UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2019
OR
[    ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from
 
to
 
Commission File Number: 001-36386
 
Gulf Coast Ultra Deep Royalty Trust
(Exact name of registrant as specified in its charter)
Delaware
46-6448579
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
The Bank of New York Mellon Trust Company, N.A., as trustee
601 Travis Street, 16th Floor

 
Houston, Texas
77002
(Address of principal executive offices)
(Zip Code)
 
 
 
 
(512) 236-6599

(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). o Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
Smaller reporting company þ
 
Emerging growth company o


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes þ No

Securities registered pursuant to Section 12(b) of the Act: None.

On April 30, 2019, there were outstanding 230,172,696 royalty trust units representing beneficial interests in the registrant.








Part I. FINANCIAL INFORMATION


Item 1.
Financial Statements .


GULF COAST ULTRA DEEP ROYALTY TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
    
 
 
 
March 31,
 
December 31,
 
 
 
2019
 
2018
ASSETS
(unaudited)
 
(audited)
Operating cash
 
$
512,187

 
$
505,019

Reserve fund cash
 
1,030,405

 
1,024,846

Overriding royalty interests in subject interests, net
1,156,551

 
1,295,598

Total assets
 
$
2,699,143

 
$
2,825,463

 
 
 
 
 
 
LIABILITIES AND TRUST CORPUS
 
 
 
Reserve fund liability
 
$
1,030,405

 
$
1,024,846

Trust corpus (230,172,696 royalty trust units authorized, issued and
 
 
 
outstanding as of March 31, 2019, and December 31, 2018)
1,668,738

 
1,800,617

Total liabilities and trust corpus
 
$
2,699,143

 
$
2,825,463



The accompanying notes are an integral part of these financial statements.




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GULF COAST ULTRA DEEP ROYALTY TRUST
STATEMENTS OF DISTRIBUTABLE INCOME (Unaudited)



 
Three Months Ended
 
March 31,
 
2019
 
2018
Royalty income
$
488,482

 
$
369,255

Interest income and other
2,324

 
1,155

Administrative expenses
(228,619
)
 
(108,383
)
Income in excess of administrative expenses (Note 4)
$
262,187

 
$
262,027

Distributable income (Note 4)
$
262,187

 
$
262,027

Distributable income per royalty trust unit
$
0.001139

 
$
0.001138

Royalty trust units outstanding at end of period
230,172,696

 
230,172,696



The accompanying notes are an integral part of these financial statements.


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GULF COAST ULTRA DEEP ROYALTY TRUST
STATEMENTS OF CHANGES IN TRUST CORPUS (Unaudited)



 
Three Months Ended
 
March 31,
 
2019
 
2018
Trust corpus, beginning of period
$
1,800,617

 
$
2,452,379

Amortization of overriding royalty interests in subject interests
(139,047
)
 
(174,719
)
Income in excess of administrative expenses
262,187

 
262,027

Distributions paid
(255,019
)
 
(207,331
)
Trust corpus, end of period
$
1,668,738

 
$
2,332,356



The accompanying notes are an integral part of these financial statements.



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GULF COAST ULTRA DEEP ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS (Unaudited)

1. BASIS OF ACCOUNTING AND SIGNIFICANT ACCOUNTING POLICIES
The financial statements of Gulf Coast Ultra Deep Royalty Trust (the Royalty Trust) are prepared on the modified cash basis of accounting and are not intended to present the Royalty Trust ’ s financial position and results of operations in conformity with United States (U.S.) generally accepted accounting principles (GAAP). This other comprehensive basis of accounting corresponds to the accounting permitted for royalty trusts by the U.S. Securities and Exchange Commission (SEC), as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts .

The accompanying unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all required information and disclosures. Therefore, this information should be read in conjunction with the Royalty Trust’s financial statements and notes contained in its annual report on Form 10-K for the year ended December 31, 2018 . The information furnished herein reflects all adjustments that are, in the opinion of The Bank of New York Mellon Trust Company, N.A. (the Trustee), necessary for a fair statement of the results for the interim periods reported. All such adjustments are, in the opinion of the Trustee, of a normal recurring nature. Operating results for the three-month period ended March 31, 2019 , are not necessarily indicative of the results that may be expected for the year ending December 31, 2019 .

