XNYS:WHX Whiting USA Trust I Quarterly Report 10-Q Filing - 6/30/2012

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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

þ

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

for the quarterly period ended June 30, 2012

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: 001-34026

 

 

WHITING USA TRUST I

(Exact name of registrant as specified in its charter)

 

Delaware

 

26-6053936

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. employer

identification no.)

The Bank of New York Mellon

Trust Company, N.A., Trustee

Global Corporate Trust

919 Congress Avenue

Austin, Texas

 

78701

(Address of principal executive offices)   (Zip code)

1-800-852-1422

 

(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. Yes þ  No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨  No ¨

Indicate by check mark 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):

 

Large accelerated filer ¨

 

Accelerated filer þ

  

Non-accelerated filer ¨

 

Smaller reporting company ¨

 

                                             (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No þ

As of August 9, 2012, 13,863,889 Units of Beneficial Interest in Whiting USA Trust I were outstanding.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

Glossary of Certain Definitions

     3   
PART I – Financial Information   

Item 1. Financial Statements (Unaudited)

     5   

Statements of Assets, Liabilities and Trust Corpus as of June 30, 2012 and December 31, 2011

     5   

Statements of Distributable Income for the Three and Six Months Ended June 30, 2012 and 2011

     5   

Statements of Changes in Trust Corpus for the Three and Six Months Ended June 30, 2012 and 2011

     5   

Notes to Financial Statements

     6   

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

     10   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     17   

Item 4. Controls and Procedures

     18   
PART II – Other Information   

Item 1A. Risk Factors

     19   

Item 6. Exhibits

     19   

Signatures

     20   

Exhibit Index

     21   

Exhibit 31

  

Exhibit 32

  

 

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Table of Contents

GLOSSARY OF CERTAIN DEFINITIONS

The following are definitions of significant terms used in this report:

“Bbl” One stock tank barrel, or 42 U.S. gallons liquid volume, used in this report in reference to oil and other liquid hydrocarbons.

“BOE” One stock tank barrel of oil equivalent, computed on an approximate energy equivalent basis that one Bbl of crude oil equals six Mcf of natural gas and one Bbl of crude oil equals one Bbl of natural gas liquids.

“Btu” or “British thermal unit” The quantity of heat required to raise the temperature of one pound of water one degree Fahrenheit.

“Completion” The installation of permanent equipment for the production of oil or natural gas, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.

“COPAS” The Council of Petroleum Accountants Societies, Inc.

“Costless collar” An options position where the proceeds from the sale of a call option at its inception fund the purchase of a put option at its inception.

FASB” Financial Accounting Standards Board.

“FASB ASC” The Financial Accounting Standards Board Accounting Standards Codification.

“Field” An area consisting of either a single reservoir, or multiple reservoirs, all grouped on or related to the same individual geological structural feature and/or stratigraphic condition.

“GAAP” Generally accepted accounting principles in the United States of America.

“Gross wells” The total wells in which a working interest is owned.

“MBbl” One thousand barrels of crude oil or other liquid hydrocarbons.

“MBOE” One thousand BOE.

“Mcf” One thousand standard cubic feet of natural gas.

“MMBOE” One million BOE.

“MMBtu” One million Btu.

“MMcf” One million standard cubic feet of natural gas.

“Net profits interest” (NPI) A nonoperating interest that creates a share in gross production from an operating or working interest in oil and natural gas properties. The share is measured by net profits from the sale of production after deducting costs associated with that production.

“Plugging and abandonment” Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into another or to the surface. Regulations of many states require plugging of abandoned wells.

“Recompletion” An operation whereby a completion in one zone is abandoned in order to attempt a completion in a different zone within the existing wellbore.

“Reserves” Estimated remaining quantities of oil and gas and related substances anticipated to be economically producible, as of a given date, by application of development projects to known accumulations. In addition, there must exist, or there must be a reasonable expectation that there will exist, the legal right to produce or a revenue interest in the production, installed means of delivering oil and gas or related substances to market, and all permits and financing required to implement the project.

“Reservoir” A porous and permeable underground formation containing a natural accumulation of producible crude oil and/or natural gas that is confined by impermeable rock or water barriers and is individual and separate from other reservoirs.

 

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“SEC” The United States Securities and Exchange Commission.

“Working interest” The interest in a crude oil and natural gas property (normally a leasehold interest) that gives the owner the right to drill, produce and conduct operations on the property and to share in production, subject to all royalties, overriding royalties and other burdens and to share in all costs of exploration, development and operations and all risks in connection therewith.

“Workover” Operations on a producing well to restore or increase production.

 

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Table of Contents

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

WHITING USA TRUST I

Statements of Assets, Liabilities and Trust Corpus (Unaudited)

(In thousands, except unit data)

 

                     
     June 30,
2012
     December 31,
2011
 

ASSETS

     

Cash and short-term investments

   $ 20           $ 146       

Investment in net profits interest, net

     38,244             46,593       
  

 

 

    

 

 

 

Total assets

   $ 38,264           $ 46,739       
  

 

 

    

 

 

 

LIABILITIES AND TRUST CORPUS

     

Reserve for Trust expenses

   $ 20           $ 146       

Trust corpus (13,863,889 Trust units issued and outstanding)

     38,244             46,593       
  

 

 

    

 

 

 

Total liabilities and Trust corpus

   $         38,264           $ 46,739       
  

 

 

    

 

 

 

Statements of Distributable Income (Unaudited)

(In thousands, except distributable income per unit data)

 

                                           
     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2011      2012      2011  

Income from net profits interest

   $ 10,285           $ 10,312           $ 20,532           $ 19,879       

General and administrative expenses

     (263)            (190)            (476)            (389)      

Cash reserves (withheld) used for current Trust expenses

     88             40             126             (11)      

State income tax withholding

     (81)            (59)            (151)            (117)      
  

 

 

    

 

 

    

 

 

    

 

 

 

Distributable income

   $ 10,029           $ 10,103           $ 20,031           $ 19,362       
  

 

 

    

 

 

    

 

 

    

 

 

 

Distributable income per unit

   $ 0.723387           $ 0.728739           $     1.444855           $     1.396567       
  

 

 

    

 

 

    

 

 

    

 

 

 

Statements of Changes in Trust Corpus (Unaudited)

(In thousands)

 

                                           
     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2011      2012      2011  

Trust corpus, beginning of period

   $ 42,360           $ 58,260           $ 46,593           $ 61,999       

Distributable income

     10,029             10,103             20,031             19,362       

Distributions to unitholders

     (10,029)            (10,103)            (20,031)            (19,362)      

Amortization of investment in net profits interest

     (4,116)            (3,963)            (8,349)            (7,702)      
  

