North European Oil Royalty Trust
Annual Report 2017

Plain-text annual report

Annual Report 2017 North European Oil Royalty Trust ATTENTION: PLEASE RETAIN CRITICAL TAX INFORMATION ENCLOSED NORTH EUROPEAN OIL ROYALTY TRUST The Annual Meeting of Unit Owners will be held on February 20, 2018, at 10:00 A.M., in Room A, Seventh Floor, at The University Club, 1 West 54th Street, New York City (northwest corner of 5th Avenue; entrance on 54th Street). All unit owners are cordially invited to attend. If you plan to attend the meeting, please note that The University Club has a dress code. Men are required to wear a jacket and tie and women are required to wear business attire. The University Club does not make exceptions. Table of Contents Report to Unit Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ten Year History of Net Gas Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Proved Producing Gas Reserves (Est.) and Volume of Net Gas Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Gross Gas Sale Volumes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Description of Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . Critical Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Distributions and Trading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Comparison of Five Year Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dollar Royalties Western and Eastern Oldenburg . . . . . . . . . . . . . . . . . . Report of Independent Registered Public Accounting Firm . . . . . . . . . . Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Notes to Financial Statements Disclosure Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . Internal Control over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 Tax Letter (Removable) 1-3 4 5 6 7 8-9 10-17 18 19 20-21 22 23 24-27 28-30 31 31-32 33-36 IMPORTANT TAX INFORMATION For your convenience, the information necessary to prepare your 2017 tax return is included in the removable “2017 Tax Letter” on Pages 33 through 36. Please note that there will be no separate mailing of the tax letter. NORTH EUROPEAN OIL ROYALTY TRUST Report to Unit Owners: FOURTH QUARTER 2017 Net income for the Trust for the fourth quarter of fiscal 2017 was $2,010,828, an increase of 86.48% from net income of $1,078,292 for the fourth quarter of fiscal 2016. The Trust receives nearly all of its royalties under two royalty agreements. The Mobil Agreement, the higher royalty rate agreement, covers gas sales from the western half of the Oldenburg concession. The OEG Agreement, the lower royalty rate agreement, covers gas sales from the entire Oldenburg concession. Total royalties, including sulfur royalties, under the Mobil Agreement for the fourth quarter of fiscal 2017 were increased by positive adjustments of $46,974, as compared to negative adjustments totaling $282,080 for the fourth quarter of fiscal 2016. Total royalties under the OEG Agreement for the fourth quarter of fiscal 2017 were increased by a combination of negative and positive adjustments totaling $177,678, as compared to negative adjustments totaling $147,857 for the fourth quarter of fiscal 2016. Net income in the fourth quarter of 2017 was higher than the fourth quarter of 2016 due to the impact of these adjustments as well as higher gas prices and higher average exchange rates. The relevant details for the fourth quarters of fiscal 2017 and 2016 for gas sales under the Mobil and OEG Agreements are shown in the table below. 3rd Calendar Quarter Ended 9/30/2017 Factors Determining Gas Royalties Payable 3rd Calendar Quarter Ended 9/30/2016 Percentage Change Mobil Agreement: Gas Sales (Bcf1) Gas Prices2 (Ecents/Kwh3) Average Exchange Rate4 Gas Royalties OEG Agreement: Gas Sales (Bcf) Gas Prices (Ecents/Kwh) Average Exchange Rate Gas Royalties 5.643 1.6197 1.1806 $1,228,092 17.770 1.6517 1.1788 $500,886 6.688 1.3753 1.1047 $1,166,681 18.752 1.4025 1.1068 $406,887 - 15.63% +17.77% + 6.87% + 5.26% - 5.24% +17.77% + 6.51% +23.10% 1Billion cubic feet 3Euro cents per Kilowatt hour 2Gas prices derived from May-July period 4Based on average Euro/dollar exchange rates of cumulative royalty transfers FISCAL 2017 REPORT For fiscal 2017, the Trust’s gross royalty income increased 11.51% to $7,762,225 from $6,960,961 in fiscal 2016 reflecting the moderate strengthening of the world energy markets. The increase in royalty income is primarily the result of positive adjustments in 2017 and negative adjustments in 2016. As in prior years, the Trust receives information concerning adjustments 1 NORTH EUROPEAN OIL ROYALTY TRUST from the operating companies based on their final calculations of royalties payable during the previous periods as well as other required adjustments. During fiscal 2017, the adjustments based on royalties payable for 2016 increased royalty income by $411,884. During fiscal 2016, the combination of positive and negative adjustments, including the year-end adjustments, reduced royalty income by $381,886. A similar situation occurred with respect to royalties paid under the Mobil Sulfur Agreement. In fiscal 2017, Mobil sulfur royalties totaled $43,932. In fiscal 2016 however, royalties under the Mobil Sulfur Agreement resulted in a net negative adjustment of $51,576 due to EMPG’s incorrect inclusion in prior years of eastern sulfur sales in the royalty calculation. Further details relating to the changes in gas sales, gas prices and average exchange rates for fiscal 2017 and 2016 are presented on pages 13 through 15. The increase in the amount of royalty income resulted in the higher distributions. The total distribution for fiscal 2017 was $0.76 per unit compared to $0.67 per unit for fiscal 2016. The Trust’s German consultant periodically contacts the representatives of the operating companies to inquire about their planned and proposed drilling and geophysical work and other general matters. The following represents a summary of the most recent information the Trust’s German consultant received from representatives of the operating companies’ unified exploration and production venture, ExxonMobil Production Deutschland GmbH (“EMPG”). The Trust is not able to confirm the accuracy of any of the information supplied by the operating companies. In addition, the operating companies are not required to take any of the actions outlined and, if they change their plans with respect to any such actions, they are not obligated to inform the Trust. EMPG has indicated that it plans to resume drilling in 2018, after having previously suspended all drilling activities for 2015 through 2017 due to the continuing difficulties caused by low energy prices worldwide and the uncertainties posed by ongoing changes in German regulations. If EMPG follows through with the drilling activities contained in its drilling schedule, 2018 will be a busy year including one workover and four horizontal deviations off existing wells. All the 2018 planned wells, Doetlingen Z-3A, as well as the multilateral wells, Brettorf Z-2b, Goldenstedt Z-12a M1, Goldenstedt Z-25a M1, are located in eastern Oldenburg and are intended to further develop the Zechstein zone through infill drilling. Multilateral wells take advantage of a single master well to draw from multiple sidetracks. The primary advantage is the cost saving in using a single borehole for more than one sidetrack. The 2018 workover is being attempted on a western Zechstein well, Visbek Z-16a. Visbek Z-16a suffered a severe casing collapse six months after it began production and was shut down in October 2013. Due to costs it is believed this work-over will be limited to an attempt to repair the original casing. We have no start dates nor estimated completion times for any of these wells or the workover. The first well listed for 2019 is Hemmelte NW T-1 and is planned to develop a new area of the sweet gas Bunter zone in western Oldenburg. This well was initially planned as a dual purpose well tapping both the Bunter and the deeper Zechstein zones but, due to technical difficulties, was scaled back. An additional well to be sighted near the Hemmelte NW well and intended to access the Zechstein zone at a later date was 2 NORTH EUROPEAN OIL ROYALTY TRUST initially mentioned but no further information has been forthcoming. The second well listed for 2019, Ahlhorn Z-3, is a sour gas well. The well will attempt to reactivate the Ahlhorn field which had been abandoned in 1997. The only new well listed for 2020 is Jeddeloh Z-1. Jeddeloh Z-1 is the first well being drilled in the Oldenburg concession with Vermilion as the lead developer. The well is an exploration well tentatively located in the western portion of the area designated as Oldenburg-Land, the southernmost area of the three areas within the concession subject to Vermilion’s Farm-In Agreement. Vermilion’s well is intended to develop the Rotliegend (Red Sandstone) formation, a previously undeveloped productive zone within the concession. Oldenburg-Land is a relatively undeveloped area of the concession compared to the southern area of Müensterland-Cloppenburg-Vechta where the majority of the wells operated by EMPG are located. Our understanding of the terms of the original Farm-In Agreement would seem to indicate that there will have to be some further negotiations between Vermilion and EMPG to extend the original time frame. The Trust’s consultant in Germany will continue to monitor this situation. No firm dates have been announced for any of the wells described above. Information on wells that are not named or are in preliminary planning stages is not divulged by EMPG. Based on the limited information available, Graves & Co. Consulting, LLC, the