The Royalty Trust was created to hold a 5% gross overriding royalty interest (collectively, the overriding royalty interests) in future production from specified Inboard Lower Tertiary/Cretaceous exploration prospects, located in the shallow waters of the Gulf of Mexico and onshore in South Louisiana that existed as of December 5, 2012 (collectively, the subject interests).

Royalty Income. Royalties are recorded in royalty income on the statements of distributable income when received under the modified cash basis of accounting.

2. OVERRIDING ROYALTY INTERESTS
No impairment charges were recorded during the three-month periods ended March 31, 2019 or 2018 .

The onshore Highlander subject interest is the only producing subject interest in which the Royalty Trust holds an overriding royalty interest, and began commercial production on February 25, 2015 . Prior to this date there had been no commercial production of hydrocarbons from any of the subject interests. Amortization charges related to production volumes associated with the onshore Highlander subject interest reduced the carrying value of the overriding royalty interests by $139,047 and $174,719 during the three-month periods ended March 31, 2019 and 2018 , respectively. Accumulated amortization was $5,600,149 and $5,461,102 at March 31, 2019 , and December 31, 2018 , respectively.

On February 5, 2019, McMoRan Oil and Gas LLC (McMoRan) completed the sale of all of its rights, title and interest in and to the onshore Highlander subject interest (the Highlander Sale) pursuant to a purchase and sale agreement with Highlander Oil & Gas Assets LLC (HOGA). The onshore Highlander subject interest was sold subject to the overriding royalty interest in future production held by the Royalty Trust. As a result of the Highlander Sale, HOGA has a 72 percent working interest and an approximate 49 percent net revenue interest in the onshore Highlander subject interest. The Royalty Trust continues to hold a 3.6 percent overriding royalty interest in the onshore Highlander subject interest. McMoRan will remain operator of the onshore Highlander subject interest during a transition period until HOGA qualifies and is designated as operator, which is expected to occur on or before May 31, 2019. McMoRan has informed the Trustee that it has no plans to pursue, has relinquished, has allowed to expire or has sold all of the subject interests.

3. RELATED PARTY TRANSACTIONS
Royalty Income. In accordance with the terms of the master conveyance, royalties are paid to the Royalty Trust on the last day of the month following the month in which production payments are received by HOGA. As of March 31, 2019 , only the onshore Highlander subject interest had established commercial production. The Royalty Trust received royalties of $488,482 and $369,255 during the three-month periods ended March 31, 2019 and 2018 , respectively, relating to production from the onshore Highlander subject interest. Royalties received by the Royalty Trust must first be used to (i) satisfy Royalty Trust administrative expenses and (ii) reduce Royalty Trust indebtedness. The Royalty Trust had no indebtedness outstanding as of March 31, 2019 . Additionally, the Trustee

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has established a minimum cash reserve of $250,000 . As a result, distributions will be made to Royalty Trust unitholders only when royalties received less administrative expenses incurred and repayment of any indebtedness exceeds the $250,000 minimum cash reserve. For additional information, see Note 4.

Funding of Administrative Expenses. Pursuant to the royalty trust agreement, Freeport-McMoRan Inc. (FCX) has agreed to pay annual trust expenses up to a maximum amount of $350,000 , with no right of repayment or interest due, to the extent the Royalty Trust lacks sufficient funds to pay administrative expenses. No such contributions were made during the three-month periods ended March 31, 2019 or 2018 . In addition to such annual contributions, FCX has agreed to lend money, on an unsecured, interest-free basis, to the Royalty Trust to fund the Royalty Trust's ordinary administrative expenses as set forth in the royalty trust agreement. Since inception, FCX has loaned $650,000 to the Royalty Trust under this arrangement, all of which has been repaid. No amounts were outstanding at March 31, 2019 , or December 31, 2018 .

