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On June 28, 1983, The Louisiana Land and Exploration Company (herein Working Interest Owner or Company) created LL&E Royalty Trust (Trust) and distributed Units of Beneficial Interest (Units) in the Trust to the holders of record of capital stock of the Company on the basis of one Unit for each two shares of capital stock held on June 22, 1983. On October 22, 1997, the shareholders of the Company approved a definitive agreement to merge with Burlington Resources Inc. (BR). Effective on that date, the Company became a wholly owned subsidiary of BR. The merger has had no significant effects on the Trust. On March 31, 2006, ConocoPhillips acquired BR via merger into Cello Acquisition Corp., a wholly owned subsidiary of ConocoPhillips. The surviving entity of the merger was Cello Acquisition Corp., which changed its name to Burlington Resources Inc. (New BR) Consequently, New BR (including the Company) is a wholly owned subsidiary of ConocoPhillips. The merger has had no significant effects on the Trust. In December 2006, the Company, as working interest owner, and ExxonMobil, as the operator of the Jay Field, sold their respective interests in the Jay Field properties located in Florida and Alabama to Quantum Resource Management LLC (“Quantum”). Quantum began operating the Jay Field properties in April 2007. As used in this report, the terms “Working Interest Owner” and “Working Interest Owners” refer to The Louisiana Land and Exploration Company for the South Pass 89 and Offshore Louisiana properties and, after its December 2006 acquisition of the Jay Field interest, Quantum, for the Jay Field properties.
Upon creation of the Trust, the Company conveyed to the Trust (a) net overriding royalty interests (Overriding Royalties), which are equivalent to net profits interests, in certain productive oil and gas properties located in Alabama, Florida and in federal waters offshore Louisiana (Productive Properties) and (b) 3 percent royalty interests (Fee Lands Royalties) in approximately 400,000 acres of the Company’s then unleased, undeveloped south Louisiana fee lands (Fee Lands). The Overriding Royalties and the Fee Lands Royalties are referred to collectively as the “Royalties.” Title to the Royalties is held by a partnership (Partnership) of which the Trust and the Company are the only partners, holding 99 percent and 1 percent interests, respectively.
The Trust is passive, with The Bank of New York Mellon Trust Company, N.A., (the Trustee), having only such powers as are necessary for the collection and distribution of revenues resulting from the Royalties, the payment of Trust liabilities and the conservation and protection of the Trust estate. The Units are traded over the counter under the symbol LRTR.
The accompanying financial statements should be read in conjunction with the Trust’s Annual Report on Form 10-K for the year ended December 31, 2010.
Termination of the Trust and Recent Developments
The Trust Agreement provides that the Trust will terminate in the event that the net revenues fall below $5,000,000 for two successive years (the “Termination Threshold”). Net revenues are calculated as royalty revenues after administrative expenses of the Trust and as if the Trust had received its pro rata portion of any amounts being withheld by the Working Interest Owners or the Partnership under escrow arrangements or to make refund payments pursuant to the Conveyances (the Trust’s pro rata portion of escrowed amounts relating to the future dismantlement of platforms are included in the net revenue calculation for this purpose).
Net revenues to the Trust for the years ended December 31, 2007 and 2006 calculated as described above, were approximately $1,600,000 and $2,100,000, respectively. Consequently, the Trust is required to terminate and is required to sell the assets of the Trust for cash by means of a public auction. After paying or making provision for all actual and contingent liabilities of the Trust, including fees of the Trustee, the Trustee will distribute any remaining cash as promptly as practicable. Despite the termination of the Trust, the Trustee is continuing to act as Trustee for purposes of liquidating and winding up the affairs of the Trust. The Trustee does not expect to make any further monthly distributions to Unit holders in the interim period prior to any distribution resulting from the sale of the Trust’s assets. See “Management’s Discussion and Analysis.”