 

 

    

 

 

    

 

 

    

 

 

 

Trust corpus, end of period

   $ 38,244           $ 54,297           $     38,244           $     54,297       
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

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WHITING USA TRUST I

NOTES TO MODIFIED CASH BASIS FINANCIAL STATEMENTS

(Unaudited)

1. ORGANIZATION OF THE TRUST

Formation of the Trust — Whiting USA Trust I (the “Trust”) is a statutory trust formed in October 2007 under the Delaware Statutory Trust Act, pursuant to a trust agreement (the “Trust agreement”) among Whiting Oil and Gas Corporation and Equity Oil Company, as trustors, The Bank of New York Trust Company, N.A., as Trustee (subsequently renamed The Bank of New York Mellon Trust Company, N.A., and hereinafter referred to as the “Trustee”) and Wilmington Trust Company as Delaware Trustee (the “Delaware Trustee”). The initial capitalization of the Trust estate was funded by Whiting Petroleum Corporation (“Whiting”) in November 2007. Effective September 30, 2009, Equity Oil Company merged into Whiting Oil and Gas Corporation (“Whiting Oil and Gas”) with Whiting Oil and Gas as the surviving corporation. Whiting Oil and Gas, as referred to herein, is a subsidiary of Whiting and the successor to Equity Oil Company.

The Trust was created to acquire and hold a term net profits interest (“NPI”) for the benefit of the Trust unitholders pursuant to a conveyance to the Trust from Whiting Oil and Gas. The term NPI is an interest in certain of Whiting Oil and Gas’ properties located in the Rocky Mountains, Mid-Continent, Permian Basin and Gulf Coast regions (the “underlying properties”). The NPI is the only asset of the Trust, other than cash reserves held for Trust expenses. As of December 31, 2011, these oil and gas properties included interests in 3,082 gross (370.4 net) producing oil and gas wells.

The NPI is passive in nature, and the Trustee has no management control over and no responsibility relating to the operation of the underlying properties. The NPI entitles the Trust to receive 90% of the net proceeds from the sale of production from the underlying properties. The NPI will terminate when 9.11 MMBOE have been produced and sold from the underlying properties (which amount is the equivalent of 8.20 MMBOE in respect of the Trust’s right to receive 90% of the net proceeds from such reserves pursuant to the NPI), and the Trust will soon thereafter wind up its affairs and terminate, after which it will pay no further distributions. As of June 30, 2012 on a cumulative accrual basis, 5.57 MMBOE of the Trust’s total 8.20 MMBOE have been produced and sold and a cumulative reserve quantity of 0.02 MMBOE have been sold in divestitures. The remaining reserve quantities are projected to be produced by August 31, 2015, based on the reserve report for the underlying properties as of December 31, 2011.

The Trustee can authorize the Trust to borrow money to pay Trust administrative or incidental expenses that exceed cash held by the Trust. The Trustee may authorize the Trust to borrow from the Trustee, Whiting, or the Delaware Trustee as a lender provided that the terms of the loan are similar to the terms it would grant to a similarly situated commercial customer with whom it did not have a fiduciary relationship. The Trustee may also deposit funds awaiting distribution in an account with itself and make other short-term investments with the funds distributed to the Trust.

Initial Issuance of Trust Units and Net Profits Interest Conveyance — In April 2008, the registration statement on Form S-1/S-3 (Registration No. 333-147543) filed by Whiting and the Trust in connection with the initial public offering of the Trust’s units was declared effective by the SEC. Subsequently, the Trust issued 13,863,889 Trust units to Whiting in exchange for the conveyance of the term NPI from Whiting Oil and Gas, as discussed above. Immediately thereafter, Whiting completed an initial public offering of units of beneficial interest in the Trust, selling 11,677,500 Trust units to the public. Whiting retained, and has continued to retain, an ownership in 2,186,389 Trust units, or 15.8% of the total Trust units issued and outstanding.

2. BASIS OF ACCOUNTING

Interim Financial Statements The accompanying unaudited financial information has been prepared by the Trustee in accordance with the instructions to the Quarterly Report on Form 10-Q. The accompanying financial information is prepared on a comprehensive basis of accounting other than GAAP. The Trustee believes that the information furnished reflects all adjustments (consisting of normal and recurring adjustments) which are, in the opinion of the Trustee, necessary for a fair presentation of the results for the interim periods presented. The Trust’s 2011 Annual Report on Form 10-K includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Quarterly Report on Form 10-Q. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the full year.

 

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Term Net Profits InterestThe Trust uses the modified cash basis of accounting to report Trust receipts from the term NPI and payments of expenses incurred. The actual cash distributions to the Trust are made based on the terms of the conveyance that created the Trust’s NPI. The term NPI entitles the Trust to receive revenues (oil, gas and natural gas liquid sales) less expenses (the amount by which all royalties, lease operating expenses including well workover costs, production and property taxes, payments made by Whiting to the hedge counterparty upon settlements of hedge contracts, maintenance expenses, post-production costs including plugging and abandonment, and producing overhead, exceed hedge payments received by Whiting under hedge contracts and other non-production revenue) of the underlying properties multiplied by 90% (term NPI percentage). Actual cash receipts may vary due to timing delays of cash receipts from the property operators or purchasers and due to wellhead and pipeline volume balancing agreements or practices.

Modified Cash Basis of AccountingThe financial statements of the Trust, as prepared on a modified cash basis, reflect the Trust’s assets, liabilities, Trust corpus, earnings and distributions, as follows:

 

  a)

Income from net profits interest is recorded when NPI distributions are received by the Trust;

 

  b)

Distributions to Trust unitholders are recorded when paid by the Trust;

 

  c)

Trust general and administrative expenses (which include the Trustees’ fees as well as accounting, engineering, legal and other professional fees) are recorded when paid;

 

  d)

Cash reserves for Trust expenses may be established by the Trustee for certain expenditures that would not be recorded as contingent liabilities under GAAP;

 

  e)

Amortization of the investment in net profits interest is calculated based on the units-of-production method. Such amortization is charged directly to Trust corpus and does not affect cash earnings; and

 

  f)

The Trust evaluates impairment of the investment in net profits interest by comparing the undiscounted cash flows expected to be realized from the investment in net profits interest to the NPI carrying value. If the expected future undiscounted cash flows are less than the carrying value, the Trust recognizes an impairment loss for the difference between the carrying value and the estimated fair value of the investment in net profits interest. The determination of whether the NPI is impaired requires a significant amount of judgment by the Trustee and is based on the best information available to the Trustee at the time of the evaluation. If market or oil and natural gas production conditions deteriorate, write-downs could be required in the future.