Pursuant to the royalty trust agreement, FCX agreed to provide and maintain a $1.0 million stand-by reserve account or an equivalent letter of credit for the benefit of the Royalty Trust to enable the Trustee to draw on such reserve account or letter of credit to pay obligations of the Royalty Trust if its funds are inadequate to pay its obligations at any time. Currently, with the consent of the Trustee, FCX may reduce the reserve account or substitute a letter of credit with a different face amount for the original letter of credit or any substitute letter of credit. In connection with this arrangement, FCX provided $1.0 million to the Royalty Trust. The $1.0 million , plus interest collected thereon, is reflected as reserve fund cash, with a corresponding reserve fund liability in the accompanying Statements of Assets, Liabilities and Trust Corpus. As of March 31, 2019 , the Royalty Trust had not drawn any funds from the reserve account, and FCX had not requested a reduction of such reserve account.

Administration. In connection with the completion of the Highlander Sale, HOGA assumed all administrative and reporting responsibilities with respect to the Royalty Trust, including those described in Article III of the royalty trust agreement.

Compensation of the Trustee. The Trustee receives annual compensation of $200,000 . Additionally, the Trustee receives reimbursement for its reasonable out-of-pocket expenses incurred in connection with the administration of the Royalty Trust. The Trustee’s compensation is paid out of the Royalty Trust's assets. The Trustee has a lien on the Royalty Trust’s assets to secure payment of its compensation and any indemnification expenses and other amounts to which it is entitled under the royalty trust agreement.

Royalty Trust Units Held by FCX and HOGA. At March 31, 2019 , the Royalty Trust had 230,172,696 royalty trust units outstanding. In connection with the Highlander Sale on February 5, 2019, McMoRan assigned 31,143,150 of its royalty trust units to HOGA and retained 31,143,149 royalty trust units. McMoRan and HOGA each hold approximately 13.5% of the outstanding royalty trust units.

4. DISTRIBUTIONS
The Royalty Trust paid $255,019 and $207,331 during the three-month periods ended March 31, 2019 and 2018 , respectively, related to net cash proceeds available for distribution for the three-month periods ended December 31, 2018 and 2017, respectively.


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Natural gas (Mcf) sales volumes, average sales price and net cash proceeds available for distribution for the three-month periods ended March 31, 2019 and 2018 , are set forth in the table below.

 
Three Months Ended
 
March, 31
 
2019
 
2018
Natural gas sales volumes (Mcf)  (a)
147,923

 
133,373

Natural gas average sales price (per Mcf)
$
3.62

 
$
3.09

Gross proceeds
$
536,114

 
$
411,791

Post-production costs and specified taxes
$
(47,632
)
 
$
(42,536
)
Royalty income
$
488,482

 
$
369,255

Interest and dividend income
$
2,324

 
$
1,155

Administrative expenses
$
(228,619
)
 
$
(108,383
)
Income in excess of administrative expenses
$
262,187

 
$
262,027

Net cash proceeds available for distribution
$
262,187

 
$
262,027


(a)
Attributable to the onshore Highlander subject interest, which is the only subject interest with commercial production.

A summary of per unit distributable income for the three-month periods ended March 31, 2019 and 2018 , with the related record and payment dates, is set forth in the table below.

2019
 
2018
Per Unit Amount
 
Record Date
 
Payment Date
 
Per Unit Amount
 
Record Date
 
Payment Date
$0.001139
 
4/30/2019
 
5/14/2019
 
$0.001138
 
4/30/2018
 
5/14/2018

These distributions are not necessarily indicative of future distributions.

5. CONTINGENCIES AND OTHER COMMITMENTS
Litigation. There are currently no pending legal proceedings to which the Royalty Trust is a party.

6. SUBSEQUENT EVENTS
On April 17, 2019, the Royalty Trust declared a cash distribution of $0.001139 per unit payable on May 14, 2019, to unitholders of record on April 30, 2019. For additional information, see Note 4.

The Royalty Trust evaluated all other events subsequent to March 31, 2019 , and through the date the Royalty Trust ’ s financial statements were issued, and determined that all events or transactions occurring during this period requiring recognition or disclosure were appropriately addressed in these financial statements.


Item 2.      Trustee's Discussion and Analysis of Financial Condition and Results of Operations .

