Annual Report 2022
North
European
Oil
Royalty
Trust
ATTENTION:
PLEASE RETAIN
CRITICAL TAX INFORMATION ENCLOSED
The Annual Meeting of North European Oil Royalty Trust will be held on Wednesday, February 15,
2023, in the Emerson Meeting Room at the Courtyard Marriott, 75 Railroad St., Keene, N.H. (near the
Managing Director’s office) and via ZOOM at 11:00 a.m. This will facilitate the participation of
additional unit owners. All unit owners are welcome to attend.
Unit owners, who are unable to attend in person, may participate in the annual meeting and ask questions
during the question period by using the following Zoom link, https://us02web.zoom.us/j/87210159755. At
the start of the presentation, you will be muted. At the start of the question period if you wish to pose a
question, please click on the “Participants” button at the bottom of the Zoom screen. A window will open to
the right. Click on the “…” at the bottom of the window and click “Raise Hand.” You will then be called
on to unmute yourself and pose your question.
Unit owners are urged to vote by proxy in the manner provided in the proxy card.
Table of Contents
Report to Unit Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Description of Trust Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management’s Discussion and Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Critical Accounting Estimates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . .
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Disclosure Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Internal Control over Financial Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trustees, Administration and Important Contacts . . . . . . . . . . . . . . . . . . . . . . .
2022 Tax Letter (Removable) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1-2
3
3-7
7-8
9-10
11-12
13-15
16
16
17
18-21
IMPORTANT TAX INFORMATION
For your convenience, the information necessary to prepare
your 2022 tax return is included in the removable
“2022 Tax Letter” on Pages 18 through 21.
Please note that there will be no separate mailing of the tax letter.
The 2022 Tax Letter is also available at the Trust’s website, www.neort.com.
Report to Unit Owners:
FOURTH QUARTER 2022
Net income for the Trust for the fourth quarter of fiscal 2022 was $6,884,050, an increase of
428.45% from net income of $1,302,678 for the fourth quarter of fiscal 2021. 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 a concession in the Federal Republic of
Germany (the “Oldenburg concession”). The OEG Agreement is the 0.6667% royalty rate agreement
covering gas sales from the entire Oldenburg concession. Total royalties under the Mobil Agreement,
including sulfur royalties under the 2% Mobil Sulfur Agreement, for the fourth quarter of fiscal 2022
were increased by positive adjustments from prior periods of ($995,255), as compared to negative
adjustments totaling ($120,777) for the fourth quarter of fiscal 2021. Total royalties under the OEG
Agreement for the fourth quarter of fiscal 2022 were increased by positive adjustments from prior
periods of ($554,793), as compared to negative adjustments of ($70,329) for the fourth quarter of fiscal
2021. Net income in the fourth quarter of 2022 was higher than the fourth quarter of 2021 due to the
impact of these prior period adjustments as well as increases in gas prices. The relevant details for the
fourth quarters of fiscal 2022 and 2021 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 9/30/2021
3rd Calendar Quarter
Ended 9/30/2022
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
3.499
8.3302
0.9864
$3,287,124
12.951
8.4951
0.9868
$1,904,864
3.985
1.9573
1.1703
$1,043,662
13.365
1.9961
1.1714
$441,458
- 12.20%
+325.60%
- 15.71%
+214.96%
- 3.10%
+325.58%
- 15.76%
+331.49%
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
FISCAL 2022 REPORT
For fiscal 2022, the Trust’s total royalty income increased 286.76% to $17,800,119 from
$4,602,410 in fiscal 2021. The increase in royalty income was the result of a combination of factors
including the reduction in the economic impact of COVID-19 and higher gas prices resulting from the
economic disruption following the invasion of Ukraine. 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 2022
and 2021, these adjustments increased royalty income by $1,550,020 and decreased royalty income by
$696,189, respectively. During fiscal 2022 and 2021, Mobil sulfur royalties totaled $316,527 and
- 1 -
$178,367, respectively. The total distribution for fiscal 2022 was $1.83 per unit compared to $0.47 per
unit for fiscal 2021.
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 EMPG in December 2022. 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.
The Trust’s German consultant has advised the Trust that EMPG has not
planned any new wells for calendar 2023 and no major work has been
initiated on the exploration side.
Production levels of the OEG fields for 2022 have demonstrated that
numerous maintenance efforts, including well cleanup jobs and foam
jobs to de-water weak wells, have been conducted to maintain production.