Trust’s petroleum consultant (“Graves & Co.”), has prepared and submitted their report on the cost depletion percentage applicable to Trust unit owners for calendar 2017. The 2017 cost depletion percentage of 11.6635% and related tax information is contained in the removable “2017 Tax Letter” on Pages 36 through 39 of the cost depletion percentage is based on Graves & Co.’s estimate of remaining net proved producing reserves as of October 1, 2017. (The complete text of the report is available in the Trust’s 2017 Report on Form 10-K as exhibit 99.1.) The application of the Trust’s two royalty rates to gross remaining proved producing gas reserves or to gross gas sales for both eastern and western Oldenburg yields the net gas reserves or sales attributable to the Trust, as referenced in the charts on pages 5 and 6. The report indicates that net Trust gas reserves decreased 18.65% to 9.936 Bcf from 12.214 Bcf on net sales for 2017 of 1.330 Bcf and a negative reserve adjustment of 0.948 Bcf. As shown in the chart on page 6, the absence of drilling by the operating companies failed to replace current gas sales with additions to proved producing reserves. this report. The calculation of Respectfully submitted, December 28, 2017 John R. Van Kirk Managing Director 3 4 TEN YEAR HISTORY OF NET GAS SALE VOLUMES 4 3 2 1 0 T E E F C I B U C N O I L L I B 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Adjusted for Effective Royalty Rates Applicable to Western and Eastern Oldenburg WESTERN OLDENBURG EASTERN OLDENBURG NORTH EUROPEAN OIL ROYALTY TRUST NET PROVED PRODUCING GAS RESERVES (EST.) AND VOLUME OF NET GAS SALES T E E F C I B U C N O I L L I B 40 35 30 25 20 15 10 5 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 As of October 1st NET PROVED PRODUCING RESERVES (EST.) ANNUAL NET SALES 5 6 NORTH EUROPEAN OIL ROYALTY TRUST North European Oil Royalty Trust Selected Financial Data (Cash Basis) For Fiscal Years Ended October 31 2017 2016 2015 2014 2013 Gas, sulfur and oil royalties received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,762,225 $6,960,961 $12,390,575 $18,927,005 $21,546,298 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,352 4,548 9,439 18,724 25,363 Trust expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (740,129) (824,368) (819,341) (901,150) (936,355) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,026,448 $6,141,141 $11,580,673 $18,044,579 $20,635,306 Net income per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.76 $ 0.67 $ 1.26 $ 1.96 $ 2.25 Distributions per unit paid or to be paid to unit owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.76 $ 0.67 $ 1.27 $ 1.95 $ 2.25 Units outstanding end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,190,590 9,190,590 9,190,590 9,190,590 9,190,590 NORTH EUROPEAN OIL ROYALTY TRUST GROSS GAS SALE VOLUMES 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 WESTERN OLDENBURG EASTERN OLDENBURG T E E F C I B U C N O I L L I B 140 120 100 80 60 40 20 0 7 NORTH EUROPEAN OIL ROYALTY TRUST Description of Trust Assets The properties of the Trust, which the Trust and Trustees hold pursuant to the Trust Agreement on behalf of the unit owners, are overriding royalty rights on sales of gas, sulfur and oil under certain concessions or leases in the Federal Republic of Germany. The actual leases or concessions are held either by Mobil Erdgas-Erdol GmbH (“Mobil Erdgas”), a German operating subsidiary of ExxonMobil, or by Oldenburgische Erdolgesellschaft (“OEG”). As a result of direct and indirect ownership, ExxonMobil owns two-thirds of OEG and the Royal Dutch/Shell Group of Companies owns one-third of OEG. The Oldenburg concession (1,386,000 acres), covering virtually the entire former Grand Duchy of Oldenburg and located in the German federal state of Lower Saxony, provides 100% of the royalties received by the Trust. BEB Erdgas und Erdol GmbH (“BEB”), a joint venture in which ExxonMobil and the Royal Dutch/Shell Group each own 50%, administers the concession held by OEG. In 2002, Mobil Erdgas and BEB formed EMPG to carry out all exploration, drilling and production activities. All sales activities are still handled by either Mobil Erdgas or BEB. Vermilion Energy Inc. (“Vermilion”), a Canadian based international oil and gas producer, entered into a Farm-In Agreement (the “Farm-In Agreement”) with Mobil Erdgas and BEB. The Farm-In Agreement specifies that Vermilion has acquired an interest in various portions of a concession or areas owned by Mobil Erdgas and BEB. Three of these licenses cover the three northernmost areas of the Oldenburg concession. The Farm-In Agreement commits Vermilion to financial participation at a 50% level in 11 gross exploratory wells over the next five years. If Vermilion conducts any successful drilling within the confines of the Oldenburg concession, sales of that gas or oil would be subject to the relevant royalty contract. The Trust’s German consultant has confirmed for the Trust that Vermilion will lead the development of its first well within the Oldenburg concession with a possible start time in 2020. The well is tentatively located in the western portion of the area designated Oldenburg-Land, the southernmost area of the three areas within the concession subject to Vermilion’s Farm-In Agreement. Vermilion’s well is intended to develop the Rotliegend (Red Sandstone) formation, a previously undeveloped productive zone within the concession. The information regarding Vermilion’s activities within the Oldenburg concession was conveyed to the Trust’s German consultant by representatives of EMPG. Under the Mobil Agreement covering the western part of the Oldenburg concession (approximately 662,000 acres), the Trust receives a royalty payment of 4% on gross receipts from sales by Mobil Erdgas of gas well gas, oil well gas, crude oil and condensate. Under the Mobil Agreement there is no deduction of costs prior to the calculation of royalties from gas well gas and oil well gas, which together account for approximately 98% of all the royalties under said agreement. Historically, the Trust has received significantly greater royalty payments under the Mobil Agreement (as compared to the OEG Agreement described below) due to the higher royalty rate specified by that agreement. The Trust is also entitled under the Mobil Sulfur Agreement to receive a 2% royalty on gross receipts of sales of sulfur obtained as a by-product of sour gas produced from the western part of Oldenburg. The payment of the sulfur royalty is conditioned upon sales of sulfur by Mobil Erdgas at a selling price above an agreed upon base price. This base price is adjusted annually by an inflation index. When the average quarterly selling price falls below the indexed base price, no sulfur royalties are paid by Mobil Erdgas. Sulfur royalties under the Mobil Agreement totaled $43,932, ($51,576) and $78,094 during fiscal 2017, 2016 and 2015, respectively. The 2016 figure includes negative adjustments from 2015, 2013, 2012 and 2011 of $36,336, $43,087, $186,045 and $56,225, which more than offset sulfur royalties payable. The 2015 figure includes negative 8 NORTH EUROPEAN OIL ROYALTY TRUST adjustments from 2014 and 2013 of $80,516 and $134,832, respectively. The operating companies had improperly allocated eastern sulfur sales to the Mobil Agreement during 2015, 2014, 2013, 2012 and 2011 resulting in the overpayment of sulfur royalties. Under the OEG Agreement covering the entire Oldenburg concession, the Trust receives royalties at the rate of 0.6667% on gross receipts from sales by BEB of gas well gas, oil well gas, crude oil, condensate and sulfur (removed during the processing of sour gas) less a certain allowed deduction of costs. Under the OEG Agreement, 50% of the field handling and treatment costs as reported for state royalty purposes are deducted from the gross sales receipts prior to the calculation of the royalty to be paid to the Trust. On August 26, 2016, the Trust executed amendments to its existing royalty agreements with OEG and Mobil establishing a new base for the determination of gas prices upon which the Trust’s royalties are determined. This new base is set as the state assessment base for natural gas used by the operating companies in their calculation of royalties payable to the State of Lower Saxony. Currently, this change reflects a shift from the use of gas ex-field prices (“contractual prices”) to the prices calculated for the GBIP (German Border Import gas Price). For simplification purposes, we will use GBIP when referring to the current state assessment base. The change to the GBIP is intended to be revenue neutral for the Trust. Additionally, this change should reduce the scope and cost of the accounting examination, eliminate ongoing disputes with OEG and Mobil regarding sales to related parties, and reduce prior year adjustments to the normally scheduled year-end reconciliation. The new pricing basis will also eliminate certain costs (transportation and plant gas storage) that were previously deductible prior to the royalty calculation under the agreement with OEG. Actual gas sales from the prior calendar quarter will be multiplied by the average GBIP for a period starting two months earlier and will provide the basis for royalty payments to the Trust during its fiscal quarter. The average GBIP for the corresponding period of actual sales is not available due to the delay in its calculation. In the final calculation of royalties payable for calendar 2015, the average GBIP under the Mobil and OEG Royalty Agreements was increased by 2% and 5%, respectively. For calendar 2016 and forward, the average GBIP under the Mobil and OEG Royalty Agreements will be increased by 1% and 3%, respectively. In March of the following calendar year, an average GBIP for the prior calendar year (weighted on a monthly basis by the respective volume of imported gas) is published. In the following calendar year, EMPG will make a final reconciliation based upon the published yearly average GBIP increased by the respective percentage factor and the total volume of gas sold under the royalty agreements during the prior calendar year. The new basis for oil prices would be the published price from the State Authority for Mining, Energy and Geology. There are no percentage adjustments factored into the oil royalty calculation. There was no change in the previous methodology used with regard to the determination of royalties attributable to sales of sulfur. In addition to the Oldenburg area, the Trust also holds overriding royalties at various rates on a number of currently non-producing leases of various sizes in other areas of Germany. One of these leases, Grosses Meer, was formerly active but provided no royalties during fiscal 2017, 2016 and 2015. 