As filed with the Securities and Exchange Commission on March 22, 2011

Registration No. 333-171474

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

 

Amendment No. 2
to

 

Form S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

 

 

 

 

 

 

 

 

 

 

 

Copies to:

 

 

 

 

 

Approximate date of commencement of proposed sale to the public:  As soon as practicable after this Registration Statement becomes effective.

 

 

 

 

If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o

 

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o

 

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):

 

(Do not check if a smaller reporting company)

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

 

 

The co-registrants hereby amend this Registration Statement on such date or dates as may be necessary to delay its effective date until the co-registrants shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

Subject to Completion dated March 22, 2011

 

PRELIMINARY PROSPECTUS

 

VOC Energy Trust

10,785,000 Trust Units

 

 

This is an initial public offering of units of beneficial interest in VOC Energy Trust, or the “trust.” VOC Sponsor (as defined in the “Prospectus Summary”) has formed the trust and, immediately prior to the closing of this offering, will convey, or cause to be conveyed, a term net profits interest in oil and natural gas properties (the “Net Profits Interest”) to the trust in exchange for 16,540,000 trust units. VOC Sponsor is offering 10,785,000 trust units to be sold in this offering and will receive all of the proceeds derived therefrom. The underwriters have been granted an option to purchase from VOC Sponsor up to 1,617,750 additional trust units at the initial public offering price. VOC Sponsor is a privately-held limited partnership engaged in the production and development of oil and natural gas from properties located in Kansas and Texas.

 

There is currently no public market for the trust units. VOC Sponsor expects that the public offering price will be between $19.00 and $21.00 per trust unit. The trust has applied to have the units approved for listing on the New York Stock Exchange under the symbol “VOC.”

 

The trust units. Trust units are units of beneficial interest in the trust and represent undivided interests in the trust. They do not represent any interest in VOC Sponsor.

 

The trust. The trust will own the Net Profits Interest, which represents the right to receive during the term of the trust 80% of the net proceeds from the sale of production from oil and natural gas properties in Kansas and Texas, which are referred to as the “Underlying Properties,” held by VOC Sponsor as of the date of the conveyance of the Net Profits Interest to the trust.

 

The trust unitholders. As a trust unitholder, you will receive quarterly distributions of cash from the proceeds that the trust receives from VOC Sponsor pursuant to the Net Profits Interest. The trust’s ability to pay such quarterly cash distributions will depend on its receipt of net proceeds attributable to the Net Profits Interest, which will depend upon, among other things, volumes produced, wellhead prices, price differentials, production and development costs and potential reductions or suspensions of production.

 

Investing in the trust units involves a high degree of risk. Before buying any trust units, you should read the discussion of material risks of investing in the trust units in “Risk factors” beginning on page 22 of this prospectus.

 

These risks include the following:

 

 

 

 

 

 

 

 

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

 

 

 

 

 

The underwriters are offering the trust units as set forth under “Underwriting.” Delivery of the trust units will be made on or about          , 2011.

 

 

RAYMOND JAMES

 

 

 

 

The date of this prospectus is          , 2011

 

Geographic Location of the Operating Areas
of the Underlying Properties in the States of Kansas and Texas

 

 

TABLE OF CONTENTS

 

 

Important Notice About Information in This Prospectus

 

You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered to you. Until          , 2011 (25 days after the date of this prospectus), federal securities laws may require all dealers that effect transactions in the trust units, whether or not participating in this offering, to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

 

VOC Sponsor and the trust have not, and the underwriters have not, authorized anyone to provide you with additional or different information. If anyone provides you with additional, different or inconsistent information, you should not rely on it. This prospectus is not an offer to sell or a solicitation of an offer to buy the trust units in any jurisdiction where such offer and sale would be unlawful. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this document. The trust’s business, financial condition, results of operations and prospects may have changed since such date.

 

PROSPECTUS SUMMARY

	•	VOC Brazos will acquire all of the membership interests in KEP in exchange for newly issued limited partner interests in VOC Brazos pursuant to a Contribution and Exchange Agreement dated August 30, 2010, resulting in KEP becoming a wholly-owned subsidiary of VOC Brazos. KEP was formed in November 2009 to engage in the production and development of oil and natural gas primarily within the state of Kansas. KEP’s properties consist of oil and gas properties that have been acquired or developed by KEP’s members since 1979. KEP’s members contributed these properties to KEP in December 2010. The closing of the KEP Acquisition is conditioned solely upon the closing of this offering.

	•	VOC Sponsor will convey to the trust the Net Profits Interest in exchange for 16,540,000 trust units in the aggregate, representing all of the outstanding trust units of the trust.

	•	VOC Sponsor will sell the 10,785,000 trust units offered hereby, representing a 65.2% interest in the trust. VOC Sponsor will also make available during the 30-day option period up to 1,617,750 trust units for the underwriters to purchase at the initial offering price to cover over-allotments. VOC Sponsor intends to use the proceeds of the offering as disclosed under “Use of Proceeds.”

	•	Forty-five days following the closing of this offering, VOC Sponsor will sell the remaining trust units which it holds to VOC Partners, LLC, an affiliate of VOC Sponsor, at the initial offering price.

	•	VOC Sponsor and the trust will enter into an administrative services agreement which will define the services VOC Sponsor will provide to the trust on an ongoing basis as well as its compensation therefor. Please see “The trust.”

																																						Year Ended
		Number																																				December 31,
		of				Proved Reserves (1)																												Average				2010
		Gross								Natural																				Average				Net				Average
		Producing				Oil				Gas				Total				% Oil				% PDP				PV-10				Working				Revenue				Net Production
Operating Area		Wells				(MBbls)				(MMcf)				(MBoe) (2)				Reserves				Reserves				Value (3)				Interest				Interest				(Boe per day)
																										(In millions)
Kansas			742				6,535				3,550				7,127				91.7	%			94.8	%		$	134.8				74.4	%			61.8	%			1,536
Texas			139				6,007				3,399				6,573				91.4	%			72.6	%		$	133.5				68.0	%			56.1	%			1,011
Total			881				12,542				6,949				13,700				91.5	%			84.1	%		$	268.3				71.2	%			58.9	%			2,547

(1)		In accordance with the rules and regulations promulgated by the SEC, the proved reserves presented above were determined using the twelve month unweighted arithmetic average of the first-day-of-the-month price for the period from January 1, 2010 through December 1, 2010, without giving effect to any hedge transactions, and were held constant for the life of the properties. This yielded a price for oil of $79.43 per Bbl and a price for natural gas of $4.37 per MMBtu.

(2)		Oil equivalents in the table are the sum of the Bbls of oil and the Boe of the stated Mcfs of natural gas, calculated on the basis that six Mcfs of natural gas is the energy equivalent of one Bbl of oil.
(3)		PV-10 is the present value of estimated future net revenue to be generated from the production of proved reserves, discounted using an annual discount rate of 10%, calculated without deducting future income taxes. Standardized

		measure of discounted net cash flows is calculated the same as PV-10 except that it deducts future income taxes. Because VOC Sponsor bears no federal income tax expense and taxable income is passed through to the unitholders of the trust, no provision for federal or state income taxes is included in the reserve reports and therefore the standardized measure of discounted future net cash flows attributable to the Underlying Properties is equal to the pre-tax PV-10 value. PV-10 may not be considered a generally accepted accounting principle (“GAAP”) financial measure as defined by the SEC and is derived from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. The pre-tax PV-10 value and the standardized measure of discounted future net cash flows do not purport to present the fair value of the oil and natural gas reserves attributable to Underlying Properties.

	•	Kansas. VOC Sponsor’s historical development and workover program for the Kansas Underlying Properties has included recompleting certain existing wells, drilling infill development wells, conducting 3-D seismic surveys, completing workovers and applying new production technologies. VOC Sponsor intends to continue this program with respect to the Kansas Underlying Properties, and expects to incur total development expenditures for these properties through December 31, 2015 of approximately $3.2 million. Of this total, VOC Sponsor contemplates spending approximately $2.5 million to drill and complete 13 vertical wells. The remaining approximate $0.7 million is expected to be used for recompletions and workovers of 12 wells.

	•	Texas. VOC Sponsor’s historical development and workover program for the Texas Underlying Properties has included recompleting certain existing wells, drilling infill development wells, completing workovers and applying new production technologies. In 2009, after an extensive review of horizontal development drilling in the area, VOC Sponsor commenced drilling horizontal wells in the Kurten Woodbine Unit in order to accelerate the development of proved undeveloped reserves. VOC Sponsor has successfully completed each of its first four horizontal wells to the Woodbine C sand in this area with average lateral lengths of approximately 3,000 feet. VOC Sponsor intends to continue developing the Woodbine C sand underlying the Kurten Woodbine Unit, utilizing horizontal wells completed with multiple fracture stimulations together with recompletions of existing vertical wellbores into additional pay intervals. VOC Sponsor expects total development expenditures for the Texas Underlying Properties through December 31, 2015 to be approximately $24.0 million. Of this total, VOC Sponsor contemplates spending approximately $22.5 million to drill and complete 11 horizontal wells in the Woodbine C sand. The remaining approximate $1.5 million is expected to be used for recompletions and workovers of 12 Woodbine vertical wells to additional Woodbine sands and seven existing wells in the Sand Flat Unit.

	•	Long-lived oil-producing properties. Oil-producing properties in VOC Sponsor’s areas of operation have historically had stable production profiles and generally long-lived production. VOC Sponsor acquired interests in the Texas Underlying Properties through various acquisitions that have occurred since the inception of VOC Brazos in 2003 and in the Kansas Underlying Properties through the contribution to KEP by its members in December 2010 of properties obtained through various acquisitions and drilling activities since 1979. Proved reserves attributable to the Underlying Properties have remained relatively stable, with proved reserves of approximately 10.8 MMBoe as of December 31, 2008 (based on a year-end oil price of $44.60 per Bbl), 13.0 MMBoe as of December 31, 2009 (based on average oil prices of $61.18 per Bbl) and 13.7 MMBoe as of December 31, 2010 (based on average oil prices of $79.43 per Bbl). Based on the reserve reports and assuming for purposes of this calculation that no additional development drilling or other development expenditures are made on the Underlying Properties after 2014, production

		from the Underlying Properties is expected to decline at an average annual rate of approximately 6.2% over the next 20 years. VOC Sponsor may continue to drill beyond 2014, and such drilling may reduce the anticipated decline rate if successful.

	•	Substantial proved developed producing reserves. Proved developed producing reserves are the lowest risk category of reserves because production has already commenced, and VOC Sponsor does not expect the proved developed producing reserves attributable to the Underlying Properties to require significant future development costs. Proved developed producing reserves attributable to the Underlying Properties represented approximately 84% of the proved reserves attributable to the Underlying Properties as of December 31, 2010.

	•	Near term development activities. VOC Sponsor has identified multiple locations on the Underlying Properties on which it intends to drill new infill wells and recomplete existing wells into new horizons over the next several years. See “— Planned development and workover program” for a summary of VOC Sponsor’s development plans. These locations are currently classified as proved undeveloped reserves on the reserve reports. If these wells are successfully completed or recompleted, as the case may be, the additional production from these wells would partially offset the natural decline in production from the Underlying Properties. Any additional incremental revenue received by VOC Sponsor from this additional production could have the effect of increasing future distributions to the trust unitholders. No assurance can be given, however, that any development well will produce in commercially paying quantities or that the characteristics of any development well will match the characteristics of VOC Sponsor’s existing wells or VOC Sponsor’s historical drilling success rate.

	•	Operational control. The right to operate an oil and natural gas lease is important because the operator can control the timing and amount of discretionary expenditures for operational and development activities. As of December 31, 2010, the VOC Operators operated, or operated on a contract basis, approximately 98% of the proved reserves attributable to the Underlying Properties based on PV-10 value.