As of the current date and despite the difficult energy situation in Germany,
the government has taken no steps to encourage or support domestic
development of hydrocarbon-based energy sources. It should be noted
that the economic impact on energy prices resulting from the invasion of
Ukraine by Russia continues and shows no sign of abating. Under these
circumstances, current decisions at both the governmental and corporate
levels may change.
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 2022. The 2022 cost depletion percentage of
7.8894% and related tax information is contained in the removable "2022 Tax Letter" on Pages 18
through 21 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, 2022. (The complete text of the
report is available in the Trust’s 2022 Report on Form 10-K as exhibit 99.1.) The report indicates that
net Trust gas reserves increased 94.84% to 10.582 Bcf from 5.431 Bcf on net sales for 2022 of 0.903
Bcf and a positive reserve adjustment of 6.054 Bcf.
December 30, 2022
Respectfully submitted,
John R. Van Kirk
Managing Director
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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 the
Oldenburg concession. The Oldenburg concession covers approximately 1,386,000 acres, is located in
the German federal state of Lower Saxony, and is the area from which natural gas, sulfur and oil are
extracted. The Oldenburg concession currently provides nearly 100% of all the royalties received by
the Trust. The Oldenburg concession is held by Mobil Erdgas-Erdol GmbH ("Mobil Erdgas"), a
German operating subsidiary of ExxonMobil, and by Oldenburgische Erdolgesellschaft ("OEG").
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 upon which the calculation of royalties is based are still handled by either Mobil Erdgas or
BEB (the “operating companies”).
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.
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 an agreement with Mobil Erdgas 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 “Mobil Sulfur Agreement”). 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 adjusted annually by
an inflation index. When the average quarterly selling price falls below the indexed base price, no
sulfur royalties are paid. Sulfur royalties under the Mobil Agreement totaled $316,527 and $178,367
during fiscal 2022 and 2021, respectively.
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 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.
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.
- 3 -
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 operating companies pay royalties to the Trust based on their sales of natural gas, sulfur
and oil. Of these three products, natural gas provided approximately 95% of the total royalties in fiscal
2022. The amount of royalties paid to the Trust is primarily based on four factors: the amount of gas
sold, the area from which the gas is sold, the price of that gas and the exchange rate. For purposes of
the royalty calculation, the determination of the gas price is explained in detail in the following two
paragraphs.
On August 26, 2016, the Mobil and OEG Agreements were amended to establish a new base to
determine gas prices for the calculation of the Trust’s royalties. 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. This change reflects a shift to the prices calculated for the
German Border Import gas Price (“GBIP”). The average combined totals of the GBIP for the relevant
three-month period are used to provide an average gas price for the quarter. This average gas price is
increased by 1% and 3% per the terms of the Mobil and OEG Royalty Agreements and is used by the
operators to calculate the royalties payable to the Trust for a given quarter.
The change to the GBIP has reduced the scope and cost of the accounting examination,
eliminated ongoing disputes with OEG and Mobil regarding sales to related parties, and reduced prior
year adjustments to the normally scheduled year-end reconciliation. The pricing basis has also
eliminated certain costs that were previously deductible prior to the royalty calculation under the OEG
Agreement.
There are two types of natural gas found within the Oldenburg concession, sweet gas and sour
gas. Sweet gas has little contaminants and needs very minor 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 liquid or solid form, which is sold separately. With full
operation of the two units, raw gas input capacity stands at approximately 400 million cubic feet
(“MMcf”) per day. EMPG has indicated to the Trust’s consultant in Germany that it intends to shut
down one of the remaining two units in June 2023. The retirement of this unit is planned by EMPG as
otherwise state authorities would mandate a full and costly recertification of its vessels and pipes
which will have reached their required expiration date. Since the units are roughly equal in size, full
operation of the remaining unit would be approximately 200 MMcf per day following the shutdown. It
is expected that the single unit will be sufficient to handle sour gas production through-put from the
concession. It is also expected that operating expenses in the future will be somewhat reduced by this
measure. Since sour gas accounts for 75% of overall gas sales and 98% of western gas sales, any
future shutdown could significantly impact royalty income. The Trust has insufficient data to predict
whether, when and to what extent any future shutdown may occur.
The Trust has no means of ensuring continued income from overriding royalty rights at their
present level or otherwise. The assets of the Trust are depleting assets and, if the operators developing
the concession do not perform additional development projects, the assets may deplete faster than
expected. Eventually, the assets of the Trust will cease to produce in commercial quantities and the
Trust will cease to receive proceeds from such assets.