9 NORTH EUROPEAN OIL ROYALTY TRUST Management’s Discussion and Analysis of Financial Condition and Results of Operations Executive Summary The Trust is a passive fixed investment trust which holds overriding royalty rights, receives income under those rights from certain operating companies, pays its expenses and distributes the remaining net funds to its unit owners. As mandated by the Trust Agreement, distributions of income are made on a quarterly basis. These distributions, as determined by the Trustees, constitute substantially all of the funds on hand after provision is made for Trust expenses then anticipated. The Trust does not engage in any business or extractive operations of any kind in the areas over which it holds royalty rights and is precluded from engaging in such activities by the Trust Agreement. There are no requirements, therefore, for capital resources with which to make capital expenditures or investments in order to continue the receipt of royalty revenues by the Trust. The properties of the Trust are described above in “Description of Trust Assets.” Of particular importance with respect to royalty income are the two royalty agreements, the Mobil Agreement and the OEG Agreement. The Mobil Agreement covers gas sales from the western part of the Oldenburg concession. Under the Mobil Agreement, the Trust has traditionally received the majority of its royalty income due to the higher royalty rate of 4%. The OEG Agreement covers gas sales from the entire Oldenburg concession but the royalty rate of 0.6667% is significantly lower and gas royalties have been correspondingly lower. The operating companies pay monthly royalties to the Trust based on their sales of natural gas, sulfur and oil. Of these three products, natural gas provided approximately 96% of the total royalties in fiscal 2017. The amount of royalties paid to the Trust is primarily based on four factors: the amount of gas sold, the price of that gas, the area from which the gas is sold and the exchange rate. On approximately the 25th of the months of January, April, July and October, the operating companies calculate the amount of gas sold during the previous calendar quarter and determine the amount of royalties that were payable to the Trust based on those sales. The pricing component to this royalty calculation no longer conforms to the same period. Due to the delay in the availability of the GBIP, the average GBIP for a three-month period ending two months prior to the end of the relevant calendar quarter is used. The average GBIP is increased by a percentage factor depending upon which royalty agreement forms the underlying basis for the royalty calculation. This timetable, the determination of the appropriate GBIP, and the percentage factor were set forth in the amendments to the Mobil and OEG Royalty Agreements signed on August 26, 2016. The respective royalty amount is divided into thirds and forms the monthly royalty payments to the Trust (payable on the 15th of each month) for the Trust’s upcoming fiscal quarter. At the same time that the operating companies determine the actual amount of royalties that were payable for the prior calendar quarter, they look at the actual amount of royalties that were paid to the Trust for that period and calculate the difference between what was paid and what was payable. Additional amounts payable by the operating companies would be paid immediately and any overpayment would be deducted from the payment for the first month of the following fiscal quarter. In March of the following calendar year, an average GBIP for the prior calendar year (weighted on a monthly basis by the respective volume of imported gas) is published. In the succeeding calendar year, the operating companies make the final determination of any necessary royalty adjustments for the prior calendar year with a positive or negative adjustment made accordingly. Currently, the Trust’s German accountants review the royalty calculations on a biennial basis. 10 NORTH EUROPEAN OIL ROYALTY TRUST There are two types of natural gas found within the Oldenburg concession, sweet gas and sour gas. Sweet gas has little or no contaminants and needs no treatment before it can be sold. Sour gas, in comparison, must be processed at the Grossenkneten desulfurization plant before it can be sold. The desulfurization process removes hydrogen sulfide and other contaminants. The hydrogen sulfide in gaseous form is converted to sulfur in a solid form and sold separately. As needed, EMPG, the operator of the Grossenkneten desulfurization plant, conducts maintenance on the plant, generally during the summer months when demand is lower. Historically, sour gas production capacity during the period of maintenance work has been reduced by approximately one-third. There was no maintenance conducted during 2016. Maintenance was conducted from March 2017 through mid-April 2017. The operating companies have informed the Trust that, to promote greater efficiency and cost effectiveness, the production capacity of Grossenkneten was reduced by approximately one-third through the retirement of Unit 3. Raw gas input capacity now stands at approximately 400 million cubic feet (“MMcf ”) per day. Under the Mobil and OEG Agreements, the gas is sold in one of three ways: (1) directly on the spot market; (2) between Mobil Erdgas and BEB (intra-company sales); or (3) directly to various distributors under contracts (which delineate, among other provisions, the timing, manner, volume and price of the gas sold). While the operating companies will continue to sell gas in one of these three ways, the impact of the respective pricing involved is no longer applicable to the Trust because, under the amended royalty agreements, the price point, which is used as part of the basis for the royalty calculations, is now the average GBIP. The Trust’s accountants in Germany have begun their examination of the operating companies for 2015 and 2016, which will be performed in accordance with the provisions of the amended royalty agreements. For unit owners, changes in the dollar value of the Euro have an immediate impact. This impact occurs at the time the royalties, which are paid to the Trust in Euros, are converted into U.S. dollars at the applicable exchange rate and transferred from Germany to the United States. In relation to the dollar, a stronger Euro would yield more dollars and a weaker Euro would yield less dollars. Seasonal demand factors affect the income from the Trust’s royalty rights insofar as they relate to energy demands and increases or decreases in prices, but on average they are generally not material to the annual income received under the Trust’s royalty rights. The Trust has no means of ensuring continued income from overriding royalty rights at their present level or otherwise. The Trust’s consultant in Germany provides general information to the Trust on the German and European economies and energy markets. This information provides a context in which to evaluate the actions of the operating companies. The Trust’s consultant receives reports from EMPG with respect to current and planned drilling and exploration efforts. However, EMPG and the operating companies continue to limit the information flow to that which is required by German law. The low level of administrative expenses of the Trust limits the effect of inflation on costs. Sustained price inflation would be reflected in sales prices. Sales prices along with sales volumes form the basis on which the royalties paid to the Trust are computed. 