OVERVIEW

You should read the following discussion in conjunction with the financial statements of Gulf Coast Ultra Deep Royalty Trust (the Royalty Trust) and the related Trustee’s Discussion and Analysis of Financial Condition and Results of Operations and the discussion of its Business and Properties in the Royalty Trust's Annual Report on Form 10-K for the year ended December 31, 2018 (2018 Form 10-K), filed with the United States (U.S.) Securities and Exchange Commission (SEC). The results of operations reported and summarized below are not necessarily indicative of future operating results. Unless otherwise specified, all references to "Notes" refer to the Notes to Financial Statements located in Part I, Item I. "Financial Statements" of this Form 10-Q. Also see the 2018 Form 10-K for a glossary of definitions for some of the oil and gas industry terms used in this Form 10-Q. Additionally,

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please refer to the section entitled "Cautionary Statement" on page 11 of this Form 10-Q. The information below has been furnished to the Trustee by Freeport-McMoRan Inc. (FCX), FCX's indirect wholly owned subsidiary, McMoRan Oil & Gas LLC (McMoRan) and Highlander Oil & Gas Assets LLC (HOGA).

On June 3, 2013 , FCX and McMoRan Exploration Co. (MMR) completed the transactions contemplated by the Agreement and Plan of Merger, dated as of December 5, 2012 (the merger agreement), by and among MMR, FCX, and INAVN Corp., a Delaware corporation and indirect wholly owned subsidiary of FCX (Merger Sub). Pursuant to the merger agreement, Merger Sub merged with and into MMR, with MMR surviving the merger as an indirect wholly owned subsidiary of FCX (the merger).

FCX's oil and gas assets are held through its wholly owned subsidiary, FCX Oil & Gas LLC (FM O&G). As a result of the merger, MMR and McMoRan are both indirect wholly owned subsidiaries of FM O&G.

The Royalty Trust is a statutory trust created as contemplated by the merger agreement by FCX under the Delaware Statutory Trust Act pursuant to a trust agreement entered into on December 18, 2012 (inception), by and among FCX, as depositor, Wilmington Trust, National Association, as Delaware trustee, and certain officers of FCX, as regular trustees. On May 29, 2013 , Wilmington Trust, National Association, was replaced by BNY Trust of Delaware, as Delaware trustee (the Delaware Trustee), through an action of the depositor. Effective June 3, 2013 , the regular trustees were replaced by The Bank of New York Mellon Trust Company, N.A., a national banking association, as trustee (the Trustee).

The Royalty Trust was created to hold a 5% gross overriding royalty interest (collectively, the overriding royalty interests) in future production from specified Inboard Lower Tertiary/Cretaceous exploration prospects located in the shallow waters of the Gulf of Mexico and onshore in South Louisiana that existed as of December 5, 2012 , the date of the merger agreement (collectively, the subject interests). The subject interests were "carved out" of the mineral interests that were acquired by FCX pursuant to the merger and were not considered part of FCX's purchase consideration of MMR.
 
In connection with the merger, on June 3, 2013 , (1) FCX, as depositor, McMoRan, as grantor, the Trustee and the Delaware Trustee entered into the amended and restated royalty trust agreement to govern the Royalty Trust and the respective rights and obligations of FCX, the Trustee, the Delaware Trustee, and the Royalty Trust unitholders with respect to the Royalty Trust (the royalty trust agreement); and (2) McMoRan, as grantor, and the Royalty Trust, as grantee, entered into the master conveyance of overriding royalty interests (the master conveyance) pursuant to which McMoRan conveyed to the Royalty Trust the overriding royalty interests in future production from the subject interests. Other than (a) its formation, (b) its receipt of contributions and loans from FCX for administrative and other expenses as provided for in the royalty trust agreement, (c) its payment of such administrative and other expenses, (d) its repayment of loans from FCX, (e) its receipt of the conveyance of the overriding royalty interests from McMoRan pursuant to the master conveyance, (f) its receipt of royalties, and (g) its cash distributions to unitholders, the Royalty Trust has not conducted any activities. The Trustee has no involvement with, control over, or responsibility for, any aspect of any operations on or relating to the subject interests.