- 4 -
The Trust’s consultant in Germany provides general information to the Trust on the German
and European economies and energy markets as well as monitoring the continuing impact of the war in
Ukraine and ongoing efforts by the European governments to respond to the economic impacts of the
war. 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, and the Trust is not able to confirm the accuracy of any
of the information supplied by EMPG or the operating companies.
Results: Fiscal 2022 versus Fiscal 2021
For fiscal 2022, the Trust’s gross royalty income increased 286.76% to $17,800,119 from
$4,602,410 in fiscal 2021. The war in Ukraine has had and continues to have a significant impact on
royalties paid to the Trust. The reduction in the flow of Russian gas to Germany and to Europe as a
whole has led to shortages. These shortages have resulted in a bidding war for limited gas supplies
available and continue to support higher gas prices. The increase in the amount of royalty income
resulted in the higher distribution. The total distribution for fiscal 2022 was $1.83 per unit compared
to $0.47 per unit for fiscal 2021. Gas prices under both royalty agreements were higher while gas sales
and average exchange rates were down. The royalty income received under the Mobil Agreement in
fiscal 2022 increased by $8,102,062 as compared to fiscal 2021. Royalty income received under the
OEG Agreement in fiscal 2022 increased by $5,096,976 as compared to fiscal 2021.
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 2022, the adjustments
based on royalties payable for 2021 increased royalty income by $1,550,020. During fiscal 2021, the
adjustments based on royalties payable for 2020 decreased royalty income by $696,189. In fiscal 2022
and 2021, Mobil sulfur royalties totaled $316,527 and $178,367, respectively.
Gas sales under the Mobil Agreement decreased 5.99% to 14.874 Bcf in fiscal 2022 from
15.821 Bcf in fiscal 2021. Given the lack of drilling by the operating companies during 2022, the
Trust’s consultant in Germany believes 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
2022 Gas Sales
4.105
3.605
3.665
3.499
14.874
2021 Gas Sales
3.222
4.354
4.259
3.986
15.821
Percentage Change
+ 27.41%
- 17.20%
- 13.95%
- 12.22%
- 5.99%
Average prices for gas sold under the Mobil Agreement increased 249.76% to 5.5665
€cents/kWh in fiscal 2022 from 1.5915 €cents/kWh in fiscal 2021.
- 5 -
Average Gas Prices under the Mobil Agreement in Euro cents per Kilowatt Hour
Fiscal Quarter
First
Second
Third
Fourth
Fiscal Year Average
2022 Average
Gas Prices
3.0604
5.1442
6.1535
8.3302
5.5665
2021 Average
Gas Prices
1.1935
1.5395
1.6032
1.9573
1.5915
Percentage
Change
+156.42%
+234.15%
+283.83%
+325.60%
+249.76%
Converting gas prices into more familiar terms, using the average exchange rate, yielded a price
of $16.56 per thousand cubic feet (“Mcf”), an increase of 204.97% from fiscal 2021’s average price of
$5.43/Mcf. For fiscal 2022, royalties paid under the Mobil Agreement were converted and transferred
at an average Euro/U.S. dollar exchange rate of $1.0405, a decrease of 12.80% from the average
Euro/U.S. dollar exchange rate of $1.1932 for fiscal 2021.
Average Euro Exchange Rate under the Mobil Agreement
Fiscal Quarter
First
Second
Third
Fourth
Fiscal Year Average
2022 Average
Euro Exchange Rate
1.1256
1.0883
1.0236
0.9864
1.0405
2021 Average
Euro Exchange Rate
1.2116
1.2020
1.2004
1.1703
1.1932
Percentage
Change
- 7.10%
- 9.46%
- 14.73%
- 15.71%
- 12.80%
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 2022, the volume of gas sold from western Oldenburg accounted for only 27.86%
of the volume of all gas sales. However, western Oldenburg gas royalties provided approximately
74.29% or $12,512,346 out of a total of $16,842,689 in overall Oldenburg gas royalties.
Gas sales under the OEG Agreement decreased 1.04% to 53.385 Bcf in fiscal 2022 from 53.947
Bcf in fiscal 2021. Given the lack of drilling by the operating companies during 2022, the Trust’s
consultant in Germany believes 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
2022 Gas Sales
13.970
13.123
13.341
12.951
53.385
2021 Gas Sales
11.622
14.495
14.465
13.365
53.947
Percentage Change
+ 20.20%
- 9.47%
- 7.77%
- 3.10%
- 1.04%
- 6 -
Average gas prices for gas sold under the OEG Agreement increased 254.51% to 5.7342
€cents/kWh in fiscal 2022 from 1.6175 €cents/kWh in fiscal 2021.