While these statements differ from financial statements prepared in accordance with GAAP, the modified cash basis of reporting revenues and distributions is considered to be the most meaningful for the Trust’s activities and results because quarterly distributions to the Trust unitholders are based on net cash receipts. This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the SEC as specified by FASB ASC Topic 932, Extractive Activities – Oil and Gas: Financial Statements of Royalty Trusts.

Most accounting pronouncements apply to entities whose financial statements are prepared in accordance with GAAP, directing such entities to accrue or defer revenues and expenses in a period other than when such revenues are received or expenses are paid. Because the Trust’s financial statements are prepared on the modified cash basis as described above, however, most accounting pronouncements are not applicable to the Trust’s financial statements.

Recent Accounting Pronouncements — There were no accounting pronouncements issued during the six months ended June 30, 2012 applicable to the Trust or its financial statements.

3. INVESTMENT IN NET PROFITS INTEREST

Whiting Oil and Gas conveyed the NPI to the Trust in exchange for 13,863,889 Trust units. The investment in net profits interest was recorded at the historical cost basis of Whiting on April 30, 2008, the date of conveyance, and was determined to be $123.6 million, of which $111.2 million (90% of the NPI) was attributed to the Trust. As of June 30, 2012 and December 31, 2011, accumulated amortization of the investment in net profits interest was $73.0 million and $64.6 million, respectively.

 

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4. INCOME TAXES

The Trust is a grantor trust and therefore is not subject to federal income taxes. Accordingly, no recognition has been given to federal income taxes in the Trust’s financial statements. The Trust unitholders are treated as the owners of Trust income and corpus, and the entire taxable income of the Trust is reported by the Trust unitholders on their respective tax returns.

For Montana state income tax purposes, Whiting must withhold from its NPI payments to the Trust, an amount equal to 6% of the net amount payable to the Trust from the sale of oil and gas in Montana. For North Dakota, Oklahoma, Arkansas, Michigan, New Mexico, Alabama, Louisiana, Colorado, Kansas, Utah and Mississippi, neither the Trust nor Whiting is withholding the income tax due such states on distributions made to an individual resident or nonresident Trust unitholder, as long as the Trust is taxed as a grantor trust under the Internal Revenue Code.

5. DISTRIBUTION TO UNITHOLDERS

Actual cash distributions to the Trust unitholders depend on the volumes of and prices received for oil, natural gas and natural gas liquids produced from the underlying properties, among other factors. Quarterly cash distributions during the term of the Trust are made by the Trustee generally no later than 60 days following the end of each quarter (or the next succeeding business day) to the Trust unitholders of record on the 50th day following the end of each quarter. Such amounts equal the excess, if any, of the cash received by the Trust during the quarter, over the expenses of the Trust paid during such quarter, subject to any adjustments for changes made by the Trustee during such quarter in any cash reserves established for future expenses of the Trust.

6. RELATED PARTY TRANSACTIONS

Capital ExpendituresDuring the three and six months ended June 30, 2012, Whiting incurred $0.6 and $2.1 million, respectively, of capital expenditures on the underlying properties. These capital expenditures are the costs net to Whiting’s interest in the wells and which are related to the drilling and completing of oil and gas wells, capital workovers, facility upgrades and well recompletions that are performed to secure production from new horizons. Pursuant to the terms of the conveyance agreement, such expenditures were not deducted from gross proceeds or the Trust distributions, but they may have the effect of ultimately accelerating the receipt of NPI net proceeds and thereby benefiting the Trust unitholders by accelerating their return on investment. The Trust cannot provide any assurance that this will continue to occur or that future capital expenditures will be consistent with historical levels.

Operating OverheadPursuant to the terms of the applicable joint operating agreements, Whiting deducts from the gross proceeds an overhead fee to operate those underlying properties for which Whiting has been designated as the operator. Additionally, with respect to those underlying properties for which Whiting is the operator but where there is no operating agreement in place, Whiting deducts from the gross proceeds an overhead fee calculated in the same manner that Whiting allocates overhead to other similarly owned properties, which is customary practice in the oil and gas industry. Operating overhead activities include various engineering, legal and administrative functions. The fee is adjusted annually pursuant to COPAS guidelines and will increase or decrease each year based on changes in the year-end index of average weekly earnings of crude petroleum and natural gas workers. The following table presents the Trust’s portion of these overhead charges for the distributions made during the three and six months ended June 30, 2012 and 2011 (in thousands, except per well data):

 

                           
     Three Months Ended June 30,      Six Months Ended June 30,  
     2012      2011      2012      2011  

Total overhead charges (in thousands)

   $ 426       $ 413       $ 847       $ 845   

Overhead charge per month per active operated well

   $ 408       $ 392       $ 406       $ 401   

Administrative Services FeeUnder the terms of the administrative services agreement, the Trust pays a quarterly administration fee of $50,000 to Whiting 60 days following the end of each calendar quarter. General and administrative expenses in the Trust’s statements of distributable income for the three and six months ended June 30, 2012 include $50,000 and $100,000, respectively, for quarterly administrative fees paid to Whiting. General and administrative expenses in the Trust’s statements of distributable income for the three and six months ended June 30, 2011 include $50,000 and $100,000, respectively, for quarterly administrative fees paid to Whiting.

 

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Trustee Administrative FeeUnder the terms of the Trust agreement, the Trust pays an annual administrative fee to the Trustee of $160,000, paid in four quarterly installments of $40,000 each and is billed in arrears. General and administrative expenses in the Trust’s statements of distributable income for the three and six months ended June 30, 2012 include $40,000 and $80,000, respectively, for quarterly administrative fees paid to the Trustee. General and administrative expenses in the Trust’s statements of distributable income for the three and six months ended June 30, 2011 include $40,000 and $80,000, respectively, for quarterly administrative fees paid to the Trustee.

Letter of Credit On February 8, 2011, Whiting established a $1.0 million letter of credit for the Trustee in order to provide it with a mechanism to pay the operating expenses of the Trust, in the event that Whiting should fail to lend funds to the Trust if requested to do so by the Trustee. This letter of credit will not be used to fund NPI distributions to unitholders, and Whiting has no obligation to lend funds to the Trust.

7. SUBSEQUENT EVENT

On August 8, 2012, the Trustee announced the Trust distribution of net profits for the second quarterly payment period in 2012. Unitholders of record on August 20, 2012 are expected to receive a distribution amounting to $9.6 million or $0.688853 per Trust unit, which is payable on or before August 29, 2012. This distribution is expected to consist of net cash proceeds of $9.8 million paid by Whiting to the Trust, which is inclusive of cash receipts totaling $1.3 million (90% of $1.5 million) for commodity derivative contracts settled from April through June 2012, less a provision of $245,000 for estimated Trust expenses and $49,303 for Montana state income tax withholdings.