	•	Experienced Royalty Trust Sponsor. Certain members of VOC Sponsor’s management team were involved in the formation and initial public offering of MV Oil Trust (NYSE: MVO) (“MVO”) a publicly-traded trust that is similar to VOC Energy Trust. In connection with the formation of MVO, the sponsor conveyed an 80% term net profits interest in oil and natural gas properties in the Mid-Continent region in Kansas and Colorado to MVO in exchange for trust units, a portion of which were sold by the sponsor in MVO’s initial public offering in January 2007. The terms of the net profits interest being conveyed in connection with the formation of VOC Energy Trust are similar to those of the net profits interest which was conveyed to MVO. To offset the natural decline in production of the proved developed wells, the sponsor planned and executed a development and workover program. The results of this program have partially mitigated the decline, with average net production being approximately 2,859 Boe per day (or approximately 2,287 Boe per day attributable to MVO’s 80% net profit interest) at the time of the initial public offering and 2,621 Boe per day (or approximately 2,097 Boe per day attributable to MVO’s 80% net profit interest) for the year ended December 31, 2010. As a result of differences in pricing, well locations, costs, development schedule, development expenditures and regulatory environment, among other things, the historical results of operations and performance of MVO should not be relied on as an indicator of how the trust will perform. For a description of the prior performance of MVO, including a discussion of the reasons underlying why actual distributions for the twelve months ended December 31,

		2007 were below certain estimated distributions as outlined in its prospectus relating to its initial public offering, please see “MV Oil Trust.”

	•	Strong oil fundamentals. Substantially all of the production from the Underlying Properties consists of crude oil. According to the US Energy Information Administration (“EIA”) projections, world oil prices are expected to rise gradually. These projections assume that global economic growth results in higher global oil demand, growth in supply from countries who are not members of the Organization of the Petroleum Exporting Countries (“OPEC”) slows in 2011, and members of OPEC continue to support world oil prices while commercial oil inventories in the Organization for Economic Cooperation and Development (“OECD”) countries begin to decline.

	•	Downside oil price protection. For the years 2011, 2012 and 2013, VOC Sponsor has entered into swap contracts, which we refer to as the “hedge contracts,” at weighted average prices ranging from $94.90 to $99.64 per barrel of oil that hedge approximately 47% of expected oil production for such years from the proved developed producing reserves attributable to the Underlying Properties in the summary reserve reports. The hedge contracts should help mitigate the impact of any crude oil price volatility on distributions made on the trust units during the term of the hedge contracts. Upon expiration in 2013, unitholder exposure to fluctuations in crude oil prices will increase significantly. Under the terms of the conveyance, VOC Sponsor will be prohibited from entering into hedging arrangements for the benefit of the trust and, under the terms of the trust agreement, the trustee is not empowered to enter into hedge contracts with trust proceeds. For more information on VOC Sponsor’s hedge positions, please see “The Underlying Properties — Hedge contracts.”

	•	Aligned interests of sponsor. Following the closing of this offering, VOC Sponsor, together with VOC Partners, LLC, will be entitled to receive an aggregate of approximately 48% of the net proceeds attributable to the sale of oil and natural gas produced from the Underlying Properties. This 48% interest will consist of (1) the 20% of the net proceeds from the sale of production of oil and natural gas and attributable to the Underlying Properties that is retained by VOC Sponsor after transferring to the trust the Net Profits Interest and (2) the ownership by VOC Partners, LLC of approximately 35% of the trust units following the closing of this offering.

	•	Prices of oil and natural gas fluctuate, and lower prices could reduce proceeds to the trust and cash distributions to unitholders.

	•	An increase in the differential between the price realized by VOC Sponsor for oil or natural gas produced from the Underlying Properties and the NYMEX or other benchmark price of oil or natural gas could reduce the proceeds to the trust and therefore the cash distributions by the trust and the value of trust units.

	•	Estimates of future cash distributions to unitholders are based on assumptions that are inherently subjective.

	•	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 processes of drilling and completing wells are high risk activities.

	•	Risks associated with the production, gathering, transportation and sale of oil and natural gas could adversely affect cash distributions by the trust.

	•	VOC Sponsor does not have any long term contracts related to the sale of production of oil and natural gas from the Underlying Properties and may be unable to find purchasers.

	•	Neither the trust nor the trust’s unitholders will have the ability to influence VOC Sponsor or control the operations or development of the Underlying Properties.

	•	Shortages or increases in costs of equipment, services and qualified personnel could result in a reduction in the amount of cash available for distribution to the trust unitholders.
	•	The trust units may lose value as a result of title deficiencies with respect to the Underlying Properties.

	•	VOC Sponsor may transfer all or a portion of the Underlying Properties at any time without trust unitholder consent, subject to specified limitations.

	•	The reserves attributable to the Underlying Properties are depleting assets and production from those properties will diminish over time.

	•	The amount of cash available for distribution by the trust will be reduced by the amount of any costs and expenses related to the Underlying Properties and other costs and expenses incurred by the trust.
	•	The trustee may, under certain circumstances, sell the Net Profits Interest and dissolve the trust prior to the expected termination of the trust. As a result, trust unitholders may not recover their investment.
	•	VOC Partners, LLC may sell trust units in the public or private markets, and such sales could have an adverse impact on the trading price of the trust units.
	•	There has been no public market for the trust units and no independent appraisal of the value of the Net Profits Interest has been performed.
	•	The trading price for the trust units may not reflect the value of the Net Profits Interest held by the trust.
	•	Conflicts of interest could arise between VOC Sponsor and its affiliates, on the one hand, and the trust unitholders, on the other hand.
	•	The trust is managed by a trustee who cannot be replaced except by a majority vote of the unitholders at a special meeting, which may make it difficult for unitholders to remove or replace the trustee.
	•	Trust unitholders have limited ability to enforce provisions of the Net Profits Interest, and VOC Sponsor’s liability to the trust is limited.
	•	Courts outside of Delaware may not recognize the limited liability of the trust unitholders provided under Delaware law.

	•	The operations of the Underlying Properties are subject to environmental laws and regulations that may result in significant costs and liabilities, which could reduce the amount of cash available for distribution to 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 cost, manner or feasibility of conducting its operations or expose VOC Sponsor to significant liabilities, which could reduce the amount of cash available for distribution to trust unitholders.
	•	Climate change laws and regulations restricting emissions of “greenhouse gases” could result in increased operating costs and reduced demand for the oil and natural gas that VOC Sponsor produces while the physical effects of climate change could disrupt VOC Sponsor’s production and cause VOC Sponsor to incur significant costs in preparing for or responding to those effects.
	•	Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays as well as adversely affect VOC Sponsor’s services.
	•	The bankruptcy of VOC Sponsor or any of the VOC Operators could impede the operation of the wells and the development of the proved undeveloped reserves.
	•	The trust may be treated as an unsecured creditor with respect to the Net Profits Interest attributable to properties in Kansas in the event of the bankruptcy of VOC Sponsor if a court were to hold that the conveyance and recording of the Net Profits Interest was not a conveyance of a fully vested real property interest or an interest in hydrocarbons in place or to be produced.
	•	Due to lack of geographic diversification of the Underlying Properties, adverse developments in Kansas or Texas could adversely impact the results of operations and cash flows of the Underlying Properties and reduce the amount of cash available for distributions to trust unitholders.
	•	The receipt of payments by VOC Sponsor based on the hedge contracts depends upon the financial position of the hedge contract counterparties. A default by any of the hedge contract counterparties could reduce the amount of cash available for distribution to the trust unitholders.
	•	VOC Sponsor’s performance of its obligations to the trust and the financial results of the trust may differ from the drilling and financial results of MVO.
	•	The tax treatment of an investment in trust units could be affected by recent and potential legislative changes, possibly on a retroactive basis.
	•	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 Net Profits Interest is not properly treated as a production payment (and thus would fail to qualify as a debt instrument) for federal income tax purposes, the trust unitholders may receive different and potentially less advantageous tax treatment from that described in this prospectus.

		Proved Reserves of the Underlying Properties												Undiscounted
		Oil				Natural Gas				Oil Equivalent				Future Net				PV-10
		(MBbls )				(MMcf)				(MBoe)				Revenues				Value (3)
														(In thousands)
Underlying Properties (total) (1)			12,542				6,949				13,700			$	569,829			$	268,283
Underlying Properties (attributable to the Net Profits Interest) (2)			7,712				4,819				8,515			$	379,296			$	208,552

(1)		Reflects 100% of the proved reserves attributable to the Underlying Properties.
(2)		Reflects 80% of proved reserves attributable to the Underlying Properties expected to be produced during the term of the trust.
(3)		PV-10 is the present value of estimated future net revenue to be generated from the production of proved reserves, discounted using an annual discount rate of 10%, calculated without deducting future income taxes. Standardized measure of discounted net cash flows is calculated the same as PV-10 except that it deducts future income taxes. Because VOC Sponsor bears no federal income tax expense and taxable income is passed through to the unitholders of the trust, no provision for federal or state income taxes is included in the reserve reports and therefore the standardized measure of discounted future net cash flows attributable to the Underlying Properties is equal to the pre-tax PV-10 value. PV-10 may not be considered a generally accepted accounting principle (“GAAP”) financial measure as defined by the SEC and is derived from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. The pre-tax PV-10 value and the standardized measure of discounted future net cash flows do not purport to present the fair value of the oil and natural gas reserves attributable to Underlying Properties.

		Year Ended
		December 31, 2010
		(In thousands)
		(Unaudited)
Revenues:
Oil sales		$	60,187
Natural gas sales			3,239
Hedge and other derivative activity			(707	)
Total			62,719
Direct operating expenses:
Lease operating expenses			13,727
Production and property taxes			4,137
Total			17,864
Excess of revenues over direct operating expenses		$	44,855

		Year Ended
		December 31, 2010
		(In thousands,
		except per unit data)
		(Unaudited)
Excess of revenues over direct operating expenses		$	44,855
Less development expenses			10,492
Excess of revenues over direct operating expenses and development expenses			34,363
Times Net Profits Interest over the term of the trust			80	%
Income from Net Profits Interest			27,490
Pro forma adjustments:
Less estimated trust general and administrative expenses			900
Distributable income (1)		$	26,590
Distributable income per trust unit		$	1.61

(1)		Per the terms of the Net Profits Interest, development costs are to be deducted when calculating the distributable income to the trust.

		Year Ended December 31,
Underlying Properties (1)		2008				2009				2010
						(Unaudited)
Operating data:
Sales volumes:
Oil (MBbls)			704				732				817
Natural gas (MMcf)			750				693				679
Total sales (MBoe)			829				847				930
Average sales prices:
Oil (per Bbl)		$	93.67			$	55.16			$	73.71
Natural gas (per Mcf)		$	7.46			$	3.31			$	4.77
Capital expenditures (in thousands):
Property acquisition		$	7,899			$	4,134			$	3,262
Well development			2,499				2,407				7,230
Total		$	10,398			$	6,541			$	10,492

(1)		The operating data below includes the effect of the Acquired Underlying Properties for all periods presented.