11 NORTH EUROPEAN OIL ROYALTY TRUST Results: Fiscal 2017 versus Fiscal 2016 For fiscal 2017, the Trust’s gross royalty income increased 11.51% to $7,762,225 from $6,960,961 in fiscal 2016. The increase in the amount of royalty income resulted in the higher distributions. The total distribution for fiscal 2017 was $0.76 per unit compared to $0.67 per unit for fiscal 2016. While gas prices under both royalty agreements increased, gas sales under both royalty agreements declined and average exchange rates were mixed. As a result, royalty income attributable to gas sales under the Mobil Agreement in fiscal 2017 declined by $175,099 as compared to fiscal 2016. Royalty income attributable to gas sales under the OEG Agreement in fiscal 2017 increased by $44,239 as compared to fiscal 2016. The increase in royalty income for fiscal 2017 is primarily the result of positive adjustments in 2017 and negative adjustments in fiscal 2016. As in prior years, the Trust receives adjustments from the operating companies based on their final calculations of royalties payable during the previous periods. During fiscal 2017, the adjustments based on royalties payable for 2016 increased royalty income by $411,884, the equivalent of $0.0448 per unit. During fiscal 2016, the combination of positive and negative adjustments, including the year-end adjustments, reduced royalty income by $381,886, the equivalent of $0.0416 per unit. A similar situation occurred with respect to royalties paid under the Mobil Sulfur Agreement. In fiscal 2017, Mobil sulfur royalties totaled $43,932. In fiscal 2016 however, royalties under the Mobil Sulfur Agreement resulted in a net negative adjustment of $51,576 due to EMPG’s incorrect inclusion in prior years of eastern sulfur sales in the royalty calculation. Gas sales under the Mobil Agreement declined 5.90% to 23.566 Billion cubic feet (“Bcf ”) in fiscal 2017 from 25.043 Bcf in fiscal 2016. Since the Trust does not receive information about the decision-making process of the operating companies, it is impossible to determine to what extent, if any, which factors may have impacted gas sales. However, according to the Trust’s consultant in Germany, it is likely that some portion of the decline in gas production is due to the normal reduction in well pressure that is experienced over time. The suspension of all drilling activities during the 2015-2017 period likely has also impacted gas sales. Quarterly and Yearly Gas Sales under the Mobil Agreement in Billion cubic feet Fiscal Quarter First Second Third Fourth Fiscal Year Total 2017 Gas Sales 6.489 5.934 5.500 5.643 23.566 2016 Gas Sales 6.604 6.834 4.917 6.688 25.043 Percentage Change - 1.74% - 13.17% + 11.86% - 15.63% - 5.90% Average prices for gas sold under the Mobil Agreement increased 3.35% to 1.6401 Euro cents per Kilowatt hour (“€cents/kWh”) in fiscal 2017 from 1.5870 €cents/kWh in fiscal 2016. Average Gas Prices under the Mobil Agreement in Euro cents per Kilowatt Hour Fiscal Quarter First Second Third Fourth Fiscal Year Avg. 2017 Gas Prices 1.4789 1.7434 1.7406 1.6197 1.6401 2016 Gas Prices 1.8649 1.5622 1.5363 1.3753 1.5870 Percentage Change - 20.70% + 11.60% + 13.30% + 17.77% + 3.35% 12 NORTH EUROPEAN OIL ROYALTY TRUST Converting gas prices into more familiar terms, using the average exchange rate, yielded a price of $5.17 per thousand cubic feet (“Mcf ”), a 2.58% decrease from fiscal 2016’s average price of $5.04/Mcf. For fiscal 2017, royalties paid under the Mobil Agreement were converted and transferred at an average Euro/dollar exchange rate of $1.1038, a decrease of 0.41% from the average Euro/dollar exchange rate of $1.1083 for fiscal 2016. Average Euro Exchange Rate under the Mobil Agreement Fiscal Quarter First Second Third Fourth Fiscal Year Avg. 2017 Average Euro Exchange Rate 1.0582 1.0625 1.1175 1.1806 1.1038 2016 Average Euro Exchange Rate 1.0881 1.1173 1.1185 1.1047 1.1083 Percentage Change - 2.75% - 4.90% - 0.09% + 6.87% - 0.41% Excluding the effects of differences in prices and average exchange rates, the combination of royalty rates on gas sold from western Oldenburg results in an effective royalty rate approximately seven times higher than the royalty rate on gas sold from eastern Oldenburg. This is of particular significance to the Trust since gas sold from western Oldenburg provides the bulk of royalties paid to the Trust. For fiscal 2017, the volume of gas sold from western Oldenburg accounted for only 31.61% of the volume of all gas sales. However, western Oldenburg gas royalties provided approximately 78.79% or $5,845,817 out of a total of $7,419,509 in overall Oldenburg gas royalties. Gas sales under the OEG Agreement decreased 3.46% to 74.544 Bcf in fiscal 2017 from 77.213 Bcf in fiscal 2016. Since the Trust does not receive information about the decision-making it is impossible to determine to what extent EMPG’s process of the operating companies, decisions may have impacted gas sales. However, according to the Trust’s consultant in Germany, it is likely that some portion of the decline in gas production is due to the normal reduction in well pressure that is experienced over time. The suspension of all drilling activities during the 2015-2017 period likely has also impacted gas sales. Quarterly and Yearly Gas Sales under the OEG Agreement in Billion cubic feet Fiscal Quarter First Second Third Fourth Fiscal Year Total 2017 Gas Sales 20.060 18.885 17.829 17.770 74.544 2016 Gas Sales 20.507 20.434 17.520 18.752 77.213 Percentage Change - 2.18% - 7.58% + 1.76% - 5.24% - 3.46% Average gas prices for gas sold under the OEG Agreement increased 2.96% to 1.6745 €cents/ kWh in fiscal 2017 from 1.6264 €cents/kWh in fiscal 2016. 13 NORTH EUROPEAN OIL ROYALTY TRUST Average Gas Prices under the OEG Agreement in Euro cents per Kilowatt Hour Fiscal Quarter First Second Third Fourth Fiscal Year Avg. 2017 Gas Prices 1.5081 1.7779 1.7750 1.6517 1.6745 2016 Gas Prices 1.9803 1.5282 1.5667 1.4025 1.6264 Percentage Change - 23.84% + 16.34% + 13.30% + 17.77% + 2.96% Converting gas prices into more familiar terms, using the average exchange rate, yielded a price of $5.21 Mcf, a 3.37% increase from fiscal 2016’s average price of $5.04/Mcf. For fiscal 2017, royalties paid under the OEG Agreement were converted and transferred at an average Euro/ dollar exchange rate of $1.1101, an increase of 0.43% from the average Euro/dollar exchange rate of $1.1053 for fiscal 2016. Average Euro Exchange Rate under the OEG Agreement Fiscal Quarter First Second Third Fourth Fiscal Year Avg. 2017 Average Euro Exchange Rate 1.0590 1.0630 1.1175 1.1788 1.1101 2016 Average Euro Exchange Rate 1.0874 1.1171 1.1159 1.1068 1.1053 Percentage Change - 2.61% - 4.84% + 0.14% + 6.51% + 0.43% Interest income for fiscal 2017 of $4,352 declined slightly from interest income of $4.548 for fiscal 2016. Trust expenses decreased $84,239, or 10.22%, to $740,129 in fiscal 2017 from $824,368 in fiscal 2016 due to lower legal expenses, both domestic and German. These lower legal expenses resulted from the completion in fiscal 2016 of the amendments to the Mobil and OEG Royalty Agreements. In addition, German accounting expenses were lower due to the completion in fiscal 2016 of the examination of the royalty companies for the 2013-2014 period. 14 NORTH EUROPEAN OIL ROYALTY TRUST Results: Fiscal 2016 versus Fiscal 2015 For fiscal 2016, the Trust’s gross royalty income decreased 43.82% to $6,960,961 from $12,390,575 in fiscal 2015 continuing to reflect the disruption in the energy market and the uncertainty of the world economy. The decrease in royalty income is due to declines in gas sales, gas prices and average exchange rates under both royalty agreements. The decrease in the amount of royalty income resulted in the lower distributions. The total distribution for fiscal 2016 was $0.67 per unit compared to $1.27 per unit for fiscal 2015. As in prior years, the Trust receives adjustments from the operating companies based on their final calculations of royalties payable during the previous periods. During fiscal 2016, the combination of positive and negative adjustments reduced royalty income by $381,886, the equivalent of $0.0416 per unit. Due to the incorrect inclusion in prior years of eastern sulfur sales in the royalty calculation under the Mobil Sulfur Agreement, the combination of current year sulfur royalties and the negative adjustment from prior years resulted in a net negative adjustment for fiscal 2016 of $51,576, the equivalent of $0.0056 per unit. During fiscal 2015, the combination of positive and negative adjustments reduced royalty income by $592,626, the equivalent of $0.0645 per unit. Due to the incorrect inclusion in prior years of eastern sulfur sales in the royalty calculation under the Mobil Sulfur Agreement, the combination of current year sulfur royalties and the negative adjustment from prior years resulted in a net negative adjustment for fiscal 2015 of $215,348, the equivalent of $0.0234 per unit. Gas sales under the Mobil Agreement declined 12.83% to 25.043 Bcf in fiscal 2016 from 28.729 Bcf in fiscal 2015. Gas sales in the first three quarters of fiscal 2016 showed a decline from the prior year’s equivalent quarters. However, gas sales in the fourth quarter of fiscal 2016 were higher than the prior year’s equivalent quarter. At least some of the increase in fourth quarter gas sales may be explained by the partial shutdown of the Grossenkneten desulfurization plant for a six-week period during the fourth quarter of fiscal 2015. Since the Trust does not receive information about the decision-making process of the operating companies, it is impossible to determine to what extent, if any, which factors may have impacted gas sales. However, according to the Trust’s consultant in Germany, it is likely that some portion of the decline in gas production is due to the normal reduction in well pressure that is experienced over time. The suspension of all drilling activities during the 2015-2016 period likely has also impacted gas sales. Quarterly and Yearly Gas Sales under the Mobil Agreement in Billion cubic feet Fiscal Quarter First Second Third Fourth Fiscal Year Total 2016 Gas Sales 6.604 6.834 4.917 6.688 25.043 2015 Gas Sales 7.876 7.642 7.382 5.829 28.729 Percentage Change - 16.15% - 10.57% - 33.39% + 14.74% - 12.83% 15 NORTH EUROPEAN OIL ROYALTY TRUST Average prices for gas sold under the Mobil Agreement decreased 28.39% to 1.5870 €cents/ kWh in fiscal 2016 from 2.2162 €cents/kWh in fiscal 2015. Average Gas Prices under the Mobil Agreement in Euro cents per Kilowatt Hour Fiscal Quarter First Second Third Fourth Fiscal