The Trustee has retained Stifel, Nicolaus & Company, Incorporated (“Stifel Nicolaus”), a nationally recognized investment banking firm, to market the Trust’s assets. However, as announced by the Trustee on October 22, 2008, the Trustee previously determined that, in light of market conditions at that time, it was in the best interests of the Trust unit holders to postpone the sale of the Trust’s assets for an indefinite period of time. The Trustee recommenced the marketing efforts in 2010. The Financial Advisor marketed the Trust’s assets and had received preliminary indications of interest in late 2010, and the Trustee intended to sell the assets in accordance with the terms of the Trust Agreement. However, as previously announced, in November 2010 the Trust and Trustee were named as defendants in a Complaint for Legal and Equitable Relief (the “Complaint”) filed by Jeff Beckett in the United States District Court for the Eastern District of Michigan. Mr. Beckett’s Complaint seeks a judicial modification of the terms of the Trust Agreement governing the Trust, a judgment declaring that the termination provisions of the Trust Agreement do not apply and an order preventing the sale of the Trust’s assets. The Complaint also makes a number of other allegations and seeks removal of the Trustee and other relief.
As a result of the Beckett lawsuit, certain of the bidders who had submitted preliminary indications of interest in purchasing the Trust’s remaining assets indicated that they were unwilling to proceed with the purchase of the Jay Field interest from the Trust until the Beckett lawsuit was resolved. Consequently, as previously disclosed in the Trust’s public filings, the Trustee suspended the sale process pending a resolution of the lawsuit. On March 4, 2011 the Court entered a stipulated order in which the Trust voluntarily agreed that the Trust would not sell any assets of the Trust until at least such time as the Court entered an order dismissing or transferring the case or preliminarily enjoining the sale of the assets. The Trustee filed a Motion to Dismiss for Failure to Join Required Parties, or, in the Alternative, to Transfer Venue with the Court seeking dismissal of the suit and/or transfer of the suit to the United States District Court for the Western District of Texas.
On July 7, 2011, Mr. Beckett and the Trust entered into a settlement agreement pursuant to which Mr. Beckett agreed to dismiss his lawsuit with prejudice within ten days after the Trust held a meeting of the Unitholders for the purpose of appointing Premier Bank & Trust, National Association, as successor trustee, provided that notice of the Meeting was mailed by August 1, 2011 and the Meeting occurred by September 1, 2011. The notice of the meeting to appoint Premier was mailed by August 1, 2011 and the meeting to appoint Premier occurred by September 1, 2011. However, Premier refused to accept its appointment, and Mr. Beckett has asserted that the settlement agreement did not require him to dismiss his lawsuit.
Although the Trustee believes that the settlement agreement clearly required the dismissal of the Beckett lawsuit, the Trustee has called a second meeting of the Unitholders for the purpose of voting on a proposal by Mr. Beckett to appoint James E. Barlett as successor trustee. In connection with the calling of the second meeting, Mr. Beckett dismissed his lawsuit with prejudice.
The Trust Agreement provides that if any asset required to be sold has not been sold by December 31, 2010, the Trustee is to cause the asset to be sold at public auction to the highest cash bidder. Consequently, unless replaced or otherwise prevented from doing so, the Trustee intends to auction the remaining Trust assets in accordance with the Trust Agreement. The Trustee will mail notice of any public auction to all Unit holders at least 30 days prior to any such auction in accordance with the Trust Agreement. No approval of the Unit holders will be required in connection with the sale of the Trust’s assets.