		Year Ended December 31,
Predecessor Underlying Properties		2008				2009				2010
						(Unaudited)
Operating data:
Sales volumes:
Oil (MBbls)			389				407				495
Natural gas (MMcf)			426				415				447
Total (MBoe)			460				477				569
Average sales prices:
Oil (per Bbl)		$	94.11			$	55.86			$	74.59
Natural gas (per Mcf)		$	7.86			$	3.64			$	5.36
Capital expenditures (in thousands):
Property acquisition		$	6,715			$	2,369			$	2,606
Well development			1,063				1,955				6,766
Total		$	7,778			$	4,324			$	9,372

		Year Ended December 31,
Acquired Underlying Properties		2008				2009				2010
						(Unaudited)
Operating data:
Sales volumes:
Oil (MBbls)			315				324				322
Natural gas (MMcf)			324				278				232
Total sales (MBoe)			369				371				360
Average sales prices:
Oil (per Bbl)		$	93.12			$	54.27			$	72.35
Natural gas (per Mcf)		$	6.94			$	2.81			$	3.63
Capital expenditures (in thousands):
Property acquisition		$	1,184			$	1,765			$	655
Well development			1,436				452				464
Total		$	2,620			$	2,217			$	1,119

						Predecessor Pro Forma				Predecessor Pro Forma As
						for the Acquisition				Adjusted for the Offering
						of the Acquired				(Including the conveyance
		Predecessor				Underlying Properties				of the Net Profits Interest)
		Year Ended				Year Ended				Year Ended
		December 31,				December 31,				December 31,
		2010				2010				2010
		(In thousands)
						(Unaudited)				(Unaudited)
Revenue		$	38,635			$	62,750			$	21,998
Net earnings		$	20,911			$	30,624			$	14,020
Total assets (at year end)		$	109,038			$	202,171			$	96,358
Long-term liabilities, excluding current maturities (at year end)		$	26,241			$	27,805			$	99,392
Partners’ capital/common control owners’ equity (deficit)		$	70,936			$	159,559			$	(26,746	)

		Projection for Twelve Months
Projected Cash Distributions		Ending December 31, 2011 (1)
		(Dollars in thousands, except
		per Bbl, Mcf, MMBtu and
		per unit
		amounts)
Underlying Properties sales volumes:
Oil (MBbls)			726.0
Natural gas (MMcf)			539.7
Total sales (MBoe)			816.0
NYMEX futures price (2):
Oil (per Bbl)		$	102.18
Natural gas (per MMBtu)		$	4.11
Assumed realized sales price (3):
Oil (per Bbl)		$	96.61
Natural gas (per Mcf)		$	4.95
Calculation of net proceeds:
Gross proceeds:
Oil sales		$	70,142
Natural gas sales			2,673
Total		$	72,815
Costs:
Production and development costs:
Lease operating expenses		$	11,105
Production and property taxes			4,495
Development expenses			7,828
Total		$	23,429
Settlement of hedge contracts (payment received) (4)		$	1,318
Net proceeds		$	48,068
Percentage allocable to Net Profits Interest			80	%
Net proceeds to trust from Net Profits Interest		$	38,455
Trust general and administrative expenses (5)			825
Cash reserve			1,000
Cash available for distribution by the trust		$	36,630
Cash distribution per trust unit		$	2.21

(1)		Only includes proceeds attributable from production from January 1, 2011 through November 30, 2011 as the trust will not receive a cash payment for December 2010 in January 2011, and the payment for December 2011 production will be received in 2012.

(2)		Average NYMEX futures price for 2011, as reported on March 10, 2011. For a description of the effect of lower NYMEX prices on projected cash distributions, please read “Projected cash distributions— Projected cash distributions for the year ending December 31, 2011 — Sensitivity of projected cash distributions to oil and natural gas production and prices.”

(3)		Sales price net of forecasted gravity, quality, transportation, and marketing costs. For more information about the estimates and hypothetical assumptions made in preparing the table above, see “Projected cash distributions — Projected cash distributions— Projected cash distributions for the twelve months ending December 31, 2011 — Significant assumptions used to prepare the projected cash distributions.”

(4)		Costs will be reduced by hedge payments received by VOC Sponsor under the hedge contracts. If the hedge payments received by VOC Sponsor under the hedge contracts exceed costs during a quarterly period, the ability to use such excess amounts to offset costs will be deferred, with interest accruing on such amounts at the prevailing money market rate, until the next quarterly period when the current and deferred hedge payments are less than such costs.

(5)		Total general and administrative expenses of the trust on an annualized basis for 2011 are expected to be $900,000, which includes an annual administrative fee to VOC Sponsor in the amount of $75,000 in 2011, which fee will increase by 4% annually beginning in January 2012, the annual fee to the trustees, accounting fees, engineering fees, printing costs and other expenses properly chargeable to the trust.

Trust units offered by VOC Sponsor		10,785,000 trust units, or 12,402,750 trust units if the underwriters exercise their option to purchase additional trust units in full

Trust units owned by VOC Partners, LLC after the offering		5,755,000 trust units, or 4,137,250 trust units if the underwriters exercise their option to purchase additional trust units in full

Trust units outstanding after the offering		16,540,000 trust units

Use of proceeds		VOC Sponsor is offering all of the trust units to be sold in this offering including, the trust units to be sold upon any exercise of the underwriters’ over-allotment option. The estimated net proceeds of this offering to be received by VOC Sponsor will be approximately $        million, after deducting underwriting discounts and commissions, structuring fees and expenses, and $        million if the underwriters exercise their option to purchase additional trust units in full. VOC Sponsor intends to use the net proceeds from this offering, including any proceeds from the exercise of the underwriters’ option to purchase additional trust units and the sale of the trust units to VOC Partners, LLC to repay approximately $24.0 million of outstanding borrowings under its credit facility, and make cash distributions to its limited partners. See “Use of proceeds.”

Proposed NYSE symbol		“VOC”
Quarterly cash distributions		It is expected that quarterly cash distributions during the term of the trust, other than the first quarterly cash distribution, will be made by the trustee on or about the 45th day following the end of each quarter to the trust unitholders of record on the 30th day following the end of each quarter (or the next succeeding business day). The first distribution from the trust to the trust unitholders will be made on or about August 15, 2011 to trust unitholders owning trust units on or about August 1, 2011. The trust’s first quarterly distribution will consist of an amount in cash paid by VOC Sponsor equal to the amount that would have been payable to the trust had the Net Profits Interest been in effect during the period from January 1, 2011 through June 30, 2011, less any general and administrative expenses and reserves of the trust.
		Actual cash distributions to the trust unitholders will fluctuate quarterly based upon the quantity of oil and natural gas produced from the Underlying Properties, the

		prices received for oil and natural gas production and other factors. Because payments to the trust will be 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 will represent, in effect, a return of your original investment. Oil and natural gas production from proved reserves attributable to the Underlying Properties is expected to decline over the term of the trust. See “Risk factors.”

Termination of the trust		The Net Profits Interest will terminate on the later to occur of (1) December 31, 2030, or (2) the time from and after January 1, 2011 when 10.6 MMBoe have been produced from the Underlying Properties and sold (which amount is the equivalent of 8.5 MMBoe in respect of the trust’s right to receive 80% of the net proceeds from the Underlying Properties pursuant to the Net Profits Interest), and the trust will promptly wind up its affairs and terminate thereafter.

Summary of income tax consequences		Trust unitholders will be taxed directly on the income from assets of the trust. The Net Profits Interest should be treated as a debt instrument for federal income tax purposes, and a trust unitholder in that event will be required to include in such trust unitholder’s income its share of the interest income on such debt instrument as it accrues in accordance with the rules applicable to contingent payment debt instruments contained in the Internal Revenue Code of 1986, as amended, and the corresponding regulations. If the Net Profits Interest is not treated as a debt instrument, then a trust unitholder should be allowed to recoup its basis in the Net Profits Interest on a schedule that is in proportion to production attributable to the Net Profits Interest and that may be more favorable to a trust unitholder than the schedule on which basis will be recovered if the Net Profits Interest is treated as a debt instrument for federal income tax purposes. See “Federal income tax consequences.”

 

Prices of oil and natural gas fluctuate, and lower prices could reduce proceeds to the trust and cash distributions to unitholders.

 

The trust’s reserves and quarterly cash distributions are highly dependent upon the prices realized from the sale of oil and natural gas. Prices of oil and natural gas 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 VOC Sponsor. These factors include, among others:

 

 

 

 

Crude oil prices declined from record high levels in early July 2008 of over $140 per Bbl to below $45 per Bbl in February 2009 before rebounding to over $100 per Bbl in March 2011. Natural gas prices declined from over $13 per MMBtu in mid-2008 to approximately $4 per MMBtu in March 2011.

 

Lower prices of oil and natural gas will reduce proceeds to which the trust is entitled and may ultimately reduce the amount of oil and natural gas 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 wells on the Underlying Properties. In addition, the operator of the Underlying 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. Specifically, VOC Sponsor may abandon any well or property if it reasonably believes that the well or property can no longer produce oil or natural gas in commercially paying quantities. This could result in termination of the Net Profits Interest relating to the abandoned well or property. In making such decisions, VOC Sponsor and any transferee will be required under the applicable

conveyance to operate, or to use commercially reasonable efforts to cause the operators of the Underlying Properties to operate, these properties as would a reasonably prudent operator, acting with respect to its own properties (without regard to the existence of the Net Profits Interest). Because substantially all the Underlying Properties are located in mature fields, 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 variety 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 or natural gas will reduce the amount of cash available for distribution to the trust unitholders. The volatility of commodity prices also reduces the accuracy of estimates of future cash distributions to trust unitholders.

 

For the years 2011, 2012 and 2013, VOC Sponsor has entered into swap contracts, which we refer to as the “hedge contracts,” at weighted average prices ranging from $94.90 to $99.64 per barrel of oil that hedge approximately 47% of expected oil production for such years from the proved developed producing reserves attributable to the Underlying Properties in the summary reserve reports. The effect of these hedging transactions may limit the trust’s ability to realize cash flow from crude oil price increases on the portion of the production attributable to the Net Profits Interest that is hedged during such period. The Net Profits Interest will bear its share of the hedge payments regardless of whether the corresponding quantities of oil are produced or sold. Furthermore, VOC Sponsor has not entered into any hedge contracts relating to oil and natural gas volumes expected to be produced after December 31, 2013, and the terms of the conveyance of the Net Profits Interests will prohibit VOC Sponsor from entering into new hedging arrangements following the completion of this offering. As a result, the amounts of the cash distributions may be subject to a greater fluctuation after December 31, 2013 because of changes in crude oil prices. In the event that any of the counterparties to the hedge contracts default on their obligations to make payments to VOC Sponsor under the hedge contracts, the cash distributions to the trust unitholders would likely be materially reduced. For a discussion of the hedge contracts, see “The Underlying Properties — Hedge contracts.”

 

An increase in the differential between the price realized by VOC Sponsor for oil or natural gas produced from the Underlying Properties and the NYMEX or other benchmark price of oil or natural gas could reduce the proceeds to the trust and therefore the cash distributions by the trust and the value of trust units.

 

The prices received for VOC Sponsor’s oil and natural gas production usually fall below the relevant benchmark prices, such as NYMEX, that are used for calculating hedge positions. The difference between the price received and the benchmark price is called a basis differential. The differential may vary significantly due to market conditions, the quality and location of production and other factors. VOC Sponsor cannot accurately predict natural gas or crude oil differentials. Increases in the differential between the realized price of oil and natural gas and the benchmark price for oil and natural gas could reduce the proceeds to the trust and therefore the cash distributions by the trust and the value of the trust units.

 

Estimates of future cash distributions to unitholders are based on assumptions that are inherently subjective.