Year Avg. 2016 Gas Prices 1.8649 1.5622 1.5363 1.3753 1.5870 2015 Gas Prices 2.3538 2.3212 2.0017 2.1662 2.2162 Percentage Change - 20.77% - 32.70% - 23.25% - 36.51% - 28.39% Converting gas prices into more familiar terms, using the average exchange rate, yielded a price of $5.04 per Mcf, a 30.19% decrease from fiscal 2015’s average price of $7.22/Mcf. For fiscal 2016, royalties paid under the Mobil Agreement were converted and transferred at an average Euro/dollar exchange rate of $1.1083, a decrease of 2.12% from the average Euro/dollar exchange rate of $1.1323 for fiscal 2015. Average Euro Exchange Rate under the Mobil Agreement Fiscal Quarter First Second Third Fourth Fiscal Year Avg. 2016 Average Euro Exchange Rate 1.0881 1.1173 1.1185 1.1047 1.1083 2015 Average Euro Exchange Rate 1.2127 1.0754 1.1113 1.1301 1.1323 Percentage Change - 10.27% + 3.90% + 0.65% - 2.25% - 2.12% Excluding the effects of differences in prices and average exchange rates, the combination of royalty rates on gas sold from western Oldenburg results in an effective royalty rate approximately seven times higher than the royalty rate on gas sold from eastern Oldenburg. This is of particular significance to the Trust since gas sold from western Oldenburg provides the bulk of royalties paid to the Trust. For fiscal 2016, the volume of gas sold from western Oldenburg accounted for only 32.43% of the volume of all gas sales. However, western Oldenburg gas royalties provided approximately 81.05% or $5,408,745 out of a total of $6,673,084 in overall Oldenburg gas royalties. Gas sales under the OEG Agreement decreased 12.21% to 77.213 Bcf in fiscal 2016 from 87.952 Bcf in fiscal 2015. At least some portion of the decline in overall gas sales is likely a result of EMPG’s decision to suspend all drilling activities during 2015-2016. Since the Trust does not receive information about is impossible to determine to what extent, if any, which factors may have impacted gas sales. However, according to the Trust’s consultant in Germany, it is likely that some portion of the decline in gas production is due to the normal reduction in well pressure that is experienced over time. the decision-making process of the operating companies, it 16 NORTH EUROPEAN OIL ROYALTY TRUST Quarterly and Yearly Gas Sales under the OEG Agreement in Billion cubic feet Fiscal Quarter First Second Third Fourth Fiscal Year Total 2016 Gas Sales 20.507 20.434 17.520 18.752 77.213 2015 Gas Sales 23.497 23.137 22.590 18.728 87.952 Percentage Change - 12.73% - 11.68% - 22.44% + 0.13% - 12.21% Average gas prices for gas sold under the OEG Agreement decreased 29.10% to 1.6264 €cents/ kWh in fiscal 2016 from 2.2939 €cents/kWh in fiscal 2015. Average Gas Prices under the OEG Agreement in Euro cents per Kilowatt Hour Fiscal Quarter First Second Third Fourth Fiscal Year Avg. 2016 Gas Prices 1.9803 1.5282 1.5667 1.4025 1.6264 2015 Gas Prices 2.4808 2.4128 2.0401 2.2187 2.2939 Percentage Change - 20.17% - 36.66% - 23.20% - 36.79% - 29.10% Converting gas prices into more familiar terms, using the average exchange rate, yielded a price of $5.04/Mcf, a 30.86% decrease from fiscal 2015’s average price of $7.29/Mcf. For fiscal 2016, royalties paid under the OEG Agreement were converted and transferred at an average Euro/dollar exchange rate of $1.1053, a decrease of 2.11% from the average Euro/dollar exchange rate of $1.1291 for fiscal 2015. Average Euro Exchange Rate under the OEG Agreement Fiscal Quarter First Second Third Fourth Fiscal Year Avg. 2016 Average Euro Exchange Rate 1.0874 1.1171 1.1159 1.1068 1.1053 2015 Average Euro Exchange Rate 1.1973 1.0830 1.1159 1.1309 1.1291 Percentage Change - 9.18% + 3.15% - 0.00% - 2.13% - 2.11% Interest income for fiscal 2016 decreased 51.82% to $4,548 as compared to $9,439 for fiscal 2015 reflecting the reduction in royalty receipts. Trust expenses increased 0.61% to $824,368 in fiscal 2016 from $819,341 in fiscal 2015 due to higher legal expenses, both domestic and German, and higher German accounting expenses relating to the amendments to the Mobil and OEG Royalty Agreements. 17 NORTH EUROPEAN OIL ROYALTY TRUST Critical Accounting Policies The financial statements, appearing subsequently in this Report, present financial statement balances and financial results on a modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States (“GAAP basis”). Cash basis accounting is an accepted accounting method for royalty trusts such as the Trust. GAAP basis financial statements disclose income as earned and expenses as incurred, without regard to receipts or payments. The use of GAAP would require the Trust to accrue for expected royalty payments. This is exceedingly difficult since the Trust has very limited information on such payments until they are received and cannot accurately project such amounts. The Trust’s cash basis financial statements disclose revenue when cash is received and expenses when cash is paid. The one modification of the cash basis of accounting is that the Trust accrues for distributions to be paid to unit owners (those distributions approved by the Trustees for the Trust). The Trust’s distributable income represents royalty income received by the Trust during the period plus interest income less any expenses incurred by the Trust, all on a cash basis. In the opinion of the Trustees, the use of the modified cash basis provides a more meaningful presentation to unit owners of the results of operations of the Trust and presents to the unit owners a more accurate calculation of income and expenses for tax reporting purposes. This Annual Report may contain forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such statements address future expectations and events or conditions concerning the Trust. Many of these statements are based on information provided to the Trust by the operating companies or by consultants using public information sources. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in any forward-looking statements. These include: • • • • risks and uncertainties concerning levels of gas production and gas sale prices, general economic conditions and currency exchange rates; the ability or willingness of the operating companies to perform under their contractual obligations with the Trust; potential disputes with the operating companies and the resolution thereof; and the risk factors set forth above under Item 1A of the Trust’s Annual Report on Form 10-K for the fiscal year ended October 31, 2017 (the “Trust’s Form 10-K”). All such factors are difficult to predict, contain uncertainties that may materially affect actual results, and are generally beyond the control of the Trust. New factors emerge from time to time and it is not possible for the Trust to predict all such factors or to assess the impact of each such factor on the Trust. Any forward-looking statement speaks only as of the date on which such is made, and the Trust does not undertake any obligation to update any statement forward-looking statement to reflect events or circumstances after the date on which such statement is made. 18 NORTH EUROPEAN OIL ROYALTY TRUST Distributions and Trading The Trust’s units of beneficial interest are listed for trading on the New York Stock Exchange under the symbol NRT. Under the Trust Agreement, the Trustees distribute to unit owners, on a quarterly basis, the net royalty income after deducting expenses and reserving limited funds for anticipated administrative expenses. As of November 30, 2017, there were 659 unit owners of record. The following table presents the high and low closing prices for the quarterly periods ended in fiscal 2017 and 2016 as reported by the NYSE as well as the cash distributions paid to unit owners by quarter for the past two fiscal years. Quarter Ended January 31, 2017 April 30, 2017 July 31, 2017 October 31, 2017 Quarter Ended January 31, 2016 April 30, 2016 July 31, 2016 October 31, 2016 Fiscal Year 2017 Fiscal Year 2016 Low Closing Price $6.24 $7.03 $6.11 $6.19 High Closing Price $7.67 $8.11 $7.69 $6.99 Distribution per Unit $0.15 $0.19 $0.20 $0.22 Low Closing Price $5.89 $7.53 $8.15 $6.99 High Closing Price $9.99 $9.68 $9.75 $8.79 Distribution per Unit $0.16 $0.24 $0.15 $0.12 The quarterly distributions to unit owners represent their undivided interest in royalty payments from sales of gas, sulfur and oil during the previous quarter. Each unit owner is entitled to recover a portion of his or her investment in these royalty rights through a cost depletion percentage. The calculation of this cost depletion percentage is set forth in detail in Attachment B to the Cost Depletion Report attached as Exhibit 99.1 to the Trust’s Form 10-K. The Cost Depletion Report has been prepared by Graves & Co. using the limited information described in Item 2 of the Trust’s Form 10-K to which reference is made. The Trustees believe that the calculations and assumptions used in the Cost Depletion Report are reasonable according to the facts and circumstances of available information. The cost depletion percentage recommended by the Trust’s independent petroleum and natural gas consultants for calendar 2017 is 11.6635%. Specific details relative to the Trust’s income and expenses and cost depletion percentage as they apply to the calculation of taxable income for the 2017 calendar year are included on special removable pages in this 2017 Annual Report. Additionally, the tax reporting information for 2017 is available on the Trust’s website, www.neort.com, in the section marked Tax Letters contained within the Tax Information section. The Trust does not maintain any compensation plans under which units are authorized for issuance. The Trust did not make any repurchases of Trust units during fiscal 2017, 2016 and 2015 and has never made such repurchases. 