BP Prudhoe Bay Royalty Trust
Notes to Financial Statements
(Prepared on a modified cash basis)
March 31, 2020
the Royalty Interest. The Trustee, subject to certain conditions, is obligated to establish
cash reserves and borrow funds to pay liabilities of the Trust when they become due. The Trustee may sell Trust properties only (a) as authorized by a vote of the Trust Unit holders, (b) when necessary to provide for the payment of
specific liabilities of the Trust then due (subject to certain conditions) or (c) upon termination of the Trust. Each Trust Unit issued and outstanding represents an equal undivided share of beneficial interest in the Trust. Royalty payments
are received by the Trust and distributed to Trust Unit holders, net of Trust expenses, in the month succeeding the end of each calendar quarter. The Trust will terminate (i) upon a vote of holders of not less than 60% of the outstanding Trust
Units, or (ii) at such time the net revenues from the Royalty Interest for two successive years are less than $1,000,000 per year (unless the net revenues during such period are materially and adversely affected by certain events constituting
Force Majeure, as defined in the Trust Agreement).1
(2)
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Impact of COVID-19 Pandemic and Liquidity
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A novel strain of coronavirus (COVID-19) surfaced in late 2019 and has spread around the
world, including the United States. In March 2020, the World Health Organization declared COVID-19 a pandemic. Due to the economic impacts of the COVID-19 pandemic, the
markets have experienced a decline in oil prices in response to oil demand concerns further exacerbated by the price war among members of the Organization of Petroleum Exporting Countries and other non-OPEC
producer nations during the first quarter 2020 and global storage considerations. As discussed in note 7, there was no royalty payment received by the Trust in April 2020 for the quarter ended March 31, 2020. If oil prices remain depressed and
at current levels, which are below the break-even WTI price of $54.34 in order for the Trust to receive a positive Per Barrel Royalty with respect to a particular days production, the Trusts operations will continue to be
adversely impacted.
In order to ensure that the Trust has the ability to pay future expenses, the Trust established a cash reserve
account, which is intended to be sufficient to pay approximately one years current and expected liabilities and expenses of the Trust. If the Trust does not receive additional royalty payments during the remainder of 2020 or in the first
quarter of 2021, the
1 Force Majeure is defined in Section 9.01 of the Trust Agreement to mean the following:
(i) acts of God; strikes, lockouts or other industrial disturbances; acts of public enemies; orders or restraints of any kind of the
government of the United States or of the State of Alaska or any of their departments, agencies, political subdivisions or officials, or any civil or military authority; insurrections; civil disturbances; riots; epidemics
[emphasis added]; sabotage; war, whether or not declared; landslides; lightning; earthquakes; fires; hurricanes; winds; tornados; storms; droughts; floods; arrests; restraint of government and people; explosions; breakage, malfunction or
accident to facilities, machinery, transmission pipes or canals; partial or entire failure of utilities; shortages of labor, materials, supplies or transportation; or
(ii) any other cause, circumstance or event (other than depletion of the petroleum reservoir in which the Trust has an interest) not reasonably
within the control of the Company.
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