 

The projected cash distributions to trust unitholders in 2011 contained elsewhere in this prospectus are based on VOC Sponsor’s calculations, and VOC Sponsor has not received an opinion or report on such calculations from any independent accountants. Such calculations are

based on assumptions about drilling, production, crude oil and natural gas prices, hedging activities, development expenditures, expenses, and other matters that are inherently uncertain and are subject to significant business, economic, financial, legal, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those estimated. In particular, these estimates have assumed that crude oil and natural gas production is sold in 2011 at NYMEX futures prices as of March 10, 2011 of $102.18 per Bbl in the case of crude oil and $4.11 per MMBtu in the case of natural gas. However, actual sales prices may be significantly lower. Recent geopolitical turmoil in North Africa and the Middle East may have contributed to recent increases in crude oil sales prices. Additionally, these estimates assume the Underlying Properties will achieve production volumes set forth in the reserve reports; however, actual production volumes may be significantly lower. If prices or production are lower than expected, the amount of cash available for distribution to trust unitholders would be reduced.

 

Production income is includable in the computation of net profits only after the cash is received from purchasers by VOC Sponsor, which typically occurs approximately 30 days after accrual. Because the trust is only entitled to a net profits interest on production after January 1, 2011, it will not receive a cash payment for December 2010 production in January 2011 so in effect trust unitholders will receive cash distributions attributable to only 11 months in 2011.

 

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 reserves and future production estimated to be attributable to the trust’s interest in the Underlying Properties. See “The Underlying Properties — Reserve reports” for a discussion of the method of allocating proved reserves to the Underlying Properties and the Net Profits Interest. It is not possible to measure underground accumulations of oil and natural gas in an exact way, and estimating reserves is inherently uncertain. Ultimately, actual production and revenues for the Underlying Properties could vary negatively and in material amounts from estimates. Furthermore, development expenditures and production costs relating to the Underlying Properties could be higher than current estimates. Petroleum engineers are required to make subjective estimates of underground accumulations of oil and natural gas based on factors and assumptions that include:

 

 

Changes in these assumptions and amounts of actual production and development costs could materially decrease reserve estimates.

 

The processes of drilling and completing wells are high risk activities.

 

The processes of drilling and completing wells are subject to numerous risks beyond the trust’s and VOC Sponsor’s control, including risks that could delay VOC Sponsor’s current drilling schedule and the risk that drilling will not result in commercially viable oil production. VOC Sponsor is not obligated to undertake any development activities, so any drilling and completion activities will be subject to the reasonable discretion of VOC Sponsor. Further, VOC Sponsor’s future business, financial condition, results of operations, liquidity or ability to finance

its share of planned development expenditures could be materially and adversely affected by any factor that may curtail, delay or cancel drilling, including the following:

 

 

In the event that drilling of development wells is delayed or cancelled, or development wells have lower than anticipated production, due to one or more of the factors above or for any other reason, estimated future distributions to unitholders may be reduced.

 

Risks associated with the production, gathering, transportation and sale of oil and natural gas could adversely affect cash distributions by the trust.

 

The amount of cash to be received by the trust from VOC Sponsor with respect to the Net Profits Interest, the value of the trust units and the amount of cash distributions to the trust unitholders will depend upon, among other things, oil and natural gas production and prices and the costs incurred by VOC Sponsor to develop and produce oil and natural gas reserves attributable to the Underlying Properties. Drilling, production or transportation accidents as well as adverse weather conditions that temporarily or permanently halt the production and sale of oil or natural gas at any of the Underlying Properties will reduce trust distributions by reducing the amount of net proceeds received by the trust and available for distribution. For example, accidents may occur that result in personal injuries, property damage, damage to productive

formations or equipment and environmental damages. To the extent VOC Sponsor is not able to recover from insurance any costs incurred by VOC Sponsor in connection with any such accidents, the net proceeds available for distribution to the trust may be reduced or delayed. In addition, curtailments or damage to pipelines used by VOC Sponsor to transport oil and natural gas production to markets for sale could reduce the amount of net proceeds received by the trust and available for distribution. Any such curtailment or damage to the gathering systems used by VOC Sponsor could also require VOC Sponsor to find alternative means to transport the oil and natural gas production from the Underlying Properties, which could require VOC Sponsor to incur additional costs that will have the effect of reducing net proceeds received by the trust and available for distribution.

 

VOC Sponsor does not have any long term contracts related to the sale of production of oil and natural gas from the Underlying Properties and may be unable to find purchasers.

 

VOC Sponsor does not have any firm commitment contracts for the sale of any production nor has it received security or other guaranty of payment for the production it sells. Therefore, there can be no assurance that VOC Sponsor will be able to find buyers for its production, that buyers will pay the purchase price therefor or that the price at which the production is sold will be current market price for such hydrocarbons at the time of delivery. During the year ended December 31, 2010, VOC Sponsor sold approximately 33% of the oil produced from the Underlying Properties to MV Purchasing LLC, an affiliate of VOC Sponsor. Any nonpayment by a purchaser of production, including MV Purchasing LLC, or inability by VOC Sponsor to sell any production, could reduce cash available for distribution to trust unitholders.

 

Neither the trust nor the trust’s unitholders will have the ability to influence VOC Sponsor or control the operations or development of the Underlying Properties.

 

Trust unitholders have no voting rights with respect to VOC Sponsor and therefore will have no managerial, contractual or other ability to influence VOC Sponsor’s activities or the operations 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 VOC Operators operate, or operate on a contract basis, substantially all of the properties comprising the Underlying 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 all decisions relating to drilling activities, sale of production, compliance with regulatory requirements and other matters that affect the property.

 

Shortages or increases in costs of equipment, services and qualified personnel could result in a reduction in the amount of cash available for distribution to the trust unitholders.

 

The demand for qualified and experienced 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 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 received by the trust and available for distribution to the trust unitholders or restrict the ability of VOC Sponsor to drill the development wells and conduct the operations which it currently has planned for the Underlying Properties.

The trust units may lose value as a result of title deficiencies with respect to the Underlying Properties.

 

VOC Sponsor acquired the Underlying Properties over the past 30 years. The existence of a material title deficiency with respect to the Underlying Properties could reduce the value of a property or render it worthless, thus adversely affecting the Net Profits Interest and distributions to trust unitholders. VOC Sponsor does not obtain title insurance covering mineral leaseholds, and VOC Sponsor’s failure to cure any title defects may cause VOC Sponsor to lose its rights to production from the Underlying Properties. In the event of any such material title problem, proceeds available for distribution to trust unitholders and the value of the trust units may be reduced.

 

VOC Sponsor may transfer all or a portion of the Underlying Properties at any time without trust unitholder consent, subject to specified limitations.

 

VOC Sponsor may at any time transfer all or part of the Underlying Properties, subject to and burdened by the Net Profits Interest, and may abandon individual wells or properties that it reasonably believes would no longer produce oil or natural gas in commercially paying quantities. For the years ended December 31, 2008, 2009 and 2010, VOC Sponsor plugged and abandoned six, 15 and 27 wells, respectively, located on leases on the Underlying Properties. Trust unitholders will not be entitled to vote on any transfer of the Underlying Properties, and the trust will not receive any proceeds from any such transfer, except in certain limited circumstances when the Net Profits Interest is released in connection with such transfer, in which case the trust will receive an amount equal to the fair market value (net of sales costs) of the Net Profits Interest released. See “The Underlying Properties — Sale and abandonment of Underlying Properties.” Following any sale or transfer of any of the Underlying Properties, if the Net Profits Interest is not released in connection with such sale or transfer, the Net Profits Interest will continue to burden the transferred property and net proceeds attributable to such property will be calculated as part of the computation of net proceeds described in this prospectus. VOC Sponsor may delegate to the transferee responsibility for all of VOC Sponsor’s obligations relating to the Net Profits Interest on the portion of the Underlying Properties transferred.

 

In addition, VOC Sponsor may, without the consent of the trust unitholders, require the trust to release the Net Profits Interest 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 Net Profits Interest 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 VOC Sponsor of the relevant Underlying Properties and are conditioned upon the trust’s receiving an amount equal to the fair market value to the trust of such Net Profits Interest. Any net sales proceeds paid to the trust will be distributable to trust unitholders for the quarter in which they are received. VOC Sponsor has not identified for sale any of the Underlying Properties.

 

The reserves attributable to the Underlying Properties are depleting assets and production from those properties will diminish over time.

 

The proceeds payable to the trust attributable to the Net Profits Interests are derived from the sale of production of oil and natural gas from the Underlying Properties. The reserves attributable to the Underlying Properties are depleting assets, which means that the reserves and the quantity of oil and natural gas produced from the Underlying Properties will decline over time. Based on the estimated production volumes in the reserve reports, the oil and natural gas production from proved reserves attributable to the Underlying Properties is projected to decline at an average rate of approximately 6.2% per year over the next 20 years, assuming the level of development drilling and development expenditures on the Underlying Properties disclosed elsewhere in this

prospectus through 2014 and none thereafter. Actual decline rates may vary from this projected decline rate. In the event expected future development is delayed, reduced or cancelled, the average rate of decline will likely exceed 6.2% per year.

 

The trust agreement will provide that the trust’s activities will be limited to owning the Net Profits Interest and any activity reasonably related to such ownership, including activities required or permitted by the terms of the conveyance related to the Net Profits Interest. As a result, the trust will not be permitted to acquire other oil and natural gas properties or net profits interests to replace the depleting assets and production attributable to the Net Profits Interest.

 

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 may be considered to have the effect of a return of capital as opposed to a return on investment. Eventually, the Underlying Properties burdened by the Net Profits Interest may cease to produce in commercially paying quantities and the trust may, therefore, cease to receive any distributions of net proceeds therefrom.

 

The amount of cash available for distribution by the trust will be reduced by the amount of any costs and expenses related to the Underlying Properties and other costs and expenses incurred by the trust.

 

The Net Profits Interest will bear its share of all costs and expenses related to the Underlying Properties, such as lease operating expenses, production and property taxes, development expenses and hedge expenses, which will reduce the amount of cash received by the trust and thereafter distributable to trust unitholders. Accordingly, higher costs and expenses related to the Underlying Properties will directly decrease the amount of cash received by the trust in respect of its Net Profits Interest. Please read “The Underlying Properties — Selected historical and unaudited pro forma financial data and operating data of the Underlying Properties.” Historical costs may not be indicative of future costs. In addition, cash available for distribution by the trust will be further reduced by the trust’s general and administrative expenses, which are expected to be $900,000 in 2011. For details about these general and administrative expenses, please see “Description of the trust agreement — Fees and expenses.”

 

If production and development costs on the Underlying Properties together with the other costs exceed gross proceeds of production from the Underlying Properties, the trust will not receive net proceeds from those properties until future gross proceeds from production exceed the total of the excess costs, plus accrued interest. If the trust does not receive net proceeds pursuant to the Net Profits Interest, or if such net proceeds are reduced, the trust will not be able to distribute cash to the trust unitholders, or such cash distributions will be reduced, respectively. Development activities may not generate sufficient additional revenue to repay the costs.

 

The trustee may, under certain circumstances, sell the Net Profits Interest 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 Net Profits Interest 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 Net Profits Interest if the annual gross proceeds from the Underlying Properties attributable to the Net Profits Interest are less than $1.0 million for each of any two consecutive years. The sale of the Net Profits Interest will result in the dissolution of the trust. The net proceeds of any such sale will be distributed to the trust unitholders.

VOC Partners, LLC may sell trust units in the public or private markets, and such sales could have an adverse impact on the trading price of the trust units.

 

After the closing of the offering, VOC Partners, LLC will hold an aggregate of 5,755,000 trust units, assuming no exercise of the underwriters’ over-allotment option. VOC Partners, LLC has agreed not to sell any trust units for a period of 180 days after the date of this prospectus without the consent of Raymond James & Associates, Inc. See “Underwriting.” After such period, VOC Partners, LLC may sell trust units in the public or private markets, and any such sales could have an adverse impact on the price of the trust units or on any trading market that may develop. The trust has granted registration rights to VOC Partners, LLC, which, if exercised, would facilitate sales of common units thereby.

 

There has been no public market for the trust units and no independent appraisal of the value of the Net Profits Interest has been performed.

