Annual Report 2018 North European Oil Royalty Trust ATTENTION: PLEASE RETAIN CRITICAL TAX INFORMATION ENCLOSED The Annual Meeting of Unit Owners will be held on February 21, 2019, 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 1-3 4 Report to Unit Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ten Year History of Net Gas Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net Proved Producing Gas Reserves (Est .) 5 and Volume of Net Gas Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Dollar Royalties Western and Eastern Oldenburg . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Gross Gas Sale Volumes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8-9 Description of Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-14 Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16-17 Comparison of Five Year Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Critical Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . 19 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-23 Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24-26 Disclosure Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 27-28 Internal Control over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29-32 2018 Tax Letter (Removable) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IMPORTANT TAX INFORMATION For your convenience, the information necessary to prepare your 2018 tax return is included in the removable “2018 Tax Letter” on Pages 29 through 32. Please note that there will be no separate mailing of the tax letter. The 2018 Tax Letter is also available at the Trust’s website, www.neort.com. NORTH EUROPEAN OIL ROYALTY TRUST Report to Unit Owners: FOURTH QUARTER 2018 Net income for the Trust for the fourth quarter of fiscal 2018 was $1,324,902, a decrease of 34 .11% from net income of $2,010,828 for the fourth quarter of fiscal 2017 . The Trust receives nearly all of its royalties under two royalty agreements . The Mobil Agreement is the 4% royalty rate agreement covering gas sales from the western half of the Oldenburg concession . The OEG Agreement is the 0 .6667% royalty rate agreement covering gas sales from the entire Oldenburg concession . Total royalties, including sulfur royalties, under the 2% Mobil Sulfur Agreement for the fourth quarter of fiscal 2018 were reduced by negative adjustments of ($114,918), as compared to positive adjustments totaling $46,974 for the fourth quarter of fiscal 2017 . Total royalties under the OEG Agreement for the fourth quarter of fiscal 2018 were increased by negative adjustments of ($88,239), as compared to positive adjustments of $177,678 for the fourth quarter of fiscal 2017 . Net income in the fourth quarter of 2018 was lower than the fourth quarter of 2017 due to the impact of these adjustments as well as lower gas sales and lower average exchange rates . Gas sales were reduced largely due to the lingering production problems at Grossenkneten that were not finally resolved until August 21, 2018 . The relevant details for the fourth quarters of fiscal 2018 and 2017 for gas sales under the Mobil and OEG Agreements are shown in the table below . Quarterly Gas Data Providing Basis for Fiscal Quarter Royalties 3rd Calendar Quarter Ended 9/30/2018 3rd Calendar Quarter Ended 9/30/2017 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 4 .495 1 .9231 1 .1550 $1,145,844 14 .029 1 .9612 1 .1540 $ 459,542 5 .643 1 .6197 1 .1806 $1,228,092 17 .770 1 .6517 1 .1788 $ 500,886 - 20 .34% + 18 .73% - 2 .17% - 6 .70% - 21 .05% + 18 .74% - 2 .10% - 8 .25% 1Billion cubic feet 4Based on average Euro/dollar exchange rates of cumulative royalty transfers 2Gas prices derived from May-July period 3Euro cents per Kilowatt hour 1 NORTH EUROPEAN OIL ROYALTY TRUST FISCAL 2018 REPORT For fiscal 2018, the Trust’s gross royalty income declined 7 .26% to $7,198,534 from $7,762,225 in fiscal 2017 . The decrease in royalty income is the result of a combination of factors including the decline in gas sales and the difference in the amount of adjustments between fiscal 2018 and 2017 . As in prior years, the Trust receives information concerning adjustments from the operating companies based on their final calculations of royalties payable during the previous periods as well as other required adjustments . During fiscal 2018, the adjustments based on royalties payable in 2017 increased royalty income by $189,529 . During fiscal 2017, the adjustments based on royalties payable for 2016 increased royalty income by $411,884 . A similar situation but with the opposite impact occurred with respect to royalties paid under the Mobil Sulfur Agreement . In fiscal 2018 and 2017, Mobil sulfur royalties totaled $72,358 and $43,932 respectively . Gas sales were significantly impacted by a series of partial and complete shutdowns at the Grossenkneten desulfurization plant that began on March 15, 2018 and were not fully resolved until August 22, 2018 . Further details relating to the changes in gas sales, gas prices and average exchange rates for fiscal 2018 and 2017 are presented on pages 15 through 17 . The total distribution for fiscal 2018 was $0 .70 per unit compared to $0 .76 per unit for fiscal 2017 . 