This comprehensive basis of accounting corresponds to the accounting principles permitted
for royalty trusts by the SEC as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.
The
preparation of financial statements in conformity with the modified cash basis method of accounting requires the Trustee to make various estimates and assumptions that affect the reported amount of liabilities at the date of the financial statements
and the reported amount of expenses during the reporting period. Actual results may differ from such estimates.
Revenue
Recognition. In May 2014, the FASB issued updated guidance for recognizing revenue from contracts with customers. This update amends the existing accounting standards for revenue recognition and is based on the principle that revenue should be
recognized to depict the transfer of goods and services to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services and revenue streams related solely to oil and gas royalties. The
Trust adopted the disclosure standards of this update, as required, beginning with the first quarter of fiscal year 2019. The adoption of this standard has not had a significant impact on its financial statements due to the modified cash basis of
reporting used by the Trust.
Effective October 19, 2017, Simmons First National Corporation (SFNC) completed its
acquisition of First Texas BHC, Inc., the parent company of Southwest Bank. SFNC is the parent of Simmons Bank. SFNC merged Southwest Bank, the former corporate Trustee of the Trust, with Simmons Bank effective February 20, 2018. The defined
term Trustee as used herein shall refer to Southwest Bank for periods through February 19, 2018 and to Simmons Bank for periods on and after February 20, 2018.
Results of Operations. Marines revenues are derived from the oil and natural gas production activities of third parties.
Marines revenues and distributions fluctuate from period to period based upon factors beyond Marines control, including, without limitation, the number of leases subject to Marines interests, the number of productive wells drilled
on leases subject to Marines interests, the level of production over time from such wells and the prices at which the oil and natural gas from such wells are sold.
Marines results of operations are significantly impacted by oil and natural gas prices and the quantity of oil and natural gas
production. Oil and natural gas prices have historically experienced significant volatility. Marine is not permitted to manage its commodity price risk through the use of fixed price contracts or financial derivatives.
Marines income consists primarily of oil and natural gas royalties and is based on the value at the well of its percentage interest in
oil and natural gas sold without reduction for any of the expenses of production. Value at the well for oil means the sellers selling price at its receiving point onshore, less the cost of transportation from the offshore lease to
the onshore receiving point. Value at the well for natural gas means the selling price less the cost of compression, dehydration and transportation from the lease to the delivery point of the pipeline transporting the product to market.
In general, value at the well is determined on the basis of the selling price of oil, natural gas and other minerals produced, saved and sold, or at wellhead prices determined by industry standards, where the selling price does not reflect value at
the well. In the event an agreement is not arms-length in nature, the value is based upon current market prices.
Summary Review.
In general, Marine receives royalties two months after oil production and three months after natural gas production. The June 2022 distribution of $0.20 per unit increased from the March 2022 distribution of $0.11 per unit. As disclosed in a press
release dated August 19, 2022, the September 2022 distribution of $0.26 per unit will be an increase from the June 2022 distribution of $0.20 per unit.
Marines distributable income for fiscal 2022 amounted to $1,204,193, or $0.60 per unit, as compared to $161,580, or $0.08 per unit, in
fiscal 2021, and $574,110, or $0.29 per unit, in fiscal 2020. Distributions to unitholders are calculated and paid out net of reserve for future expenses, which are estimated by the Trustee on a quarterly basis.
There was no income from the Trusts interest in Tidelands for fiscal years 2021 and 2020. However, Marine received $93,134 as a final
distribution from Tidelands during the fiscal year ended June 30, 2022.
The following table shows the number of wells drilled or
recompleted on leases in which Marine has an interest and the number of active wells at the end of each of the past three fiscal years.
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