 

Among the factors to be considered in determining the number of trust units to be offered hereby and the initial public offering price will be current and historical oil and natural gas prices, current and prospective conditions in the supply and demand for oil and natural gas, reserve and production quantities estimated for the Net Profits Interest, the trust’s cash distributions prospects and prevailing market conditions. None of VOC Sponsor, the trust or the underwriters will obtain any independent appraisal or other opinion of the value of the Net Profits Interest, other than the reserve report prepared by Cawley, Gillespie & Associates, Inc.

 

The trading price for the trust units may not reflect the value of the Net Profits Interest 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 and natural gas production from the Underlying Properties and the timing and amount of production and development costs. Consequently, the trading price for the trust units may not necessarily be indicative of the value that the trust would realize if it sold the Net Profits Interest 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 VOC Sponsor and its affiliates, on the one hand, and the trust and the trust unitholders, on the other hand.

 

As working interest owners in, and operators of substantially all the wells on, the Underlying Properties, VOC Sponsor and its affiliates could have interests that conflict with the interests of the trust and the trust unitholders. For example:

 

 

 

 

 

The trust is managed by a trustee who cannot be replaced except by a majority vote of the unitholders at a special meeting, which may make it difficult for unitholders to remove or replace the trustee.

 

The affairs of the trust will be managed by the trustee. Your voting rights as 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, including trust units held by VOC Partners, LLC, 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. As a result, it will be difficult for public unitholders to remove or replace the trustee without the cooperation of VOC Partners, LLC so long as it holds a significant percentage of total trust units.

 

Trust unitholders have limited ability to enforce provisions of the Net Profits Interest, and VOC Sponsor’s liability to the trust is limited.

 

The trust agreement permits the trustee to sue VOC Sponsor or any other future owner of the Underlying Properties to enforce the terms of the conveyance creating the Net Profits Interest. If the trustee does not take appropriate action to enforce provisions of the conveyance, trust unitholders’ recourse would be limited to bringing a lawsuit against the trustee to compel the trustee to take specified actions. The trust agreement expressly limits a trust unitholder’s ability to directly sue VOC Sponsor or any other third party other than the trustee. As a result, trust unitholders will not be able to sue VOC Sponsor or any future owner of the Underlying Properties to enforce these rights. Furthermore, the Net Profits Interest conveyance provides that, except as set forth in the conveyance, VOC Sponsor will not be liable to the trust for the manner in which it performs its duties in operating the Underlying Properties as long as it acts without gross negligence or willful misconduct.

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 will be entitled to the same limitation of personal liability extended to stockholders of corporations under the General Corporation Law of the state of Delaware. No assurance can be given, however, that the courts in jurisdictions outside of Delaware will give effect to such limitation.

 

The operations of the Underlying Properties are subject to environmental laws and regulations that may result in significant costs and liabilities, which could reduce the amount of cash available for distribution to trust unitholders.

 

The oil and natural gas exploration and production operations of VOC Sponsor are subject to stringent and comprehensive federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may impose numerous obligations that apply to VOC Sponsor’s operations, including the requirement to obtain a permit before conducting drilling, waste disposal or other regulated activities; the restriction of types, quantities and concentrations of materials that can be released into the environment; the incurrence of significant development expenditures to install pollution or safety-related controls at the operated facilities; the limitation or prohibition of drilling activities on certain lands lying within wilderness, wetlands and other protected areas; and the imposition of substantial liabilities for pollution resulting from operations. Numerous governmental authorities, such as the U.S. Environmental Protection Agency (“EPA”) and analogous state environmental and oil and gas agencies, have the power to enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costly actions. Failure to comply with these laws and regulations may result in the assessment of administrative, civil or criminal penalties; the imposition of investigatory or remedial obligations; and the issuance of injunctions limiting or preventing some or all of VOC Sponsor’s operations. Furthermore, the inability to comply with environmental laws and regulations in a cost-effective manner, such as removal and disposal of produced water and other generated oil and gas wastes, could impair VOC Sponsor’s ability to produce oil and natural gas commercially from the Underlying Properties, which would reduce proceeds attributable to the Net Profits Interest.

 

There is inherent risk of incurring significant environmental costs and liabilities in the performance of VOC Sponsor’s operations as a result of its handling of petroleum hydrocarbons and wastes, air emissions and wastewater discharges related to its operations, and historical industry operations and waste disposal practices. Under certain environmental laws and regulations, VOC Sponsor could be subject to joint and several strict liability for the removal or remediation of previously released materials or property contamination regardless of whether VOC Sponsor was responsible for the release or contamination or whether the operations were in compliance with all applicable laws at the time those actions were taken. Private parties, including the owners of properties upon which VOC Sponsor’s wells are drilled and facilities where VOC Sponsor’s petroleum hydrocarbons or wastes are taken for reclamation or disposal, may also have the right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury or property damage. In addition, the risk of accidental spills or releases could expose VOC Sponsor to significant liabilities that could have a material adverse effect on its financial condition or results of operations. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly operational control requirements or waste handling, storage, transport, disposal or cleanup requirements could require VOC Sponsor to make significant expenditures to attain and maintain compliance and may otherwise have a material adverse effect on its results of operations, competitive position or financial condition. VOC Sponsor may be

unable to recover some or any of these costs from insurance, in which case the amount of cash received by the trust may be decreased. The Net Profits Interest held by the trust will bear 80% of all costs and expenses incurred by VOC Sponsor in regard to environmental costs and liabilities associated with the Underlying Properties, including costs and liabilities resulting from conditions that existed prior to VOC Sponsor’s acquisition of the Underlying Properties unless such costs and expenses result from VOC Sponsor’s gross negligence or willful misconduct. In addition, as a result of the increased cost of compliance, VOC Sponsor may decide to discontinue drilling.

 

The operations of the Underlying Properties are subject to complex federal, state, local and other laws and regulations that could adversely affect the cost, manner or feasibility of conducting its operations or expose VOC Sponsor to significant liabilities, which could reduce the amount of cash available for distribution to trust unitholders.

 

The production and development operations on the Underlying Properties are subject to complex and stringent laws and regulations. In order to conduct its operations in compliance with these laws and regulations, VOC Sponsor must obtain and maintain numerous permits, drilling bonds, approvals and certificates from various federal, state and local governmental authorities and engage in extensive reporting. VOC Sponsor may incur substantial costs in order to maintain compliance with these existing laws and regulations, and the Net Profits Interest will bear its share of these costs. In addition, VOC Sponsor’s costs of compliance may increase if existing laws and regulations are revised or reinterpreted, or if new laws and regulations become applicable to VOC Sponsor’s operations. Such costs could have a material adverse effect on VOC Sponsor’s business, financial condition and results of operations and reduce the amount of cash received by the trust in respect of the Net Profits Interest, VOC Sponsor must also comply with laws and regulations prohibiting fraud and market manipulations in energy markets. To the extent VOC Sponsor is a shipper on interstate pipelines, it must comply with the tariffs of such pipelines and with federal policies related to the use of interstate capacity, and such compliance costs will be borne indirectly in part by the trust.

 

Laws and regulations governing exploration and production may also affect production levels. VOC Sponsor is required to comply with federal and state laws and regulations governing conservation matters, including: provisions related to the unitization or pooling of oil and natural gas properties; the establishment of maximum rates of production from wells; the spacing of wells; the plugging and abandonment of wells; and the removal of related production equipment. These and other laws and regulations can limit the amount of oil and natural gas VOC Sponsor can produce from its wells, limit the number of wells it can drill, or limit the locations at which it can conduct drilling operations, which in turn could negatively impact trust distributions, estimated and actual future net revenues to the trust and estimates of reserves attributable to the trust’s interests.

 

New laws or regulations, or changes to existing laws or regulations, may unfavorably impact VOC Sponsor, could result in increased operating costs or have a material adverse effect on VOC Sponsor’s financial condition and results of operations and reduce the amount of cash received by the trust. For example, Congress is currently considering legislation that, if adopted in its proposed form, would subject companies involved in oil and natural gas exploration and production activities to, among other items, additional regulation of and restrictions on hydraulic fracturing of wells, the elimination of certain U.S. federal tax incentives and deductions available to oil and natural gas exploration and production activities, and the prohibition or additional regulation of private energy commodity derivative and hedging activities. These and other potential regulations could increase the operating costs of the Underlying Properties, reduce VOC Sponsor’s liquidity, delay VOC Sponsor’s operations or otherwise alter the way VOC Sponsor

conducts its business, any of which could have a material adverse effect on the Net Profits Interest and the trust’s cash flows.

 

Climate change laws and regulations restricting emissions of “greenhouse gases” could result in increased operating costs and reduced demand for the oil and natural gas that VOC Sponsor produces while the physical effects of climate change could disrupt VOC Sponsor’s production and cause VOC Sponsor to incur significant costs in preparing for or responding to those effects.

 

The oil and gas industry is a direct source of certain greenhouse gases (“GHG”) emissions, namely carbon dioxide and methane, and future restrictions on such emissions could impact our future operations. On December 15, 2009, the EPA published its findings that emissions of carbon dioxide, methane and other GHGs present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth’s atmosphere and other climate changes. Based on these findings, the agency has begun adopting and implementing regulations that restrict emissions of GHGs under existing provisions of the federal Clean Air Act. During 2010, the EPA adopted two sets of rules regulating GHG emissions under the Clean Air Act, one of which requires a reduction in emissions of GHGs from motor vehicles and the other of which regulates emissions of GHGs from certain large stationary sources under the Prevention of Significant Deterioration (“PSD”) and Title V permitting programs, effective January 2, 2011. The stationary source rule “tailors” these permitting programs to apply to certain stationary sources in a multi-step process, with the largest sources first subject to permitting. Facilities required to obtain PSD permits for their GHG emissions also will be required to reduce those emissions according to “best available control technology” standards for GHG that will be established by the states or, in some instances, by the EPA on a case-by-case basis. The EPA’s rules relating to emissions of GHGs from large stationary sources of emissions are currently subject to a number of legal challenges, but the federal courts have thus far declined to issue any injunctions to prevent EPA from implementing, or requiring state environmental agencies to implement, the rules. These EPA rulemakings could affect VOC Sponsor’s operations and its ability to obtain air permits for new or modified facilities. In addition, on November 30, 2010, the EPA published final regulations expanding the existing greenhouse gas monitoring and reporting rule to include onshore and offshore oil and natural gas production and onshore oil and natural gas processing, transmission storage and distribution facilities. Reporting of GHG emissions from such facilities will be required on an annual basis, with reporting beginning in 2012 for emissions occurring in 2011.

 

In addition, the U.S. Congress has from time to time considered legislation to reduce emissions of GHGs, and almost half of the states have already taken legal measures to reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade programs. Most of these cap and trade programs work by requiring either major sources of emissions or major producers of fuels to acquire and surrender emission allowances, with the number of allowances available for purchase reduced each year until the overall GHG emission reduction goal is achieved. These reductions would be expected to cause the cost of allowances to escalate significantly over time. The adoption of any legislation or regulations that requires reporting of GHGs or otherwise limits emissions of GHGs from VOC Sponsor’s equipment and operations could require VOC Sponsor to incur costs to monitor and report on GHG emissions or reduce emissions of GHGs associated with its operations, and such requirements also could adversely affect demand for the oil and natural gas produced, all of which could reduce proceeds attributable to the Net Profits Interest and, as a result, the trust’s cash available for distribution.

 

Finally, it should be noted that some scientists have concluded that increasing concentrations of greenhouse gases in the Earth’s 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 VOC Sponsor’s assets and operations and, consequently, may reduce the proceeds attributable to the Net Profits Interest and, as a result, the trust’s cash available for distribution.