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 resumed drilling in 2018 with the drilling of two sidetracks off the main bore of Goldenstedt Z-25a . The drilling of the initial sidetrack (M1) began in February 2018 and reached a length of 80 meters using the Directional Coiled Tubing (“DCT”) drilling method . The DCT drilling method utilizes a smaller drilling rig, drills a smaller diameter bore and must work off an existing main bore . DCT drilling is a faster drilling method, is far less expensive than a traditional rig and is generally available for use on short notice . In March 2018 EMPG used DCT drilling for a second sidetrack (M2) with a length of 528 meters . However, both the first and second sidetracks were unsuccessful . In an August 6, 2018 press release, EMPG announced the successful drilling of Goldenstedt Z-12a M1 . Goldenstedt Z-12a M1, an eastern sour gas well, was drilled in May 2018 and was the first sidetrack off the main bore of Goldenstedt Z-12 . The sidetrack extended 400 meters using DCT drilling, found the Zechstein Stassfurt carbonate reservoir in good condition and has begun production . Brettorf Z-2b M1was originally scheduled to begin drilling in May 2018 . However, with the experience gained using the DCT drilling, this well has been postponed until the first quarter of 2019 . Doetlingen Z-3A was originally scheduled to begin drilling in December 2018 but has been postponed until July 2019 and will again use the DCT drilling method . 2 NORTH EUROPEAN OIL ROYALTY TRUST The scheduled 2018 workover was 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 . While originally planned as a work over to repair the casing, EMPG began the drilling of the first horizontal section in October 2018 and the first gas production is expected in the beginning of 2019 . Two additional unscheduled workovers were completed in 2018, Goldenstedt Z-10a and Cappeln Z-3a . Of the two wells previously scheduled for 2019, Ahlhorn Z-3, a sour gas well, has been postponed until the second quarter of 2020 . This well will attempt to reactivate the Ahlhorn field which was abandoned in 1997 . Hemmelte NW T-1, an exploration well, was planned to develop a new area of the sweet gas Bunter zone in western Oldenburg . This well is no longer on the drilling schedule and no reason for the change was given . The first well, Jeddeloh Z-1, to be drilled by Vermilion Energy Inc . under its Farm- In Agreement had been scheduled for 2020 . Originally this well was not a candidate for fracking because the water that would normally be used in the fracking process would be absorbed by the type of minerals present . This absorption would cause these minerals to expand filling the gaps that the fracking was intended to create . It is now believed that this well will need to be fracked and a foam or gel will need to be used, which makes the fracking more expensive . According to the Trust’s German consultant, “This well is postponed until a time in the future when the approval procedure for fracking will have been defined in more detail by the mining authorities .” 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 2018 . The 2018 cost depletion percentage of 11 .4193% and related tax information is contained in the removable “2018 Tax Letter” on Pages 29 through 32 of this report . The calculation of the cost depletion percentage is based on Graves & Co .’s estimate of remaining net proved producing reserves as of October 1, 2018 . (The complete text of the report is available in the Trust’s 2018 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 4 and 5 . The report indicates that net Trust gas reserves decreased 18 .79% to 8 .069 Bcf from 9 .936 Bcf on net sales for 2018 of 1 .066 Bcf and a negative reserve adjustment of 0 .801 Bcf . As shown in the chart on page 5, the addition of one successful well and completion of two workovers by the operating companies failed to replace current gas sales with additions