Average Gas Prices under the OEG Agreement in Euro cents per Kilowatt Hour
Percentage
Change
+156.43%
+234.14%
+283.83%
+325.58%
+254.51%
2022 Average
Gas Prices
3.1210
5.2460
6.2753
8.4951
5.7342
2021 Average
Gas Prices
1.2171
1.5700
1.6349
1.9961
1.6175
Fiscal Quarter
First
Second
Third
Fourth
Fiscal Year Average
Converting gas prices into more familiar terms, using the average exchange rate, yielded a price
of $16.60/Mcf, an increase of 208.55% from fiscal 2021’s average price of $5.38/Mcf. For fiscal
2022, royalties paid under the OEG Agreement were converted and transferred at an average Euro/U.S.
dollar exchange rate of $1.0375, a decrease of 13.04% from the average Euro/U.S. dollar exchange rate
of $1.1931 for fiscal 2021.
Average Euro Exchange Rate under the OEG Agreement
Fiscal Quarter
First
Second
Third
Fourth
Fiscal Year Average
2022 Average
Euro Exchange Rate
1.1255
1.0867
1.0236
0.9868
1.0375
2021 Average
Euro Exchange Rate
1.2123
1.2022
1.1998
1.1714
1.1931
Percentage
Change
- 7.16%
- 9.61%
- 14.69%
- 15.76%
- 13.04%
Interest income for fiscal 2022 of $2,244 increased from interest income of $641 for fiscal 2021
due to the higher amount of royalties received. Trust expenses increased $87,423, or 13.95%, to
$713,917 in fiscal 2022 from $626,494 in fiscal 2021 due to higher Trustees’ fees as specified in the
provisions of the Trust Agreement and accounting costs associated with the biennial examinations of
the royalty calculations by the German operating companies during fiscal 2022.
Critical Accounting Estimates
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 U.S. (“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
- 7 -
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. All
statements other than statements of historical fact are forward-looking. Such statements address future
expectations and events or conditions concerning the Trust. You can identify many forward-looking
statements by words such as “may,” “will,” “would,” “should,” “could,” “expects,” “aim,”
“anticipates,” “believes,” “estimates,” “intends,” “plan,” “predict,” “project,” “seek,” “potential,”
“opportunities” and other similar expressions and the negatives of such expressions. However, not all
forward-looking statements contain these words. 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, currency exchange rates, and the overall impact of the novel coronavirus
identified as COVID-19;
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
• political and economic uncertainty arising from Russia’s invasion of Ukraine.
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.
- 8 -
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, 2022 and 2021, and the related statements of revenue
collected and expenses paid, undistributed earnings, and changes in cash and cash equivalents for each
of the two years in the period ended October 31, 2022, 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, 2022 and 2021, and its
revenue collected and expenses paid, undistributed earnings and changes in its cash and cash
equivalents for each of the two years in the period ended October 31, 2022, in conformity with the
modified cash basis of accounting described in Note 1.
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 Public Company Accounting Oversight Board (United States) (“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 audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. As part of our
audits, we are required to obtain an understanding of internal control over financial reporting, but not
for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over
financial reporting. Accordingly, we express no such opinion.
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 included examining, on a test basis, evidence regarding the 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.
- 9 -
Critical Audit Matters
Critical audit matters are matters arising from the current period audit of the financial statements that
were communicated or required to be communicated to the audit committee and that: (1) relate to
accounts or disclosures that are material to the financial statements and (2) involved our especially
challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
/s/ Mazars USA LLP
We have served as the Trust’s auditor since 2006.