 

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

References to the “Trust” in this document refer to Whiting USA Trust I. References to “Whiting” in this document refer to Whiting Petroleum Corporation and its subsidiaries. References to “Whiting Oil and Gas” in this document refer to Whiting Oil and Gas Corporation, a 100%-owned subsidiary of Whiting Petroleum Corporation and the successor to Equity Oil Company. Equity Oil Company was merged into Whiting Oil and Gas Corporation effective September 30, 2009. The merger did not have an effect on the Trust.

The following review of the Trust’s financial condition and results of operations should be read in conjunction with the financial statements and notes thereto, as well as the Trustee’s discussion and analysis contained in the Trust’s 2011 Annual Report on Form 10-K. The Trust’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available on the SEC’s website www.sec.gov.

Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including without limitation the statements under “Trustee’s Discussion and Analysis of Financial Condition and Results of Operations” are forward-looking statements. No assurance can be given that such expectations will prove to have been correct. When used in this document, the words “believes,” “expects,” “anticipates,” “projects,” “intends” or similar expressions are intended to identify such forward-looking statements. The following important factors, in addition to those discussed elsewhere in this Quarterly Report on Form 10-Q, could affect the future results of the energy industry in general, and Whiting and the Trust in particular, and could cause actual results to differ materially from those expressed in such forward-looking statements:

 

   

the effect of changes in commodity prices and conditions in the capital markets;

 

   

uncertainty of estimates of oil and natural gas reserves and production;

 

   

risks incident to the operation of oil and natural gas wells;

 

   

future production costs;

 

   

the inability to access oil and natural gas markets due to market conditions or operational impediments;

 

   

failure of the underlying properties to yield oil or natural gas in commercially viable quantities;

 

   

the effect of existing and future laws and regulatory actions;

 

   

competition from others in the energy industry;

 

   

risks arising out of the hedge contracts;

 

   

inflation or deflation; and

 

   

other risks described under the caption “Risk Factors” in the Trust’s 2011 Annual Report on Form 10-K.

All subsequent written and oral forward-looking statements attributable to Whiting or the Trust or persons acting on behalf of Whiting or the Trust are expressly qualified in their entirety by these factors. The Trust assumes no obligation, and disclaims any duty, to update these forward-looking statements.

Overview

The Trust does not conduct any operations or activities. The Trust’s purpose is, in general, to hold the NPI, to distribute to unitholders cash that the Trust receives in respect of the NPI, and to perform certain administrative functions in respect of the NPI and the Trust units. The Trust derives substantially all of its income and cash flows from the NPI, which is in turn subject to commodity hedge contracts. The NPI entitles the Trust to receive 90% of the net proceeds from the sale of production from the underlying properties.

 

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Oil and gas prices historically have been volatile and may fluctuate widely in the future. The table below highlights these price trends by listing quarterly average NYMEX crude oil and natural gas prices for the periods indicated through March 31, 2012. The May 2012 NPI distribution is mainly affected, however, by January 2012 through March 2012 oil prices and by December 2011 through February 2012 natural gas prices.

 

                                                                                                  
     2010      2011      2012  
     Q1      Q2      Q3      Q4      Q1      Q2      Q3      Q4      Q1  

Crude Oil (per Bbl)

   $ 78.79       $ 77.99       $ 76.21       $ 85.18       $ 94.25       $ 102.55       $ 89.81       $ 94.02       $ 102.94   

Natural Gas (per MMBtu)

   $ 5.30       $ 4.09       $ 4.39       $ 3.81       $ 4.10       $ 4.32       $ 4.20       $ 3.54       $ 2.72   

Although oil prices fell significantly after reaching highs in the third quarter of 2008, they have experienced a rebound in 2010 and 2011. Natural gas prices have likewise fallen significantly since their peak in the third quarter of 2008 but have remained low throughout 2009, 2010 and 2011. In addition, natural gas prices declined during the first half of 2012, but have begun to improve in recent months. The following table highlights the settled NYMEX prices for natural gas for January through August 2012:

 

                                                                                       
     2012  
     Jan.      Feb.      Mar.      Apr.      May      June      July      Aug.  

Natural Gas (per MMBtu)

   $ 3.08       $ 2.68       $ 2.41       $ 2.19       $ 2.03       $ 2.42       $ 2.77       $ 3.01   

Lower oil and gas prices on production from the underlying properties could cause the following: (i) a reduction in the amount of net proceeds to which the Trust is entitled; (ii) a reduction in the amount of oil, natural gas and natural gas liquids that is economic to produce from the underlying properties; and (iii) an extension of the length of time required to produce 9.11 MMBOE (8.20 MMBOE at the 90% NPI) due to some wells thereby reaching their economic limits sooner. Alternatively, higher oil and natural gas prices may potentially result in the following: (i) an increase in the amount of oil, natural gas and natural gas liquids that is economic to produce from the underlying properties; (ii) a decrease in the Trust’s cash settlement gains on commodity derivatives; and (iii) cash settlement losses on commodity derivatives.

Trust termination. The NPI will terminate when 9.11 MMBOE have been produced and sold from the underlying properties (which amount is equivalent to 8.20 MMBOE attributable to the NPI), and the Trust will soon thereafter wind up its affairs and terminate, after which it will pay no further distributions. 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, the market price of the Trust units will decline to zero at termination of the Trust. As of June 30, 2012 on a cumulative accrual basis, 5.57 MMBOE of the Trust’s total 8.20 MMBOE have been produced and sold (of which proceeds from the sale of 325 MBOE will be distributed to the unitholders in the Trust’s forthcoming August 29, 2012 distribution) and a cumulative reserve quantity of 0.02 MMBOE have been divested. For additional discussion relating to, and of the assumptions underlying, the estimated date when 9.11 MMBOE (8.20 MMBOE at the 90% NPI) will be produced and sold from the underlying properties, after which the Trust will soon thereafter wind up its affairs and terminate, see “Description of the Underlying Properties” in Item 2 of the Trust’s 2011 Annual Report on Form 10-K.