to proved producing reserves . Respectfully submitted, John R . Van Kirk Managing Director December 31, 2018 3 NORTH EUROPEAN OIL ROYALTY TRUST 4 TEN YEAR HISTORY OF NET GAS SALES VOLUMES T E E F C I B U C N O I L L I B 3 2 1 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 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 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 As of October 1st T E E F C I B U C N O I L L I B 30 25 20 15 10 5 0 5 NET PROVED PRODUCING RESERVES (EST.) ANNUAL NET SALES 6 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 30 25 20 15 10 5 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Dollar Royalties by Fiscal Year WESTERN OLDENBURG EASTERN OLDENBURG GROSS GAS SALE VOLUMES 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 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 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 effective as of January 1, 2016 . The Trust has been advised by its consultant in Germany that, based on conversations with people at EMPG and other sources, 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 through 2020 . Three of these wells will be drilled in areas subject to the Trust’s royalties . Vermilion’s participation in the development of any well does not impact the Trust’s royalty interest and the sale of that gas or oil would be subject to the relevant royalty contract . Vermilion’s first well within the Oldenburg concession 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 but at this time has no start date . Additionally, according to EMPG, Vermilion is expected to drill two other wells within the Oldenburg concession, one in Jeverland and one in Jade-Weser . No details concerning these wells or any other activities by Vermilion are available to the Trust at this date and Vermilion is under no obligation to disclose such information . 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 $72,358, $43,932 8 NORTH EUROPEAN OIL ROYALTY TRUST and ($51,576) during fiscal 2018, 2017 and 2016, respectively . The 2018 figure includes a negative adjustment from 2017 of ($45,785) resulting from the fact that the sulfur price for one quarter fell below the adjusted base price . The 2017 figure includes a negative adjustment from 2016 of ($40,473) and reflects the absence of any payment for sulfur royalties in the third and fourth quarters of fiscal 2017 . 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 operating companies had improperly allocated eastern sulfur sales to the Mobil Agreement from 2011 through 2015 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 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 . This change reflects a shift from the use of gas ex-field prices (“contractual prices”) to the prices calculated for the GBIP . 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 in comparison to the previous pricing methodology . 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 pricing basis has eliminated 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 are multiplied by the average GBIP for a period starting two months earlier and 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 . For calendar 2016 and forward, the average GBIP under the Mobil and OEG Royalty Agreements was 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 makes 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 basis for oil prices is 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 2018, 2017 and 2016 . 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 94% of the total royalties in fiscal 2018 . 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 . They will begin their examination of the operating companies for 2017-2018 in November 2019 when the final sales figures and the GBIP will be available . 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 conducts maintenance on the plant generally during the summer months when demand is lower . The operating companies 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 in April 2017 . With full operation of the two remaining units, raw gas input capacity stands at approximately 400 million cubic feet (“MMcf”) per day . While originally EMPG had indicated there would be no maintenance conducted during 2018, one of the two units was shut down from March 15 to April 15, 2018 . A second unexpected shutdown for both of the units followed for the period from May 18 to June 10, 2018 . This shutdown was related to an emissions control issue . While the repairs to address the emissions problem were being conducted, additional problems with a waste heat boiler were discovered in one of the units . Repairs to address these newly discovered problems continued from June 10 to August 21, 2018 . During this period, the total throughput capacity was reduced by 40% . As of August 22, 2018, full production capacity at Grossenkneten had been restored . 