19 NORTH EUROPEAN OIL ROYALTY TRUST Comparison of Five Year Returns The graph set forth below compares, for the last five years, the cumulative return on Trust Units, the securities in a peer group index, and the S&P 500 Composite Index. Because no published peer group index exists and the Trust has been unable to locate any royalty trusts publicly traded in the U.S. with reserves and sales in Europe, the Trustees have developed a peer group consisting of the following three domestic oil royalty trusts: Mesa Royalty Trust, Sabine Royalty Trust and San Juan Basin Royalty Trust (the ’’Royalty Peer Group’’). The composition of the Royalty Peer Group has been the same since the Trust’s proxy statement for its 1993 Annual Meeting of Unit Owners. While these three domestic oil royalty trusts appear to be the most comparable for comparison purposes, there are a number of differences between North European Oil Royalty Trust and the Royalty Peer Group. As previously mentioned, the reserves and sales attributed to the royalty trusts comprising the Royalty Peer Group are located in the United States, while the reserves and sales attributed to North European Oil Royalty Trust are located in Germany. There are fundamental differences between the energy markets in the United States and Germany that affect commodity pricing and as a result severely restrict the usefulness of any comparison of their cumulative returns. In determining the cumulative return on investment, it has been assumed that on October 31, 2012, an equal dollar amount was invested in the Trust Units, in the securities of the trusts of the Royalty Peer Group, and in the S&P 500 Composite Index. The comparisons assume in all cases the reinvestment of all dividends or distributions on the respective payment dates. The cumulative returns shown for the Trust and the Royalty Peer Group do not reflect any differences between the tax treatment of Trust distributions, due to permitted cost depletion, and dividends on securities in the S&P 500 Composite Index. 20 NORTH EUROPEAN OIL ROYALTY TRUST COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN* Among North European Oil Royalty Trust, the S&P 500 Index, and a Peer Group $220 $200 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 10/31/2012 10/31/2013 10/31/2014 10/31/2015 10/31/2016 10/31/2017 North European Oil Royalty Trust S&P 500 Peer Group *$100 invested on 10/31/12 in stock or index, including reinvestment of dividends. Fiscal year ending October 31. 2 1 2 2 NORTH EUROPEAN OIL ROYALTY TRUST DOLLAR ROYALTIES WESTERN AND EASTERN OLDENBURG S R A L L O D N O I L L I M 35 30 25 20 15 10 5 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Dollar Royalties by Fiscal Year WESTERN OLDENBURG EASTERN OLDENBURG REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and the Unit Owners of North European Oil Royalty Trust We have audited the accompanying statements of assets, liabilities and trust corpus of North European Oil Royalty Trust (the “Trust”) as of October 31, 2017 and 2016, and the related statements of revenue collected and expenses paid, undistributed earnings, and changes in cash and cash equivalents for each of the years in the three-year period ended October 31, 2017. These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1, these financial statements have been prepared on the modified cash basis of accounting, which is a comprehensive basis of accounting other than U.S. generally accepted accounting principles. In our opinion, the Trust maintained, in all material respects, effective internal control over reporting as of October 31, 2017, based on criteria established in Internal financial Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statements of assets, liabilities and trust corpus as of October 31, 2017 and 2016, and the related statements of revenue collected and expenses paid, undistributed earnings and changes in cash and cash equivalents for each of the years in the three-year period ended October 31, 2017 and our report dated December 28, 2017 expressed an unqualified opinion thereon. Mazars USA LLP New York, NY December 28, 2017 23 2 4 NORTH EUROPEAN OIL ROYALTY TRUST STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1) OCTOBER 31, 2017 AND 2016 ASSETS Current assets — Cash and cash equivalents Producing gas and oil royalty rights, net of amortization (Notes 1 and 2) Total Assets LIABILITIES AND TRUST CORPUS Current liabilities — Distributions to be paid to unit owners, paid November 2017 and 2016 Trust corpus (Notes 1 and 2) Undistributed earnings Total Liabilities and Trust Corpus The accompanying notes are an integral part of these financial statements. 2017 2016 $2,126,005 $1,165,347 1 1 $2,126,006 $1,165,348 2017 2016 $2,021,929 $1,102,871 1 104,076 1 62,476 $2,126,006 $1,165,348 NORTH EUROPEAN OIL ROYALTY TRUST STATEMENTS OF REVENUE COLLECTED AND EXPENSES PAID (NOTE 1) FOR THE FISCAL YEARS ENDED OCTOBER 31, 2017, 2016, AND 2015 Gas, sulfur and oil royalties received $7,762,225 $6,960,961 $12,390,575 2017 2016 2015 Interest income Trust Income Non-related party expenses Related party expenses (Note 3) Trust Expenses Net Income Net income per unit 4,352 4,548 9,439 7,766,577 6,965,509 12,400,014 (669,965) (715,404) (732,209) (70,164) (108,964) (87,132) (740,129) (824,368) (819,341) $7,026,448 $6,141,141 $11,580,673 $0.76 $0.67 $1.26 Distributions per unit paid or to be paid to unit owners $0.76 $0.67 $1.27 2 5 The accompanying notes are an integral part of these financial statements. 2 6 NORTH EUROPEAN OIL ROYALTY TRUST STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1) FOR THE FISCAL YEARS ENDED OCTOBER 31, 2017, 2016 AND 2015 Balance, beginning of year $ 62,476 $ 79,030 $ 170,406 2017 2016 2015 Net income Less: Current year distributions paid or to be paid to unit owners Balance, end of year 7,026,448 7,088,924 6,141,141 6,220,171 11,580,673 11,751,079 6,984,848 6,157,695 11,672,049 $ 104,076 $ 62,476 $ 79,030 The accompanying notes are an integral part of these financial statements. NORTH EUROPEAN OIL ROYALTY TRUST STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS (NOTE 1) FOR THE FISCAL YEARS ENDED OCTOBER 31, 2017, 2016 AND 2015 Sources of Cash and Cash Equivalents: 2017 2016 2015 Gas, sulfur and oil royalties received $7,762,225 $6,960,961 $12,390,575 Interest income Uses of Cash and Cash Equivalents: Payment of Trust expenses Distributions paid Net increase (decrease) in cash and cash equivalents during the year 4,352 7,766,577 4,548 6,965,509 9,439 12,400,014 740,129 824,368 819,341 6,065,790 6,805,919 7,168,659 7,993,027 13,142,544 13,961,885 (960,658) (1,027,518) (1,561,871) Cash and cash equivalents, beginning of year 1,165,347 2,192,865 3,754,736 Cash and cash equivalents, end of year $2,126,005 $1,165,347 $2,192,865 2 7 The accompanying notes are an integral part of these financial statements. NORTH EUROPEAN OIL ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2016, 2015, AND 2014 (1) Summary of significant accounting policies: Basis of accounting - The accompanying financial statements of North European Oil Royalty Trust (the “Trust”) are prepared in accordance with the rules and regulations of the SEC. Financial statement balances and financial results are presented on a modified cash basis of accounting, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States (“GAAP basis”). In the opinion of management, all adjustments that are considered necessary for a fair presentation of these financial statements, including adjustments of a normal, recurring nature, have been included. On a modified cash basis, revenue is earned when cash is received and expenses are incurred when cash is paid. GAAP basis financial statements disclose revenue as earned and expenses as incurred, without regard to receipts or payments. The modified cash basis of accounting is utilized to permit the accrual for distributions to be paid to unit owners (those distributions approved by the Trustees for the Trust). The Trust’s distributable income represents royalty income received by the Trust during the period plus interest income less any expenses incurred by the Trust, all on a cash basis. In the opinion of the Trustees, the use of the modified cash basis of accounting provides a more meaningful presentation to unit owners of the results of operations of the Trust. Producing gas and oil royalty rights - The rights to certain gas and oil royalties in Germany were transferred to the Trust at their net book value by North European Oil Company (the “Company”) (see Note 2). The net book value of the royalty rights has been reduced to one dollar ($1) in view of the fact that the remaining net book value of royalty rights is de minimis relative to annual royalties received and distributed by the Trust and does not bear any meaningful relationship to the fair value of such rights or the actual amount of proved producing reserves. Federal and state income taxes - The Trust, as a grantor trust, is exempt from federal income taxes under a private letter ruling issued by the Internal Revenue Service. The Trust has no state income tax obligations. Cash and cash equivalents - Cash and cash equivalents are defined as amounts deposited in bank accounts and amounts invested in certificates of deposit and U. S. Treasury bills with original maturities generally of three months or less from the date of purchase. The investment options available to the Trust are limited in accordance with specific provisions of the Trust Agreement. As of October 31, 2017, the uninsured amounts held in the Trust’s U.S. bank accounts were $1,878,125. In addition, the Trust held €4,870, the equivalent of $5,695, in its German bank account at October 31, 2017. 