The Trustee receives annual compensation of $200,000 . Additionally, the Trustee receives reimbursement for its reasonable out-of-pocket expenses incurred in connection with the administration of the Royalty Trust. The Trustee’s compensation is paid out of the Royalty Trust's assets. The Trustee has a lien on the Royalty Trust’s assets to secure payment of its compensation and any indemnification expenses and other amounts to which it is entitled under the royalty trust agreement.

As of March 31, 2019 , only the onshore Highlander subject interest had any reserves classified as proved, probable or possible and had established commercial production. On February 5, 2019, McMoRan completed the sale of all of its rights, title and interest in and to the onshore Highlander subject interest pursuant to a purchase and sale agreement with HOGA (the Highlander Sale). The onshore Highlander subject interest was sold subject to the overriding royalty interest in future production held by the Royalty Trust. As a result of the Highlander Sale, HOGA has a 72 percent working interest and an approximate 49 percent net revenue interest in the onshore Highlander subject interest. The Royalty Trust continues to hold a 3.6 percent overriding royalty interest in the onshore Highlander subject interest. McMoRan will remain operator of the onshore Highlander subject interest during a transition period until HOGA qualifies and is designated as operator, which is expected to occur on or before May 31, 2019. McMoRan has informed the Trustee that it has no plans to pursue, has relinquished, has allowed to expire or has sold all of the subject interests.


9


In connection with the Highlander Sale, McMoRan sold its interests in substantially all of its oil and gas leases associated with the subject interests to HOGA. At March 31, 2019 , HOGA owned interests in approximately 135 gas leases onshore in South Louisiana, covering approximately 9,000 gross acres ( 6,463 acres net to HOGA's interest) associated with the onshore Highlander subject interest, none of which are scheduled to expire during the remainder of 2019 and through 2021 . Whether or not HOGA maintains the acreage associated with the onshore Highlander subject interest is determined by HOGA's current and future plans, over which the Royalty Trust has no control.

LIQUIDITY AND CAPITAL RESOURCES

Pursuant to the royalty trust agreement, FCX has agreed to pay annual trust expenses up to a maximum amount of $350,000 , with no right of repayment or interest due, to the extent the Royalty Trust lacks sufficient funds to pay administrative expenses. No such contributions by FCX were made during the three-month periods ended March 31, 2019 or 2018 . In addition to such annual contributions, FCX has agreed to lend money, on an unsecured, interest-free basis, to the Royalty Trust to fund the Royalty Trust's ordinary administrative expenses as set forth in the royalty trust agreement. Since inception, FCX has loaned $650,000 to the Royalty Trust under this arrangement, all of which has been repaid. No amounts were outstanding as of March 31, 2019 , or December 31, 2018 . All funds the Trustee borrows to cover expenses or liabilities, whether from FCX or from any other source, must be repaid before the Royalty Trust unitholders receive any distributions.

Pursuant to the royalty trust agreement, FCX agreed to provide and maintain a $1.0 million stand-by reserve account or an equivalent letter of credit for the benefit of the Royalty Trust to enable the Trustee to draw on such reserve account or letter of credit to pay obligations of the Royalty Trust if its funds are inadequate to pay its obligations at any time. Currently, with the consent of the Trustee, FCX may reduce the reserve account or substitute a letter of credit with a different face amount for the original letter of credit or any substitute letter of credit. In connection with this arrangement, FCX provided $1.0 million to the Royalty Trust. The $1.0 million , plus interest collected thereon, is held in reserve fund cash. As of March 31, 2019 , the Royalty Trust had not drawn any funds from the reserve account, and FCX had not requested a reduction of such reserve account.

In connection with the completion of the Highlander Sale, HOGA assumed all administrative and reporting responsibilities with respect to the Royalty Trust, including those described in Article III of the royalty trust agreement.

In accordance with the terms of the master conveyance, royalties are paid to the Royalty Trust on the last day of the month following the month in which production payments are received by HOGA. As of March 31, 2019 , only the onshore Highlander subject interest had established commercial production. The Royalty Trust received royalties of $488,482 and $369,255 during the three-month periods ended March 31, 2019 and 2018 , respectively, relating to production from the onshore Highlander subject interest.