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 . 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 2018 versus Fiscal 2017 For fiscal 2018, the Trust’s gross royalty income decreased 7 .26% to $7,198,534 from $7,762,225 in fiscal 2017 . The decrease in the amount of royalty income resulted in the lower distributions . The total distribution for fiscal 2018 was $0 .70 per unit compared to $0 .76 per unit for fiscal 2017 . While gas prices and the average exchange rates under both royalty agreements increased, gas sales under both royalty agreements declined . As a result, royalty income attributable to gas sales under the Mobil Agreement in fiscal 2018 declined by $185,073 as compared to fiscal 2017 . Royalty income attributable to gas sales under the OEG Agreement in fiscal 2018 declined by $115,597 as compared to fiscal 2017 . 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 2018, the adjustments based on royalties payable for 2017 increased royalty income by $189,529 . During fiscal 2017, the adjustments based on royalties payable for 2016 increased royalty income by $411,884 . In fiscal 2018 and 2017, Mobil sulfur royalties totaled $72,358 and $43,932, respectively . Gas sales under the Mobil Agreement declined 19 .63% to 18 .941 Billion cubic feet (“Bcf”) in fiscal 2018 from 23 .566 Bcf in fiscal 2017 . The most significant factor reducing gas sales for 2018 was the extended repairs being conducted at the Grossenkneten desulfurization plant . While these repairs were being conducted, the plants throughput capacity was affected . For the period extending from the second through the fourth quarters throughput was reduced by 40% for approximately 100 days and by 100% for approximately 20 days . Since approximately two thirds of the gas produced from the concession is sour gas, the reduction or elimination of the throughput had a substantial impact on gas sales . In addition, 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 . Quarterly and Yearly Gas Sales under the Mobil Agreement in Billion cubic feet Fiscal Quarter First Second Third Fourth Fiscal Year Total 2018 Gas Sales 5 .660 5 .193 3 .593 4 .495 18 .941 2017 Gas Sales 6 .489 5 .934 5 .500 5 .643 23 .566 Percentage Change - 12 .78% - 12 .49% - 34 .67% - 20 .34% - 19 .63% Average prices for gas sold under the Mobil Agreement increased 10 .75% to 1 .8164 Euro cents per kilowatt hour (“€cents/kWh”) in fiscal 2018 from 1 .6401 €cents/kWh in fiscal 2017 . Average Gas Prices under the Mobil Agreement in Euro cents per Kilowatt Hour Fiscal Quarter First Second Third Fourth Fiscal Year Avg . 2018 Gas Prices 1 .6593 1 .8262 1 .9141 1 .9231 1 .8164 2017 Gas Prices 1 .4789 1 .7434 1 .7406 1 .6197 1 .6401 Percentage Change + 12 .20% + 4 .75% + 9 .97% + 18 .73% + 10 .75% 12 NORTH EUROPEAN OIL ROYALTY TRUST Converting gas prices into more familiar terms, using the average exchange rate, yielded a price of $6 .18 per thousand cubic feet (“Mcf”), a 19 .54% increase from fiscal 2017’s average price of $5 .17/ Mcf . For fiscal 2018, royalties paid under the Mobil Agreement were converted and transferred at an average Euro/dollar exchange rate of $1 .1914, an increase of 7 .94% from the average Euro/dollar exchange rate of $1 .1038 for fiscal 2017 . Average Euro Exchange Rate under the Mobil Agreement Fiscal Quarter First Second Third Fourth Fiscal Year Avg . 2018 Average Euro Exchange Rate 1 .1965 1 .2361 1 .1705 1 .1550 1 .1914 2017 Average Euro Exchange Rate 1 .0582 1 .0625 1 .1175 1 .1806 1 .1038 Percentage Change + 13 .07% + 16 .34% + 4 .74% - 2 .17% + 7 .94% 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 2018, the volume of gas sold from western Oldenburg accounted for only 31 .43% of the volume of all gas sales . However, western Oldenburg gas royalties provided approximately 80 .24% or $5,438,672 out of a total of $6,778,111 in overall Oldenburg gas royalties . Gas sales under the OEG Agreement decreased 19 .16% to 60 .264 Bcf in fiscal 2018 from 74 .544 Bcf in fiscal 2017 . The most significant factor reducing gas sales for 2018 was the extended repairs being conducted at the Grossenkneten desulfurization plant . While these repairs were being conducted, the plants throughput capacity was affected . For the period extending from the