 

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Results of Trust Operations

Six Months Ended June 30, 2012 Compared to Six Months Ended June 30, 2011

The following is a summary of income from the net profits interest received by the Trust for the six months ended June 30, 2012 and 2011, consisting of the February and May distributions for each respective year (dollars in thousands, except per Bbl, per Mcf and per BOE amounts):

 

                     
     Six Months Ended June 30,  
     2012      2011  

Sales volumes:

     

Oil from underlying properties (MBbls)

     372(a)          383(b)    

Natural gas from underlying properties (MMcf)

     1,385(a)          1,520(b)    
  

 

 

    

 

 

 

Total production (MBOE)

     603             636       
  

 

 

    

 

 

 

Average sales prices:

     

Oil (per Bbl)

   $ 84.29           $ 74.83       

Effect of oil hedges on average price (per Bbl)

     -              -        
  

 

 

    

 

 

 

Oil net of hedging (per Bbl)

   $ 84.29           $ 74.83       
  

 

 

    

 

 

 

Natural gas (per Mcf)

   $ 3.66           $ 3.91       

Effect of natural gas hedges on average price (per Mcf) (c)

     2.31             1.91       
  

 

 

    

 

 

 

Natural gas net of hedging (per Mcf)

   $ 5.97           $ 5.82       
  

 

 

    

 

 

 

Costs (per BOE):

     

Lease operating expenses

   $ 23.63           $ 20.23       

Production taxes

   $ 4.26           $ 3.96       

Revenues:

     

Oil sales

   $ 31,367(a)        $  28,632(b)    

Natural gas sales

     5,065(a)          5,944(b)    
  

 

 

    

 

 

 

Total revenues

   $ 36,432           $ 34,576       
  

 

 

    

 

 

 

Costs:

     

Lease operating expenses

   $ 14,250           $ 12,868       

Production taxes

     2,571             2,521       

Cash settlement gains received on commodity derivatives (c)

     (3,202)            (2,901)      
  

 

 

    

 

 

 

Total costs

   $ 13,619           $ 12,488       
  

 

 

    

 

 

 

Net proceeds

   $ 22,813           $ 22,088       

Net profits percentage

     90%          90%    
  

 

 

    

 

 

 

Income from net profits interest

   $ 20,532           $ 19,879       
  

 

 

    

 

 

 

 

(a)

Oil and gas sales volumes and related revenues for the six months ended June 30, 2012 (consisting of Whiting’s February and May 2012 NPI distributions to the Trust) generally represent crude oil production from October 2011 through March 2012 and natural gas production from September 2011 through February 2012.

 

(b)

Oil and gas sales volumes and related revenues for the six months ended June 30, 2011 (consisting of Whiting’s February and May 2011 NPI distributions to the Trust) generally represent crude oil production from October 2010 through March 2011 and natural gas production from September 2010 through February 2011.

 

(c)

As discussed below, all hedges terminate as of December 31, 2012.

Income from Net Profits Interest. Income from net profits interest is recorded on a cash basis when NPI proceeds are received by the Trust from Whiting. NPI proceeds that Whiting remits to the Trust are based on the oil and gas production Whiting has received payment for within one month following the end of the most recent fiscal quarter. Whiting receives payment for its crude oil sales generally within 30 days following the month in which it is produced, and Whiting receives payment for its natural gas sales generally within 60 days following the month in which it is produced. Income from net profits interest is generally a function of oil and gas revenues, lease operating expenses, production taxes and cash settlements on commodity derivatives as follows:

 

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Revenues. Oil and natural gas revenues increased $1.9 million or 5% for the six months ended June 30, 2012 as compared to the same period in 2011. Revenues are a function of oil and natural gas sales prices and volumes sold. The increase in revenue between periods was due to higher market prices for oil during the first half of 2012 as compared to the first half of 2011, which effect was partially offset by lower market prices for natural gas and lower oil and natural gas sales volumes between periods. The average price for oil before the effects of hedging increased 13%, while the average price for natural gas before the effects of hedging decreased 6%. Oil sales volumes decreased 3% or 11 MBbls, and gas sales volumes decreased 9% or 135 MMcf during the first six months of 2012 compared to the same period in 2011. Both of these volume decreases were primarily related to normal field production decline. These production decline rates can vary from period to period due to differences in timing associated with revenues distributed and received from non-operated properties.

Lease Operating Expenses. Lease operating expenses (“LOE”) increased $1.4 million or 11% during the first six months of 2012 compared to the first six months of 2011, primarily due to an increase of $1.6 million in the cost of oilfield goods and services and $0.3 million in higher labor costs on Whiting-operated properties. These increases were partially offset by a $0.5 million decrease in plug and abandonment charges between periods. The increase in overall lease operating expenses coupled with the decrease in overall production volumes between periods resulted in an increase in LOE of 17% on a per BOE basis, from $20.23 during the first half of 2011 to $23.63 for the same period in 2012.

Production Taxes. Production taxes are typically calculated as a percentage of oil and natural gas revenues before the effects of hedging. Tax credits and exemptions allowed in the various taxing jurisdictions are generally utilized to their potential. Production taxes for the six months ended June 30, 2012 increased $0.05 million or 2% compared to the same period in 2011, primarily due to higher oil sales between periods. However, production taxes as a percent of oil and gas revenues remained relatively constant for the first six months of 2012 and 2011 at 7.1% and 7.3%, respectively.

Cash Settlements on Commodity Derivatives. In connection with Whiting’s conveyance of the net profits interest to the Trust, Whiting entered into certain costless collar hedge contracts in order to reduce the Trust’s exposure to commodity price volatility. If current market prices are lower than a collar’s price floor when the cash settlement amount is calculated, Whiting receives cash proceeds from the contract counterparty. Conversely, if current market prices are higher than a collar’s price ceiling when the cash settlement amount is calculated, Whiting is required to pay the contract counterparty.

Cash settlements relating to these hedges resulted in a gain of $3.2 million for the six months ended June 30, 2012, which had the effect of increasing the average price of natural gas by $2.31 per Mcf for that period, and cash settlements relating to these hedges resulted in a gain of $2.9 million for the six months ended June 30, 2011, which had the effect of increasing the average price of natural gas by $1.91 per Mcf for that 2011 period. As a result, the total net price of natural gas of $5.97 per Mcf and $5.82 per Mcf that the Trust received for the six months ended June 30, 2012 and 2011, respectively, included premiums of 39% and 33%, respectively, related to the effects of hedging for those same periods. However, all hedges and their related pricing impacts terminate as of December 31, 2012, while the Trust’s oil and gas reserves are currently projected to terminate in August 2015 based on the Trust’s 2011 reserve report. Therefore, no commodity price hedges will be in effect beginning January 1, 2013 through Trust termination to reduce the Trust’s exposure to oil and natural gas price volatility.

Distributable Income. For the six months ended June 30, 2012, the Trust’s distributable income was $20.0 million and was based on income from net profits interest of $20.5 million less Trust general and administrative costs and cash withheld of $350,000 and Montana state income tax withholdings of $150,892. This compares to distributable income of $19.4 million for the first six months of 2011, which was based on income from net profits interest of $19.9 million less $400,000 for Trust expenses and $117,140 in Montana state income tax withholdings.