As of September 30, 2011, the Trust had $10,968 in cash (all of which had been advanced to the Trust by Bank of New York (BNY) Mellon, as described below) and was holding unpaid invoices for administrative services totaling approximately $436,399. In addition, BNY Mellon, an affiliate of the Trustee, has made interest-free advances to enable the Trust to pay administrative expenses. As of September 30, 2011, the total amount advanced to the Trust (the “Bank Advance”) by BNY Mellon was $2,379,347. Based on current general and administrative expenditures, in the absence of Royalty Revenues, the Trustee expects that the Trust will be required to borrow money in accordance with the Trust Agreement to fund future Trust expenses. However, no assurance can be given that the Trust will be able to borrow money on terms the Trustee considers reasonable or at all. The Trust Agreement permits, but does not require, The Bank of New York Mellon Trust Company, N.A. or an affiliate to lend funds to the Trust. The Trust Agreement prohibits the Trust from making any distributions to unitholders until all loans are repaid in full.
As of November 10, 2011, the Trust had no cash except for the cash advanced to the Trust by BNY Mellon, as affiliate of the Trustee, as an interest-free advance to enable the Trust to pay administrative expenses. As of November 10, 2011, the total amount advanced to the Trust (the “Bank Advance”) by the Bank was $2,582,294, of which $8,769 remained available to pay expenses at November 10, 2011. However, at November 10, 2011, in addition to the amount owed to the Bank, the Trust was also holding unpaid invoices for administrative services totaling $619,153. See Management’s Discussion and Analysis. The entire amount of the Bank Advance and all other liabilities and expenses of the Trust must be repaid before any distribution can be made to Unit holders.
For the first nine months of 2011, the Trust did not receive any royalty revenue. Excess production costs must be recovered by the Working Interest Owners before any distribution of royalty revenues will be made to the Trust. During the first nine months of 2010, the Trust did not receive any royalty revenue except for $50 of royalty revenue from the Fee Lands property.
On May 31, 2013, James E. Barlett, the trustee (“Trustee”) of the LL&E Royalty Trust (the “Trust”) held a meeting (the “Special Meeting”) of holders of units (“Units”) to vote on the following proposals:
1. To remove James E. Barlett as trustee of LL&E Royalty Trust, and appoint Roger D. Parsons as successor trustee, all pursuant to Section 8.01 of the Trust Agreement of LL&E Royalty Trust dated June 1, 1983, as amended (“Proposal 1”);
2. To amend Section 8.03 of the Trust Agreement removing the requirement that a trustee appointed pursuant to Section 8.03 shall be a national banking association domiciled in the United States which has a capital surplus and undivided profits of at least One Hundred Million Dollars ($100,000,000.00) (“Proposal 2”);
3. To amend Section 1 of Exhibit IV of the Trust Agreement relating to Trustee compensation to propose an increase in the minimum annual charge and include a fee escalator beginning on January 1, 2014 (“Proposal 3”);
4. To amend Section 9.01(a) of the Trust Agreement to provide for the termination of the Trust, in the event net revenues of the Trust in any two successive years have decreased or are such that, in the sole opinion of the Trustee, the Trust is no longer economically viable; provided, however, that the Trustee shall not take into account decreased net revenues in any given year due to Force Majeure Events (“Proposal 4”);
5. To amend Section 4.04 of the Trust Agreement relating to delivery of certain reports required to be provided by the Trustee pursuant to Section 4.04 to the holders of certificates, to propose that in lieu of delivery of such reports by United States mail, the Trustee may deliver any such reports to the holders of certificates through publication via filing with the Securities and Exchange Commission, Internet notification or through other electronic means (“Proposal 5”);
6. To amend Section 9.02 of the Trust Agreement to provide that the Trustee may sell for cash, in connection with a plan to terminate the Trust, in one or more sales, all the assets held in the Trust (“Proposal 6”); and
7. To amend Section 6.12 of the Trust Agreement to provide that the Trustee is authorized to borrow such amounts necessary to prosecute or defend any action by or against the Trust as the Trustee deems advisable and to reimburse any unitholder for any legal expenses or costs advanced by the unitholder which were expended for the benefit of the Trust (“Proposal 7” and together with Proposal 1, Proposal 2, Proposal 3, Proposal 4, Proposal 5 and Proposal 6, the “Proposals”).
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