second through the fourth quarters throughput was reduced by 40% for approximately 100 days and by 100% for approximately 20 days . Since approximately two thirds of the gas produced from the concession is sour gas, the reduction or elimination of the throughput had a significant impact on gas sales . In addition, 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 . Quarterly and Yearly Gas Sales under the OEG Agreement in Billion cubic feet Fiscal Quarter First Second Third Fourth Fiscal Year Total 2018 Gas Sales 18 .150 16 .373 11 .712 14 .029 60 .264 2017 Gas Sales 20 .060 18 .885 17 .829 17 .770 74 .544 Percentage Change - 9 .52% - 13 .30% - 34 .31% - 21 .05% - 19 .16% Average gas prices for gas sold under the OEG Agreement increased 10 .56% to 1 .8514 €cents/kWh in fiscal 2018 from 1 .6745 €cents/kWh in fiscal 2017 . 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 . 2018 Gas Prices 1 .6921 1 .8624 1 .9520 1 .9612 1 .8514 2017 Gas Prices 1 .5081 1 .7779 1 .7750 1 .6517 1 .6745 Percentage Change + 12 .20% + 4 .75% + 9 .97% + 18 .74% + 10 .56% Converting gas prices into more familiar terms, using the average exchange rate, yielded a price of $6 .18 Mcf, an 18 .62% increase from fiscal 2017’s average price of $5 .21/Mcf . For fiscal 2018, royalties paid under the OEG Agreement were converted and transferred at an average Euro/dollar exchange rate of $1 .1932, an increase of 7 .49% from the average Euro/dollar exchange rate of $1 .1101 for fiscal 2017 . Average Euro Exchange Rate under the OEG Agreement Fiscal Quarter First Second Third Fourth Fiscal Year Avg . 2018 Average Euro Exchange Rate 1 .2008 1 .2364 1 .1705 1 .1540 1 .1932 2017 Average Euro Exchange Rate 1 .0590 1 .0630 1 .1175 1 .1788 1 .1101 Percentage Change + 13 .39% + 16 .31% + 4 .74% - 2 .10% + 7 .49% Interest income for fiscal 2018 of $4,509 increased slightly from interest income of $4,352 for fiscal 2017 . Trust expenses increased $54,959, or 7 .43%, to $795,088 in fiscal 2018 from $740,129 in fiscal 2017 . German accounting expenses were higher due to the completion in fiscal 2018 of the examination of the royalty companies for the 2015-2016 period . Legal expenses were higher resulting from preparations for the planned conversion of the Trust’s physical office to a virtual office . The Trust currently handles all interactions with unit owners through email or phone . Similarly, communications and filings with state, federal and financial agencies are made via email or online filings . A physical office is no longer required and the change to a virtual office would effect cost savings . The change will not impact the operations or administration of the Trust . 14 NORTH EUROPEAN OIL ROYALTY TRUST NORTH EUROPEAN OIL ROYALTY TRUST North European Oil Royalty Trust Selected Financial Data (Cash Basis) For Fiscal Years Ended October 31 2018 2017 2016 2015 2014 Gas, sulfur and oil royalties received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,198,534 $7,762,225 $6,960,961 $12,390,575 $18,927,005 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,509 4,352 4,548 9,439 18,724 Trust expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (795,088) (740,129) (824,368) (819,341) (901,150) Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,407,955 $7,026,448 $6,141,141 $11,580,673 $18,044,579 Net income per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 .70 $ 0 .76 $ 0 .67 $ 1 .26 $ 1 .96 Distributions per unit paid or to be paid to unit owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 .70 $ 0 .76 $ 0 .67 $ 1 .27 $ 1 .95 Units outstanding end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,190,590 9,190,590 9,190,590 9,190,590 9,190,590 1 5 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, 2013, 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 . 16 NORTH EUROPEAN OIL ROYALTY TRUST 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 $180 $160 $140 $120 $100 $80 $60 $40 $20 $0 North European Oil Royalty Trust S&P 500 Peer Group 1 7 Copyright© 2018 Standard & Poor's, a division of S&P Global. All rights reserved. *$100 invested on 10/31/13 in stock or index, including reinvestment of dividends. Fiscal year ending October 31. 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, 2018 (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 statement is made, and the Trust does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date on which such statement is made . 