 

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Three Months Ended June 30, 2012 Compared to Three Months Ended June 30, 2011

The following is a summary of income from the net profits interest received by the Trust for the three months ended June 30, 2012 and 2011, consisting of the May distribution for each respective year (dollars in thousands, except per Bbl, per Mcf and per BOE amounts):

 

                 
     Three Months Ended June 30,  
     2012      2011  

Sales volumes:

     

Oil from underlying properties (MBbls)

     188(a)          185(b)    

Natural gas from underlying properties (MMcf)

     656(a)          751(b)    
  

 

 

    

 

 

 

Total production (MBOE)

     298             310       
  

 

 

    

 

 

 

Average sales prices:

     

Oil (per Bbl)

   $ 86.21           $ 79.25       

Effect of oil hedges on average price (per Bbl)

     -                  -            
  

 

 

    

 

 

 

Oil net of hedging (per Bbl)

   $ 86.21           $ 79.25       
  

 

 

    

 

 

 

Natural gas (per Mcf)

   $ 3.31           $ 4.16       

Effect of natural gas hedges on average price (per Mcf) (c)

     2.67             1.79       
  

 

 

    

 

 

 

Natural gas net of hedging (per Mcf)

   $ 5.98           $ 5.95       
  

 

 

    

 

 

 

Costs (per BOE):

     

Lease operating expenses

   $ 24.96           $ 20.67       

Production taxes

   $ 4.36           $ 4.12       

Revenues:

     

Oil sales

   $ 16,228(a)        $ 14,690(b)    

Natural gas sales

     2,168(a)          3,125(b)    
  

 

 

    

 

 

 

Total revenues

   $ 18,396           $ 17,815       
  

 

 

    

 

 

 

Costs:

     

Lease operating expenses

   $ 7,428           $ 6,417       

Production taxes

     1,297             1,278       

Cash settlement gains received on commodity derivatives (c)

     (1,756)            (1,339)      
  

 

 

    

 

 

 

Total costs

   $ 6,969           $ 6,356       
  

 

 

    

 

 

 

Net proceeds

   $ 11,427           $ 11,459       

Net profits percentage

     90%          90%    
  

 

 

    

 

 

 

Income from net profits interest

   $ 10,285           $ 10,312       
  

 

 

    

 

 

 

 

(a)

Oil and gas sales volumes and related revenues for the quarter ended June 30, 2012 (consisting of Whiting’s May 2012 NPI distribution to the Trust) generally represent crude oil production from January 2012 through March 2012 and natural gas production from December 2011 through February 2012.

 

(b)

Oil and gas sales volumes and related revenues for the quarter ended June 30, 2011 (consisting of Whiting’s May 2011 NPI distribution to the Trust) generally represent crude oil production from January 2011 through March 2011 and natural gas production from December 2010 through February 2011.

 

(c)

As discussed below, all hedges terminate as of December 31, 2012.

Income from Net Profits Interest. Income from net profits interest is recorded on a cash basis when NPI proceeds are received by the Trust from Whiting. NPI proceeds that Whiting remits to the Trust are based on the oil and gas production Whiting has received payment for within one month following the end of the most recent fiscal quarter. Whiting receives payment for its crude oil sales generally within 30 days following the month in which it is produced, and Whiting receives payment for its natural gas sales generally within 60 days following the month in which it is produced. Income from net profits interest is generally a function of oil and gas revenues, lease operating expenses, production taxes and cash settlements on commodity derivatives as follows:

 

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Revenues. Oil and natural gas revenues increased $0.6 million or 3% for the three months ended June 30, 2012 as compared to the same period in 2011. Revenues are a function of oil and natural gas sales prices and volumes sold. The increase in revenue between periods was due to higher market prices for oil and higher oil sales volumes during the second quarter of 2012 as compared to the second quarter of 2011, which effect was partially offset by lower market prices for natural gas and lower natural gas sales volumes between periods. The average price for oil before the effects of hedging increased 9%, while the average price for natural gas before the effects of hedging decreased 21%. Oil sales volumes increased 2% or 3 MBbls, while gas sales volumes decreased 13% or 95 MMcf during the second quarter 2012 compared to the same period in 2011. Oil sales volumes increased between periods primarily due to four recently drilled wells that came on line in the second half of 2011, as well as several workovers that resulted in increased production. These oil volume increases were partially offset by normal field production decline. Gas sales volume decreases were primarily related to normal field production decline. This gas decline rate is also impacted between reporting periods by differences in timing associated with revenues distributed and received from non-operated properties.

Lease Operating Expenses. Lease operating expenses (“LOE”) increased $1.0 million or 16% during the second quarter of 2012 compared to the second quarter of 2011, primarily due to an increase of $1.0 million in the cost of oilfield goods and services. The increase in overall lease operating expenses coupled with the decrease in overall production volumes between periods resulted in an increase in LOE of 21% on a per BOE basis, from $20.67 during the second quarter of 2011 to $24.96 for the same period in 2012.

Production Taxes. Production taxes are typically calculated as a percentage of oil and natural gas revenues before the effects of hedging. Tax credits and exemptions allowed in the various taxing jurisdictions are generally utilized to their potential. Production taxes for the three months ended June 30, 2012 increased $0.02 million or 1% compared to the same period in 2011, primarily due to higher oil sales between periods. However, production taxes as a percent of oil and gas revenues remained relatively constant for the second quarter of 2012 and 2011 at 7.1% and 7.2%, respectively.

Cash Settlements on Commodity Derivatives. In connection with Whiting’s conveyance of the net profits interest to the Trust, Whiting entered into certain costless collar hedge contracts in order to reduce the Trust’s exposure to commodity price volatility. If current market prices are lower than a collar’s price floor when the cash settlement amount is calculated, Whiting receives cash proceeds from the contract counterparty. Conversely, if current market prices are higher than a collar’s price ceiling when the cash settlement amount is calculated, Whiting is required to pay the contract counterparty.

Cash settlements relating to these hedges resulted in a gain of $1.8 million for the second quarter of 2012, which had the effect of increasing the average price of natural gas by $2.67 per Mcf for that period, and cash settlements relating to these hedges resulted in a gain of $1.3 million for the second quarter of 2011, which had the effect of increasing the average price of natural gas by $1.79 per Mcf for that 2011 period. As a result, the total net price of natural gas of $5.98 per Mcf and $5.95 per Mcf that the Trust received for the three months ended June 30, 2012 and 2011, respectively, included premiums of 45% and 30%, respectively, related to the effects of hedging for those same periods. However, all hedges and their related pricing impacts terminate as of December 31, 2012, while the Trust’s oil and gas reserves are currently projected to terminate in August 2015 based on the Trust’s 2011 reserve report. Therefore, no commodity price hedges will be in effect beginning January 1, 2013 through Trust termination to reduce the Trust’s exposure to oil and natural gas price volatility.