 

Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays as well as adversely affect VOC Sponsor’s services.

 

Hydraulic fracturing is an important and common practice that is used to stimulate production of hydrocarbons, particularly natural gas, from tight formations. The process involves the injection of water, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production. The process is typically regulated by state oil and gas commissions. However, the EPA recently asserted federal regulatory authority over hydraulic fracturing involving diesel additives under the Safe Drinking Water Act’s Underground Injection Control Program. While the EPA has yet to take any action to enforce or implement this newly asserted regulatory authority, industry groups have filed suit challenging the EPA’s recent decision. At the same time, the EPA has commenced a study of the potential environmental impacts of hydraulic fracturing activities, with results of the study anticipated to be available by late 2012, and a committee of the U.S. House of Representatives is also conducting an investigation of hydraulic fracturing practices. In addition, legislation was introduced in the last session of Congress to provide for federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the fracturing process. Also, some states have adopted, and other states are considering adopting, regulations that could restrict or impose additional requirements relating to hydraulic fracturing in certain circumstances. For example, on March 1, 2011, a bill was introduced in the Texas Senate that, if adopted, would require written disclosure to the Railroad Commission of Texas of specific information about the fluids, proppants and additives used in hydraulic fracturing treatment operations, and on March 11, 2011, a bill was introduced in the Texas House of Representatives that would require service companies to submit “master lists” of base fluids, additives and chemical constituents to be used in hydraulic fracturing activities in Texas, subject to certain trade secret protections, to the Railroad Commission. Such federal or state legislation could require the disclosure of chemical constituents used in the fracturing process to state or federal regulatory authorities who could then make such information publicly available. Disclosure of chemicals used in the fracturing process could make it easier for third parties opposing hydraulic fracturing to initiate legal proceedings against producers and service providers based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. In addition, if hydraulic fracturing is regulated at the federal level, VOC Sponsor’s fracturing activities could become subject to additional permit requirements or operational restrictions and also to associated permitting delays and potential increases in costs. Further, some state and local governments in the Marcellus Shale region in Pennsylvania and New York have considered or imposed temporary moratoria on drilling operations using hydraulic fracturing until further study of the potential environmental and human health impacts by EPA or the relative state agencies are completed, and at least a couple of local governments in Texas have imposed temporary moratoria on drilling activities within city limits so that local ordinances may be reviewed to assess their adequacy to address such activities. No assurance can be given as to whether or not similar measures might be considered or implemented in the jurisdictions in which we operate. If new laws or regulations that significantly restrict or otherwise impact hydraulic fracturing are passed by Congress or adopted in Texas or Kansas such legal requirements could make it more difficult or costly for VOC Sponsor to perform hydraulic fracturing activities and thereby affect the determination of whether a well is commercially viable. In addition, restrictions on hydraulic fracturing could

reduce the amount of oil and natural gas that VOC Sponsor is ultimately able to produce in commercially paying quantities from the Underlying Properties.

 

The bankruptcy of VOC Sponsor or any of the VOC Operators could impede the operation of the wells and the development of the proved undeveloped reserves.

 

VOC Sponsor is a privately-held limited partnership engaged in the production and development of oil and natural gas from properties located in Kansas and Texas. VOC Sponsor intends to implement a development and workover program, including the expenditure over the next five years of approximately $27.1 million to drill additional wells and recomplete and workover other wells. Without this development and workover program, the average decline rate over the life of the trust of the oil and natural gas production from the proved reserves attributable to the Underlying Properties will likely exceed the 6.2% per year projected in the reserve reports. The VOC Operators are privately-held limited partnerships or corporations engaged in the operation of oil and natural gas wells in Kansas and Texas that were the operators or contract operators of Underlying Properties having approximately 98% of the total proved reserves on the Underlying Properties, based on PV-10 value. Therefore, the value of the Net Profits Interest and the trust’s ultimate cash available for distribution will be highly dependent on the financial condition of VOC Sponsor and the VOC Operators. None of VOC Sponsor or the VOC Operators will be a reporting company following this offering or will file periodic reports with the SEC. Therefore, as a trust unitholder, you will not have access to financial information about VOC Sponsor or the VOC Operators. Furthermore, none of VOC Sponsor or the VOC Operators has agreed with the trust to maintain a certain net worth or to be restricted by other similar covenants and VOC Sponsor intends to distribute all of the net proceeds of this offering to its partners instead of retaining all or a portion for the development of the Underlying Properties.

 

The ability of VOC Sponsor to develop the Underlying Properties and the ability of the VOC Operators to operate the wells on the Underlying Properties depends on the future financial condition and economic performance and access to capital of VOC Sponsor and the VOC Operators, which in turn will depend upon the supply and demand for oil and natural gas, prevailing economic conditions and financial, business and other factors, many of which are beyond the control of VOC Sponsor and the VOC Operators. See “Information about VOC Brazos Energy Partners, L.P. (VOC Sponsor)” found on page VOC-1 for additional information relating to VOC Sponsor, including information relating to the business of VOC Sponsor, historical financial statements of VOC Sponsor and other financial information relating to VOC Sponsor. This prospectus contains no financial information about the VOC Operators.

 

In the event of the bankruptcy of VOC Sponsor or a VOC Operator, the trust would have to seek a new party to perform the development and workover program or the operations of the wells operated by such VOC Operator. The trust may not be able to find a replacement driller or operator, and it may not be able to enter into a new agreement with such replacement party on favorable terms within a reasonable period of time. As a result, such a bankruptcy may result in reduced production from the reserves and decreased distributions to trust unitholders.

 

The trust may be treated as an unsecured creditor with respect to the Net Profits Interest attributable to properties in Kansas in the event of the bankruptcy of VOC Sponsor if a court were to hold that the conveyance and recording of the Net Profits Interest was not a conveyance of a fully vested real property interest or an interest in hydrocarbons in place or to be produced.

 

VOC Sponsor and the trust believe that the recording in the appropriate real property records in Kansas of the Net Profits Interest should constitute the conveyance of a fully vested real property interest, interests in hydrocarbons in place or to be produced or a production payment

as such is defined under the United States Bankruptcy Code, but there is no dispositive Kansas Supreme Court case directly addressing these issues. In a bankruptcy of VOC Sponsor, creditors of VOC Sponsor would be able to claim the Net Profits Interest as an asset of the bankruptcy estate to satisfy obligations to them if the conveyance of the Net Profits Interest did not constitute the conveyance of a real property interest or interests in hydrocarbons in place or to be produced under applicable state law or a production payment, in which case the trust would be an unsecured creditor of VOC Sponsor at risk of losing the entire value of the Net Profit Interests to senior creditors.

 

Due to lack of geographic diversification of the Underlying Properties, adverse developments in Kansas or Texas could adversely impact the results of operations and cash flows of the Underlying Properties and reduce the amount of cash available for distributions to trust unitholders.

 

The operations of the Underlying Properties are focused on the production and development of oil and natural gas within the states of Kansas and Texas. As a result, the results of operations and cash flows of the Underlying Properties depend upon continuing operations in these areas. Due to the lack of diversification in geographic location, adverse developments in exploration and production of oil and natural gas in either of these areas of operation could have a significantly greater impact on the results of operations and cash flows of the Underlying Properties than if the operations were more diversified.

 

The receipt of payments by VOC Sponsor based on the hedge contracts depends upon the financial position of the hedge contract counterparties. A default by any of the hedge contract counterparties could reduce the amount of cash available for distribution to the trust unitholders.

 

Payments from hedge contract counterparties to VOC Sponsor are intended to offset costs and thus have the effect of providing additional cash to the trust during periods of lower crude oil prices. In the event that any of the counterparties to the hedge contracts default on their obligations to make payments to VOC Sponsor under the hedge contracts, the cash distributions to the trust unitholders could be materially reduced. VOC Sponsor does not have any security interest from its hedge counterparties against which it could recover in the event of a default by any such counterparty.

 

VOC Sponsor’s performance of its obligations to the trust and the financial results of the trust may differ from the drilling and financial results of MVO.

 

As disclosed in this prospectus, certain members of the management of VOC Sponsor previously participated in the formation and initial public offering of MVO. Given the differences in assets comprising the underlying properties, operators of the underlying properties and commodity price markets, the historical results of operations and performance of the MVO should not be relied on as an indicator of how this trust will perform.

 

TAX RISKS RELATED TO THE TRUST’S TRUST UNITS

 

The tax treatment of an investment in trust units could be affected by recent and potential legislative changes, possibly on a retroactive basis.

 

The recently enacted Health Care and Education Affordability Reconciliation Act of 2010 includes a provision that, in taxable years beginning after December 31, 2012, subjects an individual having modified adjusted gross income in excess of $200,000 (or $250,000 for married taxpayers filing joint returns) to a “medicare tax” equal generally to 3.8% of the lesser of such

excess or the individual’s net investment income, which appears to include interest income derived from investments such as the trust units as well as any net gain from the disposition of trust units. In addition, absent new legislation extending the current rates, beginning January 1, 2013, the highest marginal U.S. federal income tax rate applicable to ordinary income and long-term capital gains of individuals will increase to 39.6% and 20%, respectively. Moreover, these rates are subject to change by new legislation at any time.

 

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 Net Profits Interest is not properly treated as a production payment (and thus would fail to qualify as a debt instrument) for federal income tax purposes, the trust unitholders may receive different and potentially less advantageous tax treatment from that described in this prospectus.

 

If the trust were not treated as a grantor trust for federal income tax purposes, the trust should be treated as a partnership for such purposes. Although the trust would not become subject to federal income taxation at the entity level as a result of treatment as a partnership, and items of income, gain, loss and deduction would flow through to the trust unitholders, the trust’s tax reporting requirements would be more complex and costly to implement and maintain, and its distributions to unitholders could be reduced as a result.

 

If the Net Profits Interest were not treated as a production payment (and thus would fail to qualify as a debt instrument for federal income tax purposes) the amount, timing and character of income, gain, or loss in respect of an investment in the trust could be affected. See “Federal income tax consequences.”

 

Neither VOC Sponsor nor the trustee has requested a ruling from the IRS regarding these tax questions, and neither VOC Sponsor nor the trust can assure you that such a ruling would be granted if requested or that the IRS will not challenge these positions on audit.

 

Trust unitholders should be aware of the possible state tax implications of owning trust units. See “State tax considerations.”

 

This prospectus contains “forward-looking statements” about VOC Sponsor and the trust that are subject to risks and uncertainties. All statements other than statements of historical fact included in this prospectus, including, without limitation, statements under “Prospectus summary” and “Risk factors” regarding the financial position, business strategy, production and reserve growth, and other plans and objectives for the future operations of VOC Sponsor and the trust are forward-looking statements. Such statements may be influenced by factors that could cause actual outcomes and results to differ materially from those projected. Forward-looking statements are subject to risks and uncertainties and include statements made in this prospectus under “Projected cash distributions,” statements pertaining to future development activities and costs, and other statements in this prospectus that are prospective and constitute forward-looking statements.

 

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 prospectus, could affect the future results of the energy industry in general, and VOC Sponsor and the trust in particular, and could cause actual results to differ materially from those expressed in such forward-looking statements:

 

 

 

 

You should not place undue reliance on these forward-looking statements. All forward-looking statements speak only as of the date of this prospectus. VOC Sponsor does not undertake any obligation to release publicly any revisions to the forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events, unless the securities laws require us to do so.

 

This prospectus describes other important factors that could cause actual results to differ materially from expectations of VOC Sponsor and the trust, including under the heading “Risk factors.” All written and oral forward-looking statements attributable to VOC Sponsor or the trust or persons acting on behalf of VOC Sponsor or the trust are expressly qualified in their entirety by such factors.