18 NORTH EUROPEAN OIL ROYALTY TRUST REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and the Unit Owners of North European Oil Royalty Trust Opinion on the Financial Statements We have audited the accompanying statements of assets, liabilities and trust corpus of North European Oil Royalty Trust (the “Trust”) as of October 31, 2018 and 2017, 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, 2018, and the related notes (collectively referred to as the financial statements) . In our opinion, the financial statements present fairly, in all material respects, the assets, liabilities and trust corpus of the Trust as of October 31, 2018 and 2017, its revenue collected and expenses paid, its undistributed earnings, and changes in its cash and cash equivalents for each of the years in the three-year period ended October 31, 2018, in conformity with the modified cash bash basis of accounting described in Note 1 . We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Trust’s internal control over financial reporting as of October 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated December 28, 2018, expressed an unqualified opinion . Basis for Opinion These financial statements are the responsibility of the Trust’s management . Our responsibility is to express an opinion on the Trust’s financial statements based on our audits . We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Trust in accordance with the U .S . federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB . We conducted our audits in accordance with the standards of the PCAOB . Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud . Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks . Such procedures include examining, on a test basis, evidence regarding amounts and disclosures in the financial statements . Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements . We believe that our audits provide a reasonable basis for our opinion . Basis of Accounting 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 accounting principles generally accepted in the United States of America . Mazars USA LLP We have served as the Trust’s auditor since 2006 . New York, NY December 28, 2018 19 NORTH EUROPEAN OIL ROYALTY TRUST 2 0 NORTH EUROPEAN OIL ROYALTY TRUST STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1) OCTOBER 31, 2018 AND 2017 ASSETS 2018 2017 Current assets - - Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,457,207 $2,126,005 Producing gas and oil royalty rights, net of amortization (Notes 1 and 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,457,208 $2,126,006 LIABILITIES AND TRUST CORPUS 2018 2017 Current liabilities - - Distributions to be paid to unit owners, paid November 2018 and 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,378,589 $2,021,929 Trust corpus (Notes 1 and 2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1 Undistributed earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,618 104,076 Total Liabilities and Trust Corpus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,457,208 $2,126,006 The accompanying notes are an integral part of these financial statements. NORTH EUROPEAN OIL ROYALTY TRUST STATEMENTS OF REVENUE COLLECTED AND EXPENSES PAID (NOTE 1) FOR THE FISCAL YEARS ENDED OCTOBER 31, 2018, 2017, AND 2016 2018 2017 2016 Gas, sulfur and oil royalties received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,198,534 $7,762,225 $6,960,961 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,509 4,352 4,548 Trust Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,203,043 7,766,577 6,965,509 Non-related party expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (705,367) (669,965) (715,404) Related party expenses (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (89,721) (70,164) (108,964) Trust Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (795,088) (740,129) (824,368) Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,407,955 $7,026,448 $6,141,141 Net income per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 .70 $ 0 .76 $ 0 .67 Distributions per unit paid or to be paid to unit owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 .70 $ 0 .76 $ 0 .67 2 1 The accompanying notes are an integral part of these financial statements. 