Distributable Income. For the three months ended June 30, 2012, the Trust’s distributable income was $10.0 million and was based on income from net profits interest of $10.3 million less Trust general and administrative costs and cash withheld of $175,000 and Montana state income tax withholdings of $81,414. This compares to distributable income of $10.1 million during the second quarter of 2011, which was based on income from net profits interest of $10.3 million less $150,000 for Trust expenses and $59,421 in Montana state income tax withholdings.

 

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Liquidity and Capital Resources

The Trust has no source of liquidity or capital resources other than cash flows from the NPI. Other than Trust administrative expenses, including any reserves established by the Trustee for future liabilities, the Trust’s only use of cash is for distributions to Trust unitholders. Administrative expenses include payments to the Trustee and the Delaware Trustee as well as a quarterly fee to Whiting pursuant to an administrative services agreement. Each quarter, the Trustee determines the amount of funds available for distribution to unitholders. Available funds are the excess cash, if any, received by the Trust from the NPI and other sources (such as interest earned on any amounts reserved by the Trustee) that quarter, over the Trust’s expenses for that quarter. Available funds are reduced by any cash the Trustee decides to hold as a reserve against future liabilities. The Trustee may borrow funds required to pay liabilities if the Trustee determines that the cash on hand and the cash to be received are insufficient to cover the Trust’s liabilities. If the Trustee borrows funds, the Trust unitholders will not receive distributions until the borrowed funds are repaid.

Income to the Trust from the NPI is based on the calculation and definitions of “gross proceeds” and “net proceeds” contained in the conveyance agreement, which is listed as an exhibit to this report, and reference is hereby made to such conveyance agreement for the actual definitions of “gross proceeds” and “net proceeds”.

Although capital expenditures for the testing, drilling, completion, equipping, plugging back or recompletion of any well that is a part of the underlying properties cannot be deducted from gross proceeds pursuant to the terms of the conveyance agreement, Whiting incurred capital expenditures of $2.1 million on the underlying properties during the six months ended June 30, 2012. Such expenditures were not deducted from gross proceeds or Trust distributions, but they may have the effect of ultimately accelerating the receipt of NPI net proceeds and thereby benefiting the Trust unitholders by accelerating their return on investment. The Trust cannot provide any assurance that this will continue to occur or that future capital expenditures will be consistent with historical levels.

On February 8, 2011, Whiting established a $1.0 million letter of credit for the Trustee in order to provide a mechanism for the Trustee to pay the operating expenses of the Trust, in the event that Whiting should fail to lend funds to the Trust if requested to do so by the Trustee. This letter of credit will not be used to fund NPI distributions to unitholders, and Whiting has no obligation to lend funds to the Trust.

The Trust does not have any transactions, arrangements or other relationships with unconsolidated entities or persons that could materially affect the Trust’s liquidity or the availability of capital resources.

Future Trust Distributions to Unitholders

On August 8, 2012, the Trustee announced the Trust distribution of net profits for the second quarterly payment period in 2012. Unitholders of record on August 20, 2012 are expected to receive a distribution amounting to $9.6 million or $0.688853 per Trust unit, which is payable on or before August 29, 2012. This distribution is expected to consist of net cash proceeds of $9.8 million paid by Whiting to the Trust, which is inclusive of cash receipts totaling $1.3 million (90% of $1.5 million) for commodity derivative contracts settled from April through June 2012, less a provision of $245,000 for estimated Trust expenses and $49,303 for Montana state income tax withholdings.

New Accounting Pronouncements

There were no accounting pronouncements issued during the six months ended June 30, 2012 applicable to the Trust or its financial statements.

Critical Accounting Policies and Estimates

A disclosure of critical accounting policies and the more significant judgments and estimates used in the preparation of the Trust’s financial statements is included in Item 7 of the Trust’s Annual Report on Form 10-K for the year ended December 31, 2011. There have been no significant changes to the critical accounting policies during the six months ended June 30, 2012.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

Commodity Hedge Contracts

The primary asset of and source of income to the Trust is the term NPI, which generally entitles the Trust to receive 90% of the net proceeds from oil and gas production from the underlying properties. Consequently, the Trust is exposed to market risk from fluctuations in oil and gas prices. Through 2012, however, the NPI is subject to commodity hedge contracts in the form of costless collars entered into by Whiting, which reduce the NPI’s exposure to commodity price volatility. No additional hedges are allowed to be placed on Trust assets, and the Trust cannot therefore enter into derivative contracts for speculative or trading purposes.

The revenues derived from the underlying properties depend substantially on prevailing crude oil, natural gas and natural gas liquid prices. As a result, commodity prices also affect the amount of cash flow available for distribution to the Trust unitholders. Lower prices may also reduce the amount of oil, natural gas and natural gas liquids that Whiting can economically produce. Whiting sells the oil, natural gas and natural gas liquid production from the underlying properties under floating market price contracts each month. Whiting has entered into certain hedge contracts through December 31, 2012 to manage the exposure to crude oil and natural gas price volatility, which is associated with revenues generated from the underlying properties, and to achieve more predictable cash flows. However, these contracts limit the amount of cash available for distribution if prices increase above the fixed ceilings of the hedges. The hedge contracts consist of costless collar arrangements placed with a single trading counterparty, JPMorgan Chase Bank National Association. Whiting cannot provide assurance that this trading counterparty will not become a credit risk in the future.

Crude oil costless collar arrangements settle based on the average of the closing settlement price for each commodity business day in the contract period. Natural gas costless collar arrangements settle based on the closing settlement price on the second to last scheduled trading day of the month prior to delivery. In a collar arrangement, the counterparty is required to make a payment to Whiting for the difference between the fixed floor price and the settlement price if the settlement price is below the fixed floor price. Whiting is required to make a payment to the hedge counterparty for the difference between the fixed ceiling price and the settlement price if the settlement price is above the fixed ceiling price. Whiting’s crude oil and natural gas price risk management positions in collar arrangements through December 31, 2012, which collars have the potential to affect Whiting’s future distributions to the Trust, are as follows:

 

     Oil Collars      Natural Gas Collars  
    

Volumes

(Bbls)

    

Weighted

Average Price

(per Bbl)

Floor / Ceiling

    

Volumes

(MMBtu)

    

Price

(per MMBtu)

Floor / Ceiling

 