 

VOC Sponsor is offering all of the trust units to be sold in this offering, including the trust units to be sold upon the exercise of the underwriters’ over-allotment option. VOC Sponsor expects to receive net proceeds from the sale of 10,785,000 trust units offered by this prospectus of approximately $           million, after deducting underwriting discounts and commissions, structuring fees and offering expenses, and an additional $           million if the underwriters exercise their option to purchase additional trust units in full. Forty-five days following the closing of this offering, VOC Sponsor will sell any trust units not sold in this offering to VOC Partners, LLC at the initial public offering price.

 

VOC Sponsor intends to use the net proceeds from this offering, including any proceeds from the exercise of the underwriters’ option to purchase additional trust units and the sale of trust units to VOC Partners, LLC, to repay approximately $24.0 million of outstanding borrowings under its credit facility, and make cash distributions to its limited partners.

 

VOC Brazos is a privately-held limited partnership engaged in the production and development of oil and natural gas from properties located in Texas. VOC Brazos was formed in May 2003. Pursuant to the KEP Acquisition, concurrent with the close of this offering, VOC Brazos will acquire KEP, which was formed in November 2009 to develop and produce oil and natural gas from properties primarily located in Kansas along with a limited number of Texas properties. There are no conditions to the closing of the KEP Acquisition other than the closing of this offering. Members of KEP acquired interests in the properties owned by KEP through various acquisitions and drilling activities that have occurred since 1979.

 

As of December 31, 2010, VOC Sponsor held interests in approximately 881 gross (545.7 net) producing wells, and proved reserves of the Underlying Properties were approximately 13.7 MMBoe. As of December 31, 2010, based on PV-10 value, the VOC Operators were the operators or contract operators of approximately 98% of the total proved reserves attributable to the Underlying Properties with Vess Oil operating, on behalf of VOC Sponsor, approximately 91% of the total proved reserves and L.D. Drilling Inc. and Davis Petroleum, Inc. operating approximately 7% of the total proved reserves. Vess Oil has operated oil and natural gas properties in Kansas for more than 30 years and, according to statistics furnished by the Kansas Geological Survey, during 2010, was the second largest operator of oil properties in Kansas measured by production during 2010. Vess Oil currently operates over 1,600 oil, natural gas and service wells located primarily in Kansas, with growing operations in Texas. As of December 31, 2010, Vess Oil employed 19 full-time employees, three contract professionals and 14 contract personnel in its Wichita office and in five field and satellite offices.

 

The trust units do not represent interests in, or obligations of, VOC Sponsor.

 

The summary combined financial data presented below should be read in conjunction with “VOC Sponsor — Selected historical and unaudited pro forma data of VOC Sponsor” and the accompanying financial statements and related notes of VOC Sponsor included elsewhere in this prospectus. In connection with the closing of this offering, VOC Brazos will acquire the membership interests in KEP in exchange for partnership interests in VOC Brazos, resulting in KEP becoming a wholly-owned subsidiary of VOC Brazos. As the Common Control Properties are deemed to be under common control with VOC Brazos, accounting rules specify that VOC Brazos and the Common Control Properties be combined from the earliest date they came under common control. The financial data and operations of such assets are referred to herein as “Predecessor,” and are described in more detail in “Information about VOC Brazos Energy Partners, L.P. (VOC Sponsor) — Management’s discussion and analysis of financial condition and results of operations of VOC Sponsor.” Accordingly, in order to give full effect to the acquisition by VOC Brazos of KEP, the following table includes pro forma financial and operating data of Predecessor giving effect to the acquisition of the Acquired Underlying Properties. Since the historical assets and operations of Predecessor will only represent a portion of the assets and operations to be held by VOC Sponsor at the closing of this offering, the future results of operations of VOC Sponsor will not be comparable to the historical results of Predecessor.

 

The summary combined historical financial data of Predecessor as of December 31, 2008, 2009 and 2010 and for each of the years in the three-year period ended December 31, 2010 have been derived from Predecessor’s audited financial statements.

 

The summary combined financial unaudited pro forma financial data as of and for the year ended December 31, 2010 set forth in the following table have been derived from the unaudited combined pro forma financial statements of Predecessor included in this prospectus beginning on page VOC F-24. The pro forma adjustments have been prepared as if the acquisition of the Acquired Underlying Properties and, with respect to pro forma as adjusted information, the conveyance of the Net Profits Interest and the offer and sale of the trust units and application of the net proceeds therefrom, had taken place (i) on December 31, 2010, in the case of the pro forma balance sheet information as of December 31, 2010, and (ii) as of January 1, 2010, in the case of the pro forma statement of earnings information for the year ended December 31, 2010.

 

The table below includes selected production and reserve information for VOC Sponsor for the periods presented.

 

 

MANAGEMENT OF VOC SPONSOR

 

VOC Sponsor does not currently have any executive officers, directors or employees. Instead, VOC Sponsor is managed by an executive management team consisting of certain officers and employees of Vess Oil on behalf of the general partner, Vess Texas Partners, LLC. None of the members of the executive management team of Vess Oil who perform management functions for VOC Sponsor receive any compensation from the trust or from VOC Sponsor.

 

Set forth in the table below are the names, ages, and titles at Vess Oil of the members of the executive management team of Vess Oil who perform management functions on behalf of Vess Texas Partners, LLC, VOC Sponsor’s general partner:

 

 

Pursuant to the administrative services agreement, VOC Sponsor is entitled to an annual administrative fee for services provided to the trust, which fee will total $75,000 in 2011 and will increase by 4% each year beginning in January 2012. For a description of certain overhead and related fees payable by VOC Sponsor to certain of its affiliates in connection with the operation of the Underlying Properties, please see “Certain relationships and related party transactions.”

 

EXECUTIVE MANAGEMENT FROM VESS OIL

 

J. Michael Vess is the President, Chief Executive Officer and principal owner of Vess Oil. Mr. Vess co-founded Vess Oil in 1979 and has continuously been responsible for the coordination and supervision of exploration and production and the acquisition of its oil and natural gas reserves. Mr. Vess has continuously served as the President and Chief Executive Officer of Vess Oil since it was founded in 1979. Mr. Vess received a Bachelor of Business Administration degree from Wichita State University in 1973 and subsequently received his CPA certificate. Mr. Vess currently serves on the Board of Directors and Executive Committees for the Kansas Independent Oil and Gas Association (“KIOGA”) and is the current Chairman of the KIOGA Committee on Electricity. In addition, he is Past Chairman of the KIOGA Tax Committee and a current member of the Interstate Oil and Gas Compact Commission Outreach Committee.

 

William R. Horigan is the Vice President of Operations for Vess Oil where he is responsible for the engineering, enhancement and exploitation of its existing properties as well as the engineering analysis and evaluation of its future reserve acquisitions. Mr. Horigan has continuously served as the Vice President of Operations for Vess Oil since August 1998. Mr. Horigan joined Vess Oil in 1988 as Operations Manager. Prior to joining Vess Oil, Mr. Horigan

served in various petroleum engineering capacities for Amoco Production Company beginning in 1975. Mr. Horigan later served as Division Operations Manager for Slawson Oil Company. Mr. Horigan graduated from the University of Kansas in 1974 with a Bachelor of Science degree in Chemical Engineering. Mr. Horigan is a member of the Society of Petroleum Engineers and has served on the Executive Board for the Wichita Section. He is also a member of the Producers Advisory Board of the KU Tertiary Oil Recovery Project and a member of the Petroleum Technology Transfer Council of the North Mid-Continent Region.

 

Brian Gaudreau is the Vice President of Land and Acquisitions for Vess Oil where he is responsible for land, contracts and acquisitions. Mr. Gaudreau has continuously held the position of Vice President of Land and Acquisitions since he joined Vess Oil in 2002. Prior to joining Vess Oil, he held the title of Manager, Land and Acquisitions for Stelbar Oil Corporation, Inc. beginning in 1989. Mr. Gaudreau graduated from the University of Kansas in 1977 with a Bachelors degree in Economics. Mr. Gaudreau belongs to the American Association of Professional Landmen, is a Director and serves on the Executive Committee of KIOGA, and belongs to the Dallas Acquisitions, Divestitures, and Mergers Energy Forum.

 

Barry Hill is the Vice President and Chief Financial Officer for Vess Oil responsible for planning, directing and coordinating finance activities. Mr. Hill has continuously served as the Vice President and Chief Financial Officer for Vess Oil since he joined Vess Oil in February 2010. Mr. Hill spent approximately ten years in the Energy Investment Banking group of Raymond James & Associates, Inc., completing numerous public equity offerings, advisory engagements and private securities assignments for a wide spectrum of energy industry clients, including many exploration and production companies, until his departure in January 2010. During the last five years of his employment with Raymond James & Associates, Inc., Mr. Hill held the positions of Senior Associate and Vice President. Mr. Hill earned his A.B. in Economics with honors from Harvard College in 1998 and an M.B.A. from the Darden Graduate School of Business at the University of Virginia in 2003.

 

Alan Howarter is the Vice President of Financial Reporting for Vess Oil responsible for the financial reporting aspects of Vess Oil and other related entities. Mr. Howarter has continuously served as the Vice President of Financial Reporting for Vess Oil since he joined Vess Oil in May 2007. Prior to joining Vess Oil, Mr. Howarter was a Manager at Regier Carr & Monroe, L.L.P. Mr. Howarter continuously held the position of Manager since the time he joined Regier Carr & Monroe, L.L.P. in January of 2005 through his departure in May of 2007. Previously, Mr. Howarter was a Partner and head of the Audit Department of the Wichita office of Grant Thornton, LLP. Mr. Howarter received his Bachelor of Business Administration degree in Accounting from Wichita State University in 1978. He is a licensed CPA in Kansas. Mr. Howarter is currently a member of the Accounting Advisory Board of Wichita State University, the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants and the Petroleum Accountants Society of Kansas. He is also a past president and treasurer of the Petroleum Accountants Society of Kansas.

BENEFICIAL OWNERSHIP OF VOC SPONSOR

 

The following table sets forth, as of March 9, 2011, the beneficial ownership of limited partnership interests of VOC Sponsor that will be outstanding after giving effect to the consummation of this offering, including the KEP Acquisition, and held by:

 

 

Except as indicated by footnote, the persons named in the table below have sole voting and investment power with respect to all partnership interests of VOC Sponsor shown as beneficially owned by them.

 

 

 

 

BENEFICIAL OWNERSHIP OF VOC ENERGY TRUST

 

The following table sets forth the beneficial ownership of the trust units of VOC Energy Trust that will be outstanding after giving effect to the consummation of this offering, assuming no exercise of the underwriters’ over-allotment option, and held, directly or indirectly, by each person who will then beneficially own 5% or more of the outstanding partner interests in VOC Energy Trust.

 

 

 

 

 

 

Certain members of VOC Sponsor’s management team were involved in the formation and initial public offering of MV Oil Trust (NYSE: MVO) (“MVO”), a publicly-traded trust that is similar to VOC Energy Trust. In connection with the formation of MVO, the sponsor conveyed an 80% term net profits interest in oil and natural gas properties in the Mid-Continent region in Kansas and Colorado to MVO in exchange for trust units, a portion of which were sold by the sponsor in MVO’s initial public offering in January 2007. The terms of the net profits interest being conveyed in connection with the formation of VOC Energy Trust are similar to those of the net profits interest that was conveyed to MVO.

 

To offset the natural decline in production of the proved developed wells, the sponsor planned and executed a development and workover program. The results of this program have mitigated the decline, with daily production being approximately 2,859 Boe at the time of the initial public offering (or approximately 2,287 Boe attributable to MVO’s 80% net profits interest) and 2,621 Boe (or approximately 2,097 Boe attributable to MVO’s 80% net profits interest) for the year ended December 31, 2010. As a result of differences in pricing, wells, costs, development schedule, development expenditures and regulatory environment, among other things, the historical results of operations and performance of MVO should not be relied on as an indicator of how the trust will perform.