28 NORTH EUROPEAN OIL ROYALTY TRUST Net income per unit - Net income per unit is based upon the number of units outstanding at the end of the period. interest As of October 31, 2017, 2016 and 2015, there were 9,190,590 units of beneficial outstanding. New accounting pronouncements - The Trust is not aware of any recently issued, but not yet effective, accounting standards that would be expected to have a significant impact on the Trust’s financial position or results of operations. (2) Formation of the Trust: The Trust was formed on September 10, 1975. As of September 30, 1975, the Company was liquidated and the remaining assets and liabilities of the Company, including its royalty rights, were transferred to the Trust. The Trust, on behalf of the owners of beneficial interest in the Trust, holds overriding royalty rights covering gas and oil production in certain concessions or leases in the Federal Republic of Germany. These rights are held under contracts with local German exploration and development subsidiaries of ExxonMobil Corp. and the Royal Dutch/ Shell Group of Companies. Under these contracts, the Trust receives various percentage royalties on the proceeds of the sales of certain products from the areas involved. At the present time, royalties are received for sales of gas well gas, oil well gas, crude oil, distillate and sulfur. (3) Related party transactions: John R. Van Kirk, the Managing Director of the Trust, provides office space and services to the Trust at cost. For such office space and services, the Trust reimbursed the Managing Director $25,015, $28,559 and $25,729 in fiscal 2017, 2016 and 2015, respectively. Lawrence A. Kobrin, a Trustee of the Trust, is a Senior Counsel at Cahill Gordon & Reindel LLP, which serves as counsel to the Trust. For legal services, the Trust paid Cahill Gordon & Reindel LLP $45,149, $80,405 and $61,403 in fiscal 2017, 2016 and 2015, respectively. (4) Employee benefit plan: The Trust has established a savings incentive match plan for employees (SIMPLE IRA) that is available to both employees of the Trust, one of whom is the Managing Director. The Trustees authorized the making of contributions by the Trust to the accounts of employees, on a matching basis, of up to 3% of cash compensation paid to each such employee for the 2017, 2016 and 2015 calendar years. 29 NORTH EUROPEAN OIL ROYALTY TRUST (5) Quarterly results (unaudited): The tables below summarize the quarterly results and distributions of the Trust for the fiscal years ended October 31, 2017 and 2016: Fiscal 2017 by Quarter and Year First Second Third Fourth Year Royalties received $1,724,686 $1,918,830 $1,974,441 $2,144,268 $7,762,225 Net income $1,475,017 $1,699,909 $1,840,694 $2,010,828 $7,026,448 Net income per unit $0.16 $0.18 $0.20 $0.22 $0.76 Distributions paid or to be paid $1,378,589 $1,746,212 $1,838,118 $2,021,929 $6,984,848 Distributions per unit paid or to be paid to unit owners $0.15 $0.19 $0.20 $0.22 $0.76 Fiscal 2016 by Quarter and Year First Second Third Fourth Year Royalties received $1,832,471 $2,333,670 $1,561,026 $1,233,794 $6,960,961 Net income $1,573,687 $2,100,364 $1,388,796 $1,078,294 $6,141,141 Net income per unit $0.17 $0.23 $0.15 $0.12 $0.67 Distributions paid or to be paid $1,470,494 $2,205,742 $1,378,588 $1,102,871 $6,157,695 Distributions per unit paid or to be paid to unit owners $0.16 $0.24 $0.15 $0.12 $0.67 30 NORTH EUROPEAN OIL ROYALTY TRUST Disclosure Controls and Procedures The Trust maintains disclosure controls and procedures that are designed to ensure that is recorded, processed, summarized, information required to be disclosed by the Trust accumulated and communicated to its management, which consists of the Managing Director, to allow timely decisions regarding required disclosure, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. The Managing Director has performed an evaluation of the effectiveness of the design and operation of the Trust’s disclosure controls and procedures as of October 31, 2017. Based on that evaluation, the Managing Director concluded that the Trust’s disclosure controls and procedures were effective as of October 31, 2017. Internal Control over Financial Reporting Part A. Management’s Report on Internal Control over Financial Reporting The Trust’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) for the Trust. There are inherent limitations in the effectiveness of any internal control, including the possibility of human error and the circumvention or overriding of controls. Accordingly, even effective internal controls can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time. Management has evaluated the Trust’s internal control over financial reporting as of October 31, 2017. This assessment was based on criteria for effective internal control over financial reporting described in the standards promulgated by the Public Company Accounting Oversight Board and in the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this evaluation, management concluded that the Trust’s internal control over financial reporting was effective as of October 31, 2017. Management’s assessment of the effectiveness of our internal control over financial reporting as of October 31, 2017 has been audited by Mazars USA LLP, the Trust’s independent auditor, as stated in their report which follows. Part B. Attestation Report of Independent Registered Public Accounting Firm REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Unit Owners of North European Oil Royalty Trust We have audited North European Oil Royalty Trust’s (the “Trust”) internal control over reporting as of October 31, 2017, based on criteria established in Internal financial Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Trust’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Trust’s internal control over financial reporting based on our audit. 31 NORTH EUROPEAN OIL ROYALTY TRUST We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. financial reporting and the preparation of A trust’s internal control over financial reporting is a process designed to provide reasonable financial assurance regarding the reliability of statements for external purposes in accordance with generally accepted accounting principles. A trust’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the trust; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the trust are being made only in accordance with authorizations of management and trustees of the trust; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the trust’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Trust maintained, in all material respects, effective internal control over reporting as of October 31, 2017, based on criteria established in Internal financial Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the statements of assets, liabilities and trust corpus as of October 31, 2017 and 2016, and the related statements of revenue collected and expenses paid, undistributed earnings and changes in cash and cash equivalents for each of the years in the three-year period ended October 31, 2017 and our report dated December 28, 2017 expressed an unqualified opinion thereon. Mazars USA LLP New York, NY December 28, 2017 32 NORTH EUROPEAN OIL ROYALTY TRUST North European Oil Royalty Trust P.O. Box 456 Red Bank, New Jersey 07701 (732) 741-4008 IMPORTANT – 2017 TAX LETTER RETAIN THIS LETTER FOR PREPARATION OF YOUR 2017 INCOME TAX RETURNS E R E H T U O R A E T January 2, 2018 To the Current and Former Unit Owners of North European Oil Royalty Trust: There are three parts to the tax letter. PART ONE applies to all unit owners. PART TWO applies to unit owners who have held their units for the entire year. PART THREE applies to unit owners who have held their units for only a portion of the year. The following is provided to assist current and former unit owners of North European Oil Royalty Trust (the “Trust”) to prepare their personal income tax returns for the tax year ended December 31, 2017. This letter serves to assist Owners, and their tax professionals, in determining the accurate and true income from the Trust for income tax reporting purpose. Further, this letter is for informational purposes and neither the Trust nor Trust employees intend, nor may it be construed, for this letter to serve as either legal or tax advice. It is recommended that you seek the advice of your trusted tax professional or attorney should you require further guidance. PART ONE – ALL UNIT OWNERS To determine your proportional and, therefore, reportable, share of Trust income you must first know how many Trust units you owned during 2017, the periods during which you owned the units, and the cost or tax basis of the units. The information contained in this letter is applicable to those unit owners who held their units for either the entire year or only a portion of the year. Please note that Trust distributions are not dividends and should not be included on your income tax return as dividend income. The Trust is considered a “grantor trust” for federal income tax purposes and each unit owner is deemed a “grantor” of the Trust. As such, unit owners realize income, in proportion to the owned units, when royalty income is paid to the Trust. Further, unit owners may deduct, from income, a proportional share of Trust expenses. Because realization of proportional Trust income and expenses is a time sensitive inquiry, you should not use the amount of quarterly Trust distributions received for income tax reporting purposes. Additionally, you should disregard the amounts listed on any 2017 Form 1099-Misc you receive from your broker or other nominee. The listed amounts are incomplete because they do not include your proportional share of Trust expenses and/or the cost depletion allowance. Income and expenses should be reported on Federal Income Tax Form 1040, Schedule E. Royalty income is generally considered portfolio income under the passive loss rules enacted by the Tax Reform Act of 1986. Under Part I, Income or Loss from Rental Real Estate and Royalties, on Line 1a enter property description as “oil and gas overriding royalty rights, Germany through North European Oil Royalty Trust.” The type of property is royalties. On Federal Income Tax Form 1040, Schedule E, royalty income should be entered on Line 4 and expenses should be entered on Line 19 as “miscellaneous Trust expenses.” Some tax preparation computer programs ask for a tax identification number. North European Oil Royalty Trust’s tax identification number is 22-2084119. 