2 2 NORTH EUROPEAN OIL ROYALTY TRUST STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1) FOR THE FISCAL YEARS ENDED OCTOBER 31, 2018, 2017 AND 2016 2018 2017 2016 Balance, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 104,076 $ 62,476 $ 79,030 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,407,955 6,512,031 7,026,448 7,088,924 6,141,141 6,220,171 Less: Current year distributions paid or to be paid to unit owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,433,413 6,984,848 6,157,695 Balance, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,618 $ 104,076 $ 62,476 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, 2018, 2017 AND 2016 2018 2017 2016 Sources of Cash and Cash Equivalents: Gas, sulfur and oil royalties received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $7,198,534 $7,762,225 $6,960,961 Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,509 7,203,043 4,352 7,766,577 4,548 6,965,509 Uses of Cash and Cash Equivalents: Payment of Trust expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 795,088 740,129 824,368 Distributions paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,076,753 7,871,841 6,065,790 6,805,919 7,168,659 7,993,027 Net increase (decrease) in cash and cash equivalents during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (668,798) (960,658) (1,027,518) Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,126,005 1,165,347 2,192,865 Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,457,207 $2,126,005 $1,165,347 2 3 The accompanying notes are an integral part of these financial statements. NOTES TO FINANCIAL STATEMENTS OCTOBER 31, 2018, 2017, AND 2016 (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 and also under a private letter ruling issued by the Internal Revenue Service, is exempt from federal income taxes . 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, 2018, the uninsured amounts held in the Trust’s U .S . bank accounts were $1,201,639 . In addition, the Trust held €4,913, the equivalent of $5,568, in its German bank account at October 31, 2018 . 24 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 . As of October 31, 2018, 2017 and 2016, there were 9,190,590 units of beneficial interest 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 $26,873, $25,015 and $28,559 in fiscal 2018, 2017 and 2016, respectively . Lawrence A . Kobrin, a Trustee of the Trust, is no longer a partner of the firm but remains 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 $62,848, $45,149 and $80,405 in fiscal 2018, 2017 and 2016, 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 2018, 2017 and 2016 calendar years . 25 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, 2018 and 2017: Royalties received . . . . . . First $1,770,241 Fiscal 2018 by Quarter and Year Third $1,900,082 Fourth $1,474,191 Second $2,054,020 Year $7,198,534 Net income . . . . . . . . . . . $1,495,086 $1,820,337 $1,767,631 $1,324,902 $6,407,955 Net income per unit . . . . . $0 .16 $0 .20 $0 .19 $0 .14 $0 .70 Distributions paid or to be paid . . . . . . . $1,562,400 $1,746,212 $1,746,212 $1,378,589 $6,433,413 Distributions per unit paid or to be paid to unit owners . . . . . . $0 .17 $0 .19 $0 .19 $0 .15 $0 .70 Royalties received . . . . . . First $1,724,686 Fiscal 2017 by Quarter and Year Third $1,974,441 Fourth $2,144,268 Second $1,918,830 Year $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 26 NORTH EUROPEAN OIL ROYALTY TRUST Disclosure Controls and Procedures The Trust maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Trust is recorded, processed, summarized, 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, 2018 . Based on that evaluation, the Managing Director concluded that the Trust’s disclosure controls and procedures were effective as of October 31, 2018 . 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, 2018 . 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, 2018 . Management’s assessment of the effectiveness of our internal control over financial reporting as of October 31, 2018 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 Opinion on Internal Control over Financial Reporting We have audited North European Oil Royalty Trust’s (the “Trust”) internal control over financial reporting as of October 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) . In our opinion, the Trust maintained, in all material respects, effective internal control over financial reporting as of October 31, 2018, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO . 27 NORTH EUROPEAN OIL ROYALTY TRUST We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the statements of assets, liabilities and trust corpus and the related statements of revenue collected and expenses paid, undistributed earnings, and changes in cash and cash equivalents of the Trust, and our report dated December 28, 2018, expressed an unqualified opinion thereon . Basis for Opinion 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 . We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Trust in accordance with the U .S . federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB . We conducted our audit in accordance with the standards of the PCAOB . 