 

The final prospectus relating to the initial public offering of MVO set forth a projection for the twelve months ended December 31, 2007 that totaled $3.02 per MVO trust unit. Actual distributions for each of the second, third and fourth quarters of 2007 and the twelve months ended December 31, 2007 totaling $2.48 per MVO trust unit for the twelve months ended December 31, 2007, were below the projected amounts outlined in such final prospectus. The net proceeds received by MVO during such periods were impacted by production curtailment during the first quarterly payment period affecting the underlying properties as the result of severe winter storms that impacted western Kansas and eastern Colorado. The snow and ice associated with these storms disabled electrical power to the affected underlying properties for an extended period of time and rendered some properties inaccessible. Significant snow accumulations, along with ice and subsequent melting, created difficult working conditions that extended the curtailment period and increased costs to operate the underlying properties.

 

As publicly reported, on July 22, 2008, MVO’s revenue intermediary/crude oil purchaser (Eaglwing L.P.) and its parent (SemGroup, L.P.) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. Eaglwing purchased substantially all of the crude oil production of MVO’s underlying properties for the month of June 2008 and for the first 18 days of July, after which date further sales to Eaglwing were terminated. Payment for approximately $9.5 million of the June sales to Eaglwing was due by July 20, 2008, and payment for approximately $5.9 million of the July sales to Eaglwing was due by August 20, 2008. The specified dollar amounts are associated with all production from the underlying properties, and not just the 80% portion attributable to the net profits interest held by MVO. Because of Eaglwing’s bankruptcy and failure to pay for such production, MVO did not make a fourth quarterly distribution in October 2008 and the first quarterly distribution in January 2009 was substantially impacted. On July 31, 2008, Vess Oil and Murfin Drilling recommenced general sales of production from the underlying properties to several purchasers other than Eaglwing, including an affiliated purchaser, under short-term arrangements using market sensitive pricing. As of August 7, 2008, field operations at the underlying properties returned to substantially

normal operations, although it took until mid-August before the marketing of crude oil production normalized to the sales process and volumes that existed prior to July 18, 2008.

 

From the formation of MVO through March 9, 2011, MVO distributed approximately $9.65 per MVO trust unit in the aggregate. As of March 9, 2011, the closing price of each MVO unit as reported by the New York Stock Exchange was $38.60. MVO is expected to terminate on the later to occur of (1) June 30, 2026, or (2) the time when 14.4 MMBoe have been produced and sold from the MVO underlying properties.

 

RELATED PARTY TRANSACTIONS

 

As of December 31, 2010, the VOC Operators, which includes Vess Oil, L.D. Drilling, Inc. and Davis Petroleum, Inc., operated or operated on a contract basis, approximately 98% of the total proved reserves attributable to the Underlying Properties based on PV-10 value, with Vess Oil operating approximately 91% of the total proved reserves for which VOC Sponsor is the designated operator and L.D. Drilling Inc. and Davis Petroleum, Inc. operating approximately 7% of the total proved reserves. Vess Oil is controlled by J. Michael Vess, L.D. Drilling Inc. is controlled by L.D. Davis and Davis Petroleum, Inc. is controlled by both Mr. Vess and Mr. Davis. Under the terms of the operating arrangement among VOC Sponsor and Vess Oil, all expenses of Vess Oil incurred on behalf of VOC Sponsor are paid by VOC Sponsor at the cost incurred. Below is a summary of the transactions that occurred between VOC Sponsor and the VOC Operators:

 

VOC Sponsor pays the VOC Operators an overhead fee based on a monthly charge per active operated well to operate substantially all of the Underlying Properties located in Kansas on behalf of VOC Sponsor. The fee is adjusted annually and will increase or decrease each year based on changes in the Overhead Adjustment Index (“OAI”) published by the Council of Petroleum Accountants Society for that year. The operating activities include various maintenance, engineering, geological, accounting and administrative functions.

 

For the Underlying Properties located in Texas, VOC Sponsor reimburses Vess Texas Partners, LLC (“Vess LLC”) for certain corporate administrative and accounting services arranged by Vess LLC. This reimbursement amount is adjusted annually and will increase or decrease each year based on changes in the OAI for that year. Most of the services for which Vess LLC is reimbursed are performed on behalf of Vess LLC by Vess Oil. The fee is currently $37,250 per month.

 

Vess LLC pays a portion of this $37,250 as an overhead fee to Vess Oil to operate substantially all of the Underlying Properties located in Texas on behalf of VOC Sponsor. The operating activities include various maintenance, engineering, geological, accounting and administrative functions. The overhead fee includes (1) a fixed monthly charge of $13,500 per month, (2) reimbursement for certain geological and engineering services and (3) a monthly charge per active well brought on production after September 2009, which is adjusted annually and based on changes in the Overhead Adjustment Index.

 

Vess Oil is not contractually obligated to provide the corporate administrative and accounting services on behalf of VOC Sponsor or Vess LLC other than with respect to the operation of the Underlying Properties, and VOC Sponsor and Vess LLC may contract for the provision of the corporate administrative and accounting services from other parties at any time. None of the members of the executive management team are contractually obligated to continue performing services on behalf of VOC Sponsor, and Vess Oil is not contractually obligated to make its employees available to perform such services.

 

The fees described above are independent of the fees payable by the trust pursuant to the trust agreement and the Administrative Services Agreement. See “The trust” and “Description of the trust agreement — Fees and expenses.”

 

For the year ended December 31, 2010 VOC Sponsor sold approximately 33% of the oil produced from the Underlying Properties to MV Purchasing, LLC, (MV Purchasing), an affiliate of VOC Sponsor. A summary of sales and trade receivables with MV Purchasing follows:

 

 

MV Purchasing began operations on August 1, 2008.

 

Forty-five days following the closing of the initial public offering of trust units, VOC Partners, LLC will (1) purchase, at the initial offering price, trust units owned by VOC Sponsor and (2) issue a promissory note to VOC Sponsor having a face amount equal to 90% of the purchase price for the trust units and a cash payment equal to 10% of the purchase price for the trust units. This unsecured note that is fully recourse to VOC Partners, LLC will have a term of ten years with interest payable at 5% per year.

 

The trust is a statutory trust created under the Delaware Statutory Trust Act in November 2010. The business and affairs of the trust will be managed by The Bank of New York Mellon Trust Company, N.A., as trustee. VOC Sponsor has no ability to manage or influence the operations of the trust. In addition, Wilmington Trust Company will act as Delaware trustee of the trust. The Delaware trustee will have only minimal rights and duties as are necessary to satisfy the requirements of the Delaware Statutory Trust Act. In connection with the completion of this offering, VOC Sponsor will contribute the Net Profits Interest to the trust in exchange for 16,540,000 newly issued trust units. VOC Sponsor will make its first payment to the trust pursuant to the Net Profits Interest on or about August 15, 2011, which payment will cover the net proceeds attributable to the Net Profits Interest for the first two quarters of 2011 consisting of the period from January 1 to June 30. Subsequent distributions will only cover the net proceeds attributable to the Net Profits Interest for one quarter, and, as a result, will be smaller.

 

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 as a lender provided the terms of the loan are fair to the trust unitholders. The trustee may also deposit funds awaiting distribution in an account with itself, if the interest paid to the trust at least equals amounts paid by the trustee on similar deposits, and make other short-term investments with the funds distributed to the trust. The trustee has no current plans to authorize the trust to borrow money. VOC Sponsor has also agreed to post a letter of credit in the amount of $1 million in favor of the trustee to protect the trustee against the risk that the trust does not have sufficient cash to pay its expenses.

 

The trust will pay the trustee an administrative fee of $150,000 per year. The trust will pay the Delaware trustee a fee of $2,500 per year. The trust will also incur legal, accounting, tax and engineering fees, printing costs and other expenses that are deducted by the trust before distributions are made to trust unitholders, including the $18,750 administrative services fee payable quarterly to VOC Sponsor pursuant to the administrative services agreement described below. The trust will also be responsible for paying other expenses incurred as a result of being a publicly traded entity, including costs associated with annual and quarterly reports to unitholders, tax return and Form 1099 preparation and distribution, NYSE listing fees, independent auditor fees and registrar and transfer agent fees. Total administrative expenses of the trust on an annualized basis for 2011 are initially expected to be approximately $900,000, including the administrative services fee payable to VOC Sponsor and the trustee. In connection with the closing of this offering, the trust will enter into an administrative services agreement with VOC Sponsor that obligates the trust, throughout the term of the trust, to pay to VOC Sponsor each quarter an administrative services fee for accounting, bookkeeping and informational services to be performed by VOC Sponsor on behalf of the trust relating to the Net Profits Interest. The annual fee, payable in equal quarterly installments, will total $75,000 in 2011 and will increase by 4% each year beginning in January 2012. The administrative services agreement will terminate upon the termination of the Net Profits Interest unless earlier terminated by mutual agreement of the trustee and VOC Sponsor.

 

The Net Profits Interest will terminate on the later to occur of (1) December 31, 2030, or (2) the time from and after January 1, 2011 when 10.6 MMBoe have been produced from the Underlying Properties and sold (which amount is the equivalent of 8.5 MMBoe in respect of the trust’s right to receive 80% of the net proceeds from the Underlying Properties pursuant to the Net Profits Interest), and the trust will wind up its affairs and terminate.

 

Immediately prior to the closing of this offering, VOC Sponsor will create the term Net Profits Interest through a conveyance to the trust of a Net Profits Interest carved from VOC Sponsor’s interests in substantially all of its oil and natural gas properties, which properties are located in Kansas and Texas. The Net Profits Interest will entitle the trust to receive 80% of the net proceeds from the sale of production of oil and natural gas attributable to the Underlying Properties until the later to occur of (1) December 31, 2030, or (2) the time from and after January 1, 2011 when 10.6 MMBoe have been produced from the Underlying Properties and sold (which amount is the equivalent of 8.5 MMBoe in respect of the trust’s right to receive 80% of the net proceeds from the Underlying Properties pursuant to the Net Profits Interest).

 

The amount of trust revenues and cash distributions to trust unitholders will depend on, among other things:

 

 

UNAUDITED PRO FORMA AVAILABLE CASH FOR THE YEAR ENDED DECEMBER 31, 2010

 

If VOC Sponsor and the trust had completed the transactions described under “Prospectus summary — Formation transactions” on January 1, 2010, the trust’s unaudited pro forma available cash for the year ended December 31, 2010 would have been approximately $26.6 million.

 

Unaudited pro forma available cash gives effect on a pro forma basis to assumed trust general and administrative expenses of $900,000, as described in more detail under “The trust.” The pro forma adjustments are based upon currently available information and specific estimates and assumptions. The pro forma amounts below do not purport to present cash available for distribution by the trust to trust unitholders had the formation transactions contemplated actually occurred on January 1, 2010. In addition, cash available for distribution by the trust will be calculated based upon actual cash receipts of the trust during the applicable quarter, while the unaudited pro forma available cash calculation has been prepared using a modified cash basis of accounting as described in more detail in Note B to the unaudited pro forma financial statements appearing on page F-27. As a result, you should view the amount of unaudited pro forma available cash only as a general indication of the amount of cash available for distribution by the trust had the formation transactions described above actually occurred on January 1, 2010.

 

The following table illustrates, on an unaudited pro forma basis, for the year ended December 31, 2010 and each of the four quarterly periods therein, the cash available for distribution by the trust, assuming that the formation transactions described above occurred on January 1, 2010.