33 NORTH EUROPEAN OIL ROYALTY TRUST A unit owner may be entitled to cost depletion for tax reporting purposes. At the outset, in the first year of ownership, the unit owner’s cost or tax basis for the units is the basis for computing cost depletion. In each subsequent year, the basis for computing cost depletion is that original cost less the cumulative amount of depletion previously taken. The Trust retains Graves & Co. Consulting, LLC, of Houston, Texas, a petroleum engineering company, to calculate the cost depletion percentage each year. The cost depletion percentage is calculated based upon computations of proved producing reserves estimated in accordance with accepted engineering analytical principles. Graves & Co. Consulting, LLC has recommended an annual cost depletion percentage of 11.6635% for the 2017 calendar year. The IRS periodically changes the format for Schedule E (including the line numbers and descriptions), and may do so even after the date of this letter, so please make certain you follow the Form 1040 Schedule E directions carefully and enter the information on the correct lines. The Trust’s royalty income represents income from Germany. Although Germany does not tax the royalty income received by the Trust, this information should be considered if you have available foreign tax credits from other sources. The Trust will submit this letter and the listing of unit owners during 2017 to the Internal Revenue Service. This list will contain names, addresses and tax ID or Social Security Numbers. You may wish to attach a copy of this letter to your tax returns. This letter does not constitute legal or tax advice. Neither the Trust nor its employees may offer tax or legal advice relevant to your unique situation. The Trust recommends that you direct any questions to your tax advisor or attorney. PART TWO – OWNERSHIP OF UNITS FOR THE ENTIRE YEAR A. If you owned all your units for the entire year, you would calculate your royalty income by multiplying the number of units you owned by $0.8486. On Federal Income Tax Form 1040, Schedule E, royalty income should be entered on Line 4. B. If you owned all your units for the entire year, you would calculate your expenses by multiplying the number of units you owned by $0.0802. On Federal Income Tax Form 1040, Schedule E, expenses should be entered on Line 19 as “miscellaneous Trust expenses.” C. If you owned all your units for the entire year, you would calculate your cost depletion deduction by multiplying your cost basis or adjusted cost basis by .116635. On the Federal Income Tax Form 1040, Schedule E, your cost depletion deduction should be entered on Line 18. PART THREE – OWNERSHIP OF UNITS FOR A PARTIAL YEAR If you owned your units for only a portion of the year, you should use the charts and instructions on the following pages to determine your royalty income, royalty expenses and cost depletion deduction. 34 NORTH EUROPEAN OIL ROYALTY TRUST ROYALTY INCOME PER UNIT FOR THE 2017 TAX YEAR Last month during which units were owned: January $0.0759 February $0.1373 $0.0614 March $0.1991 $0.1232 $0.0618 April $0.2847 $0.2088 $0.1474 $0.0856 May $0.3548 $0.2789 $0.2175 $0.1557 $0.0701 June $0.4262 $0.3503 $0.2889 $0.2271 $0.1415 $0.0714 July $0.4996 $0.4237 $0.3623 $0.3005 $0.2149 $0.1448 $0.0734 August $0.5508 $0.4749 $0.4135 $0.3517 $0.2661 $0.1960 $0.1246 $0.0512 First month during which units were owned: January February March April May June July August September October November December September $0.6635 $0.5876 $0.5262 $0.4644 $0.3788 $0.3087 $0.2373 $0.1639 $0.1127 October $0.7330 $0.6571 $0.5957 $0.5339 $0.4483 $0.3782 $0.3068 $0.2334 $0.1822 $0.0695 November $0.7839 $0.7080 $0.6466 $0.5848 $0.4992 $0.4291 $0.3577 $0.2843 $0.2331 $0.1204 $0.0509 December $0.8486 $0.7727 $0.7113 $0.6495 $0.5639 $0.4938 $0.4224 $0.3490 $0.2978 $0.1851 $0.1156 $0.0647 A. To determine your royalty income per unit for your period of ownership, place your finger on the chart above on the first month in the left hand column during which you owned your units and slide your finger to the right until you reach the column showing the last month during which you owned your units. This figure should be multiplied by the number of units you owned during that period to calculate your royalty income. On Federal Income Tax Form 1040, Schedule E, royalty income should be entered on Line 4. ROYALTY EXPENSES PER UNIT FOR THE 2017 TAX YEAR Last month during which units were owned: January $0.0055 February $0.0213 $0.0158 March $0.0248 $0.0193 $0.0035 April $0.0294 $0.0239 $0.0081 $0.0046 May $0.0357 $0.0302 $0.0144 $0.0109 $0.0063 June $0.0388 $0.0333 $0.0175 $0.0140 $0.0094 $0.0031 July $0.0439 $0.0384 $0.0226 $0.0191 $0.0145 $0.0082 $0.0051 August $0.0500 $0.0445 $0.0287 $0.0252 $0.0206 $0.0143 $0.0112 $0.0061 First month during which units were owned: January February March April May June July August September October November December September $0.0529 $0.0474 $0.0316 $0.0281 $0.0235 $0.0172 $0.0141 $0.0090 $0.0029 October $0.0584 $0.0529 $0.0371 $0.0336 $0.0290 $0.0227 $0.0196 $0.0145 $0.0084 $0.0055 November $0.0663 $0.0608 $0.0450 $0.0415 $0.0369 $0.0306 $0.0275 $0.0224 $0.0163 $0.0134 $0.0079 December $0.0802 $0.0747 $0.0589 $0.0554 $0.0508 $0.0445 $0.0414 $0.0363 $0.0302 $0.0273 $0.0218 $0.0139 B. To determine your royalty expenses per unit for your period of ownership, place your finger on the chart above on the first month in the left hand column during which you owned your units and slide your finger to the right until you reach the column showing the last month during which you owned your units. This figure should be multiplied by the number of units you owned during that period to calculate your expenses. On Federal Income Tax Form 1040, Schedule E, expenses should be entered on Line 19 as “miscellaneous Trust expenses.” 3 5 NORTH EUROPEAN OIL ROYALTY TRUST C. If you owned your units for only a portion of the year you must prorate the depletion percentage to reflect your period of ownership. In the same way that you calculated your royalty income per unit, place your finger on the Royalty Income per Unit Chart on the first month in the left hand column during which you owned your units and slide your finger to the right until you reach the column showing the last month during which you owned your units. This figure should be divided by $0.8486. The resulting figure is then multiplied by .116635 prorated depletion percentage by your cost basis or adjusted cost basis to calculate your cost depletion deduction. Your cost depletion deduction should be entered on Line 18 on the Federal Income Tax Form 1040, Schedule E. percentage. Multiply depletion prorated yield this the to This letter does not constitute legal or tax advice. Neither the Trust nor its employees may offer tax or legal advice relevant to your unique situation. If you dispose of some or all of your Trust units, you should consult your tax advisor as to the tax consequence of that disposition. The Trust recommends that you direct any questions to your tax advisor or attorney. Most sincerely yours, John R. Van Kirk Managing Director 36 NORTH EUROPEAN OIL ROYALTY TRUST Trustees Robert P. Adelman Managing Trustee, Director or Trustee of various profit and non-profit companies Ahron H. Haspel Audit Comm. Chairman Member of the Board of Directors of Hanover Bank Corp. Lawrence A. Kobrin Clerk to the Trustees, Senior Counsel, Cahill Gordon & Reindel LLP Willard B. Taylor of Counsel, Sullivan and Cromwell LLP Managing Director John R. Van Kirk Office of the Managing Director PO Box 456 43 West Front Street Suite 19A Red Bank, N.J. 07701 Tel: (732) 741-4008 Fax: (732) 741-3140 E-Mail: neort@neort.com Website: www.neort.com Petroleum and Natural Gas Consultants Graves and Co. Consulting, LLC 2777 Allen Parkway Suite 1200 Houston, Texas 77019 Counsel Cahill Gordon & Reindel 80 Pine Street New York, N.Y. 10005 Auditors Mazars USA LLP 135 West 50th Street New York, N.Y. 10020 Transfer Agent American Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, NY 11219 Tel: (800) 937-5449 (718) 921-8200 ext. 4801 E-Mail: help@astfinancial.com Website: www.astfinancial.com A copy of the Trust’s Form 10-K Annual Report for fiscal 2017 as filed with the Securities and Exchange Commission will be sent upon written request to John R. Van Kirk, Managing Director, P.O. Box 456, Red Bank, New Jersey 07701. In addition to the 2017 10-K, other pertinent filings and documents are available at the Trust’s website, www.neort.com 

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