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 . Definition and Limitations of Internal Control over Financial Reporting A trust’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the modified cash basis of accounting described in Note 1, which is a comprehensive basis other than accounting principles generally accepted in the United States of America . 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 the modified cash basis of accounting, 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 . Mazars USA LLP New York, NY December 28, 2018 28 NORTH EUROPEAN OIL ROYALTY TRUST North European Oil Royalty Trust P .O . Box 456 Red Bank, New Jersey 07701 (732) 741-4008 E R E H T U O R A E T IMPORTANT – 2018 TAX LETTER RETAIN THIS LETTER FOR PREPARATION OF YOUR 2018 INCOME TAX RETURNS January 2, 2019 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, 2018 . 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 2018, 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 2018 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 . 29 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 .4193% for the 2018 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 2018 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 $0.7864. 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 $0.0824. 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 .114193. 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 . 30 NORTH EUROPEAN OIL ROYALTY TRUST NORTH EUROPEAN OIL ROYALTY TRUST ROYALTY INCOME PER UNIT FOR THE 2018 TAX YEAR January $0 .0770 February $0 .1487 $0 .0717 March $0 .2196 $0 .1426 $0 .0709 April $0 .3005 $0 .2235 $0 .1518 $0 .0809 First month during which units were owned: January February March April May June July August September October November December Last month during which units were owned: May $0 .3703 $0 .2933 $0 .2216 $0 .1507 $0 .0698 June $0 .4387 $0 .3614 $0 .2897 $0 .2188 $0 .1379 $0 .0681 July $0 .5072 $0 .4302 $0 .3585 $0 .2876 $0 .2067 $0 .1369 $0 .0688 August $0 .5082 $0 .4312 $0 .3595 $0 .2886 $0 .2077 $0 .1379 $0 .0698 $0 .0010 September $0 .5617 $0 .4847 $0 .4130 $0 .3421 $0 .2612 $0 .1914 $0 .1233 $0 .0545 $0 .0535 October $0 .6676 $0 .5906 $0 .5189 $0 .4480 $0 .3671 $0 .2973 $0 .2292 $0 .1604 $0 .1594 $0 .1059 November December $0 .7864 $0 .7269 $0 .7094 $0 .6499 $0 .6377 $0 .5782 $0 .5668 $0 .5073 $0 .4859 $0 .4264 $0 .4161 $0 .3566 $0 .3480 $0 .2885 $0 .2792 $0 .2197 $0 .2782 $0 .2187 $0 .2247 $0 .1652 $0 .1188 $0 .0593 $0 .0595 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 2018 TAX YEAR January $0 .0081 February $0 .0228 $0 .0147 March $0 .0279 $0 .0198 $0 .0051 April $0 .0335 $0 .0254 $0 .0107 $0 .0056 First month during which units were owned: January February March April May June July August September October November December Last month during which units were owned: May $0 .0404 $0 .0323 $0 .0176 $0 .0125 $0 .0069 June $0 .0436 $0 .0355 $0 .0208 $0 .0157 $0 .0101 $0 .0032 July $0 .0479 $0 .0398 $0 .0251 $0 .0200 $0 .0144 $0 .0075 $0 .0043 August $0 .0539 $0 .0458 $0 .0311 $0 .0260 $0 .0204 $0 .0135 $0 .0103 $0 .0060 September $0 .0583 $0 .0502 $0 .0355 $0 .0304 $0 .0248 $0 .0179 $0 .0147 $0 .0104 $0 .0044 October $0 .0642 $0 .0561 $0 .0414 $0 .0363 $0 .0307 $0 .0238 $0 .0206 $0 .0163 $0 .0103 $0 .0059 November December $0 .0824 $0 .0707 $0 .0743 $0 .0626 $0 .0596 $0 .0479 $0 .0545 $0 .0428 $0 .0489 $0 .0372 $0 .0420 $0 .0303 $0 .0388 $0 .0271 $0 .0345 $0 .0228 $0 .0285 $0 .0168 $0 .0241 $0 .0124 $0 .0182 $0 .0065 $0 .0117 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 1 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 .7864 . The resulting figure is then multiplied by .114193 to yield the prorated depletion percentage . Multiply this 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 . 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 32 NORTH EUROPEAN OIL ROYALTY TRUST 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 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 Nancy J .F . Prue A Director of the National Assoc . of Petroleum Investment Analysts Willard B . Taylor of Counsel, Sullivan and Cromwell LLP A copy of the Trust’s Form 10-K Annual Report for fiscal 2018 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 2018 10-K, other pertinent filings and documents are available at the Trust’s website, www .neort .com NORTH EUROPEAN OIL ROYALTY TRUST