association of
Petroleum Geologists and the Society of Professional Well Log
Analysts.
INDEX TO
EXHIBITS
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|
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|
|
Exhibit
|
|
|
|
|
Number
|
|
|
|
Description
|
|
|
3
|
.1
|
|
|
|
Certificate of Trust of Whiting USA Trust I (Incorporated herein
by reference to Exhibit 3.4 to the Registration Statement
on Form S-1 (Registration No. 333-147543))
|
|
3
|
.2
|
|
|
|
Amended and Restated Trust Agreement, dated April 30, 2008,
among Whiting Oil and Gas Corporation, Equity Oil Company
(subsequently merged into Whiting Oil and Gas Corporation), The
Bank of New York Mellon Trust Company, N.A. (formerly known as
(f/k/a) The Bank of New York Trust Co., N.A.) as Trustee and
Wilmington Trust Company as Delaware Trustee. (Incorporated
herein by reference to Exhibit 3.1 to the Trusts Current
Report on Form 8-K filed on April 30, 2008 (File No. 001-34026))
|
|
10
|
.1
|
|
|
|
Conveyance of Net Profits Interest, dated April 30, 2008, from
Whiting Oil and Gas Corporation and Equity Oil Company
(subsequently merged into Whiting Oil and Gas Corporation) to
The Bank of New York Mellon Trust Company, N.A. (f/k/a The Bank
of New York Trust Co., N.A.) as Trustee of Whiting USA Trust I.
(Incorporated herein by reference to Exhibit 10.1 to the
Trusts Current Report on Form 8-K filed on April 30, 2008
(File No. 001-34026))
|
|
10
|
.2
|
|
|
|
Administrative Services Agreement, dated April 30, 2008, by and
between Whiting Oil and Gas Corporation and The Bank of New York
Mellon Trust Company, N.A. (f/k/a The Bank of New York Trust
Co., N.A.) as Trustee of Whiting USA Trust I. (Incorporated
herein by reference to Exhibit 10.2 to the Trusts Current
Report on Form 8-K filed on April 30, 2008 (File No. 001-34026))
|
|
10
|
.3
|
|
|
|
Registration Rights Agreement, dated April 30, 2008, by and
between Whiting Petroleum Corporation and The Bank of New York
Mellon Trust Company, N.A. (f/k/a The Bank of New York Trust
Co., N.A.) as Trustee of Whiting USA Trust I. (Incorporated
herein by reference to Exhibit 10.3 to the Trusts Current
Report on Form 8-K filed on April 30, 2008 (File No.
001-34026))
|
|
31*
|
|
|
|
|
Certification pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002
|
|
32*
|
|
|
|
|
Certification pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
|
|
99*
|
|
|
|
|
Report of Cawley, Gillespie & Associates, Inc., Independent
Petroleum Engineers
|