Three months ending September 30, 2012

     107,226       $ 74.00/$141.70         390,519       $ 6.00/$14.45   

Three months ending December 31, 2012

     105,084       $ 74.00/$142.21         379,839       $ 7.00/$13.40   

The collared hedges shown above have the effect of providing a protective floor while allowing Trust unitholders to share in upward price movements up to the ceiling. Consequently, while these hedges are designed to decrease exposure to price decreases, they also have the effect of limiting the benefit of price increases beyond the ceiling. For the crude oil contracts listed above, a hypothetical $10.00 change in the NYMEX price above the ceiling price or below the floor price applied to the notional amounts would cause an aggregate change in the cash settlement payments (gains received) on all oil commodity derivatives of $2.1 million to Whiting, of which 90% would be transferred to the Trust. For the natural gas contracts listed above, a hypothetical $1.00 change in the NYMEX price above the ceiling price or below the floor price applied to the notional amounts would cause an aggregate change in the cash settlement payments (gains received) on all natural gas commodity derivatives of $0.8 million to Whiting, of which 90% would be transferred to the Trust. These hypothetical cash settlement payments (gains received) would be recognized as contracts expire in future periods through 2012.

The amounts received by Whiting from the counterparty upon settlements of these hedge contracts will reduce the operating expenses related to the underlying properties when calculating the net proceeds. However, if the hedge payments received by Whiting under the hedge contracts and other non-production revenue exceed operating expenses during a quarterly period, the ability to use such excess amounts to offset operating expenses may be deferred, with interest accruing on such amounts at the prevailing money market rate, until the next quarterly period where the hedge payments and the other non-production revenue are less than such expenses. In addition, the aggregate amounts paid by Whiting on settlement of the hedge contracts will reduce the amount of net proceeds paid to the Trust.

 

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures. The Trustee maintains disclosure controls and procedures designed to ensure that information required to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations promulgated by the SEC. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Trust is accumulated and communicated by Whiting to The Bank of New York Mellon Trust Company, N.A., as Trustee of the Trust, and its employees who participate in the preparation of the Trust’s periodic reports as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, the Trustee carried out an evaluation of the Trustee’s disclosure controls and procedures. Mike Ulrich, as Trust Officer of the Trustee, has concluded that the disclosure controls and procedures of the Trust are effective.

Due to the contractual arrangements of (i) the Trust agreement and (ii) the conveyance of the NPI, the Trustee relies on (A) information provided by Whiting, including historical operating data, plans for future operating and capital expenditures, reserve information and information relating to projected production, and (B) conclusions and reports regarding reserves by the Trust’s independent reserve engineers. For a description of certain risks relating to these arrangements and risks relating to the Trustee’s reliance on information reported by Whiting and included in the Trust’s results of operations, see the Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011, Item 1A. Risk Factors “The Trust and the Trust unitholders have no voting or managerial rights with respect to the underlying properties. As a result, neither the Trust nor the unitholders have any ability to influence the operation of the underlying properties”.

Changes in Internal Control over Financial Reporting. During the quarter ended June 30, 2012, there has been no change in the Trustee’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Trustee’s internal control over financial reporting relating to the Trust. The Trustee notes for purposes of clarification that it has no authority over, and makes no statement concerning, the internal control over financial reporting of Whiting.

 

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PART II – OTHER INFORMATION

Item 1A. Risk Factors

Risk factors relating to the Trust are contained in Item 1A of the Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011. No material change to such risk factors has occurred during the six months ended June 30, 2012.

Item 6. Exhibits

The exhibits listed in the accompanying index to exhibits are filed as part of the Quarterly Report on Form 10-Q.

 

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SIGNATURES

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.

 

  WHITING USA TRUST I

By:    

 

THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A.

By:    

 

/s/ MIKE ULRICH

 

Mike Ulrich

 

Vice President

Date: August 9, 2012

The Registrant, Whiting USA Trust I, has no principal executive officer, principal financial officer, board of directors or persons performing similar functions. Accordingly, no additional signatures are available, and none have been provided. In signing the report above, the Trustee does not imply that it has performed any such function or that such function exists pursuant to the terms of the Trust agreement under which it serves.

 

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EXHIBIT INDEX

 

Exhibit

        Number        

        

Description

3.1*

     

Certificate of Trust of Whiting USA Trust I [Incorporated herein by reference to Exhibit 3.4 to the Registration Statement on Form S-1 (Registration No. 333-147543)]

3.2*

     

Amended and Restated Trust Agreement, dated April 30, 2008, among Whiting Oil and Gas Corporation, Equity Oil Company (subsequently merged into Whiting Oil and Gas Corporation), The Bank of New York Mellon Trust Company, N.A. (f/k/a The Bank of New York Trust Co., N.A.) as Trustee and Wilmington Trust Company as Delaware Trustee. [Incorporated herein by reference to Exhibit 3.1 to the Trust’s Current Report on Form 8-K filed on April 30, 2008 (File No. 001-34026)]

10.1*

     

Conveyance of Net Profits Interest, dated April 30, 2008, from Whiting Oil and Gas Corporation and Equity Oil Company (subsequently merged into Whiting Oil and Gas Corporation), to The Bank of New York Mellon Trust Company, N.A. (f/k/a The Bank of New York Trust Co., N.A.) as Trustee of Whiting USA Trust I. [Incorporated herein by reference to Exhibit 10.1 to the Trust’s Current Report on Form 8-K filed on April 30, 2008 (File No. 001-34026)]

10.2*

     

Administrative Services Agreement, dated April 30, 2008, by and between Whiting Oil and Gas Corporation and The Bank of New York Mellon Trust Company, N.A. (f/k/a The Bank of New York Trust Co., N.A.) as Trustee of Whiting USA Trust I. [Incorporated herein by reference to Exhibit 10.2 to the Trust’s Current Report on Form 8-K filed on April 30, 2008 (File No. 001-34026)]

10.3*

     

Registration Rights Agreement, dated April 30, 2008, by and between Whiting Petroleum Corporation and The Bank of New York Mellon Trust Company, N.A. (f/k/a The Bank of New York Trust Co., N.A.) as Trustee of Whiting USA Trust I. [Incorporated herein by reference to Exhibit 10.3 to the Trust’s Current Report on Form 8-K filed on April 30, 2008 (File No. 001-34026)]

31

     

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32

     

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

(*

Asterisk indicates exhibit previously filed with the SEC and incorporated herein by reference.)

 

21

XNYS:WHX Whiting USA Trust I Quarterly Report 10-Q Filling

Whiting USA Trust I XNYS:WHX Stock - Get Quarterly Report SEC Filing of Whiting USA Trust I XNYS:WHX stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XNYS:WHX Whiting USA Trust I Quarterly Report 10-Q Filing - 6/30/2012
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