Royalties received by the Royalty Trust must first be used to (i) satisfy Royalty Trust administrative expenses and (ii) reduce Royalty Trust indebtedness. The Royalty Trust had no indebtedness outstanding as of March 31, 2019 . Additionally, the Trustee has established a minimum cash reserve of $250,000 . As a result, distributions will be made to Royalty Trust unitholders only when royalties received less administrative expenses incurred and repayment of any indebtedness exceeds the $250,000 minimum cash reserve. Distributable income totaled $262,187 and $262,027 during the three-month periods ended March 31, 2019 and 2018 , respectively. On April 17, 2019, the Royalty Trust declared a cash distribution of $0.001139 per unit payable on May 14, 2019, to unitholders of record on April 30, 2019. These distributions are not necessarily indicative of future distributions. The Royalty Trust's only other sources of liquidity are mandatory annual contributions, any loans and the required standby reserve account or letter of credit from FCX. As a result, any material adverse change in FCX's, McMoRan's or HOGA's financial condition or results of operations could materially and adversely affect the Royalty Trust and the underlying royalty trust units.
    
OFF-BALANCE SHEET ARRANGEMENTS

The Royalty Trust has no off-balance sheet arrangements. The Royalty Trust has not guaranteed the debt of any other party, nor does the Royalty Trust have any other arrangements or relationships with other entities that could potentially result in unconsolidated debt, losses or contingent obligations.

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RESULTS OF OPERATIONS

Royalty Income. As of March 31, 2019 , only the onshore Highlander subject interest had established commercial production. In accordance with the terms of the master conveyance, during the three-month period ended March 31, 2019 , the Royalty Trust received royalties of $488,482 related to 147,923 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.32 per Mcf and an average receipt price of $3.62 per Mcf. During the three-month period ended March 31, 2018 , the Royalty Trust received royalties of $369,255 related to 133,373 Mcf of natural gas production attributable to the onshore Highlander subject interest with average post-production costs of $0.32 per Mcf and an average receipt price of $3.09 per Mcf.

Royalty income was higher during the three-month period ended March 31, 2019 , as compared to the corresponding 2018 period, primarily due to increased production from the installation of a second pipeline from the onshore Highlander subject interest allowing for higher production volumes, along with higher natural gas prices during the 2019 period.

Administrative Expenses. During the three-month periods ended March 31, 2019 and 2018 , the Royalty Trust paid administrative expenses of $228,619 and $108,383 , respectively. Administrative expenses, which consisted primarily of audit, legal and trustee expenses incurred in connection with the administration of the Royalty Trust, were higher for the three-month period ended March 31, 2019 , as compared to the corresponding 2018 period, primarily because of the addition of professional liability insurance coverage as well as increased regulatory compliance costs and timing of payments for professional fees.

NEW ACCOUNTING STANDARDS
 
None.

CAUTIONARY STATEMENT

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are all statements other than statements of historical facts, such as any statements regarding the future financial condition of the Royalty Trust or the trading market for the royalty trust units, all statements regarding the respective plans of McMoRan or HOGA for the subject interests, the potential results of any drilling on the subject interests by the applicable operator, anticipated interests of McMoRan or HOGA and the Royalty Trust in any of the subject interests, McMoRan’s or HOGA's geologic models and the nature of the geologic trend in the Gulf of Mexico and onshore in South Louisiana discussed in this Form 10-Q, the amount and date of quarterly distributions to unitholders, and all statements regarding any belief or understanding of the nature or potential of the subject interests. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “intends,” “likely,” “will,” “should,” “to be,” "potential," and any similar expressions and/or statements that are not historical facts are intended to identify those assertions as forward-looking statements.

Forward-looking statements are not guarantees or assurances of future performance and actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that may cause actual results to differ materially from those anticipated by the forward-looking statements include, but are not limited to, FCX's future plans for its remaining oil and gas properties; the risk that the subject interests will not produce additional hydrocarbons; general economic and business conditions; variations in the market demand for, and prices of, oil and natural gas; drilling results; changes in oil and natural gas reserve expectations; the potential adoption of new governmental regulations; decisions by FCX, McMoRan or HOGA not to develop and/or transfer the subject interests; any inability of FCX, McMoRan or HOGA to develop the subject interests; damages to facilities resulting from natural disasters or accidents; fluctuations in the market price, volume and frequency of the trading market for the royalty trust units; the amount of cash received or expected to be received by the Trustee from the underlying subject interests on or prior to a record date for a quarterly cash distributions; and other factors described in Part I, Item 1A. "Risk Factors" in the 2018 Form 10-K, as updated by the Royalty Trust's subsequent filings with the SEC. Any differences in actual cash receipts by the Royalty Trust could affect the amount of quarterly cash distributions.


11


Investors are cautioned that current production rates may not be indicative of future production rates or of the amounts of hydrocarbons that a well may produce, and that many of the assumptions upon which forward-looking statements are based are likely to change after such forward-looking statements are made, which the Royalty Trust cannot control. The Royalty Trust cautions investors that it does not intend to update its forward-looking statements, notwithstanding any changes in assumptions, changes in business plans, actual experience, or other changes, and the Royalty Trust undertakes no obligation to update any forward-looking statements except as required by law.

Item 3.      Quantitative and Qualitative Disclosures About Market Risk .
As a smaller reporting company, the Royalty Trust is not required to provide the information required by this Item.
Item 4. Controls and Procedures .

(a) Evaluation of disclosure controls and procedures . The Royalty Trust has no employees, and, therefore, does not have a principal executive officer or principal financial officer. Accordingly, the Trustee is responsible for making the evaluations, assessments and conclusions required pursuant to this Item 4. The Trustee has evaluated the effectiveness of the Royalty Trust's “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this Form 10-Q. Based on this evaluation, the Trustee has concluded that the Royalty Trust's disclosure controls and procedures are effective as of the end of the period covered by this Form 10-Q.

Due to the nature of the Royalty Trust as a passive entity and in light of the contractual arrangements pursuant to which the Royalty Trust was created, including the provisions of (i) the amended and restated royalty trust agreement and (ii) the master conveyance, the Royalty Trust's disclosure controls and procedures necessarily rely on (A) information provided by FCX and HOGA, including information relating to results of operations, the costs and revenues attributable to the subject interests and other operating and historical data, plans for future operating and capital expenditures, reserve information, information relating to projected production, and other information relating to the status and results of operations of the subject interests and the overriding royalty interests, and (B) conclusions and reports regarding reserves by the Royalty Trust's independent reserve engineers.

(b) Changes in internal control over financial reporting . During the quarter ended March 31, 2019 , there has been no change in the Royalty Trust's internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Royalty Trust's internal control over financial reporting. The Trustee notes for purposes of clarification that it has no authority over, and makes no statement concerning, the internal control over financial reporting of FCX or HOGA.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings .

There are currently no pending legal proceedings to which the Royalty Trust is a party.


Item 6.      Exhibits .

The following exhibits are filed or furnished as part of this quarterly report on Form 10-Q:
 
 
Filed or
 
 
 
 
 
Furnished
 
Exhibit
 
with this
Incorporated by Reference
Number
Exhibit Title
Form 10-Q
Form
File No.
Date Filed
Composite Certificate of Trust of Gulf Coast Ultra Deep Royalty Trust
 
10-Q
333-185742
August 14, 2013
Certification pursuant to Rule 13a-14(a)/15d-14(a)
X
 
 
 
Certification pursuant to 18 U.S.C. Section 1350
X
 
 
 



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 
Gulf Coast Ultra Deep Royalty Trust
 
By:
The Bank of New York Mellon
 
 
Trust Company, N.A., as Trustee
 
 
 
 
 
 
By:
/s/ Michael J. Ulrich
 
 
 
Michael J. Ulrich
 
 
 
Vice President
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Date: May 9, 2019
 
 
 

                        

The Registrant, Gulf Coast Ultra Deep Royalty Trust, has no principal executive officer, principal financial officer, controller or chief accounting officer, board of directors or persons performing similar functions. Accordingly, no additional signatures are available and none have been provided. In signing the report above, the Trustee does not imply that it has performed any such function or that any such function exists pursuant to the terms of the amended and restated royalty trust agreement, dated June 3, 2013 , under which it serves.


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