Edison, NJ
December 30, 2022
- 10 -
NORTH EUROPEAN OIL ROYALTY TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
OCTOBER 31, 2022 AND 2021
Current assets - - Cash and cash equivalents
ASSETS
Producing gas and oil royalty rights, net of amortization (Notes 1 and
2)
Total Assets
2022
2021
$7,193,457
$1,409,437
1
1
$7,193,458
$1,409,438
LIABILITIES AND TRUST CORPUS
2022
2021
Current liabilities - - Distributions to be paid to
unit owners, paid November 2022 and 2021
Trust corpus (Notes 1 and 2)
Undistributed earnings
Total Liabilities and Trust Corpus
$6,801,037
$1,286,683
1
1
392,420 122,754
$7,193,458
$1,409,438
NORTH EUROPEAN OIL ROYALTY TRUST
STATEMENTS OF REVENUE COLLECTED AND EXPENSES PAID (NOTE 1)
FOR THE FISCAL YEARS ENDED OCTOBER 31, 2022 AND 2021
Gas, sulfur and oil royalties received
Interest income
Trust Income
Operating expenses
Related party expenses (Note 3)
Trust Expenses
Net Income
Net income per unit
Distributions per unit paid or to be paid to unit owners
2022
2021
$17,800,119 $4,602,410
2,244
641
$17,802,363 $4,603,051
($695,071)
($587,476)
(18,846)
(39,018)
($713,917)
($626,494)
$17,088,446
$3,976,557
$1.86
$1.83
$0.43
$0.47
The accompanying notes are an integral part of these financial statements.
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NORTH EUROPEAN OIL ROYALTY TRUST
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
FOR THE FISCAL YEARS ENDED OCTOBER 31, 2022 AND 2021
Balance, beginning of year
Net income
Less:
Current year distributions paid or
to be paid to unit owners
Balance, end of year
2022
2021
$122,754 $465,774
17,088,446 3,976,557
$17,211,200 $4,442,331
16,818,780 4,319,577
$392,420 $122,754
NORTH EUROPEAN OIL ROYALTY TRUST
STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS (NOTE 1)
FOR THE FISCAL YEARS ENDED OCTOBER 31, 2022 AND 2021
Sources of Cash and Cash Equivalents:
Gas, sulfur and oil royalties received
Interest income
Uses of Cash and Cash Equivalents:
Payment of Trust expenses
Distributions paid
2022
2021
$17,800,119
$4,602,410
2,244 641
$17,802,363
$4,603,051
$713,917
$626,494
11,304,426 3,216,705
$12,018,343 $3,843,199
Net increase (decrease) in cash and cash equivalents during the year
5,784,020 759,852
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
1,409,437 649,585
$7,193,457 $1,409,437
The accompanying notes are an integral part of these financial statements.
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NORTH EUROPEAN OIL ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 2022 AND 2021
(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.
The Trust receives adjustments from the operating companies based on their final calculations
of royalties payable during the prior periods, including the immediately preceding calendar quarter.
Negative adjustments are carried over to the succeeding quarter. There were no negative adjustments
during fiscal 2022. A negative adjustment of €444,931 ($538,651) from the fourth quarter of fiscal
2020 was carried over and offset against royalty revenue received in the first quarter of fiscal 2021.
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) since 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.
- 13 -
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, 2022, the uninsured
amounts held in the Trust’s U.S. bank accounts were $6,933,575. In addition, the Trust held €10,000,
the equivalent of $9,882, in its German bank account at October 31, 2022.
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, 2022 and 2021, 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, condensate and sulfur.
(3) Related party transactions:
John R. Van Kirk, the Managing Director of the Trust, provides office services to the Trust at
cost. For such office services, the Trust reimbursed the Managing Director $5,256 and $5,613 in fiscal
2022 and 2021, respectively.
As of December 31, 2021, Lawrence A. Kobrin, a Trustee of the Trust, fully retired from
Cahill Gordon & Reindel LLP, which serves as counsel to the Trust. Commencing January 1, 2022,
payments to Cahill Gordon & Reindel LLP are no longer considered to be payments to a related party
but instead are included in operating expenses. For fiscal 2022 and 2021, related party legal expenses
paid to Cahill Gordon & Reindel LLP were $13,590 and $33,405, 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 2022 and 2021 calendar years.
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(5) Quarterly results (unaudited):
The tables below summarize the quarterly results and distributions of the Trust for the fiscal
years ended October 31, 2022 and 2021:
Fiscal 2022 by Quarter and Year
First
Second
Third
Fourth
Year
Royalties received
$2,546,539
$3,773,568
$4,442,665
$7,037,347
$17,800,119
Net income
$2,351,819
$3,559,968
$4,292,607
$6,884,050
$17,088,446
Net income per unit
$0.26
$0.39
$0.47
$0.75
$1.86
Distributions paid
or to be paid
Distributions per unit
paid or to be paid
to unit owners
$2,297,647
$3,492,424
$4,227,671
$6,801,037
$16,818,779
$0.25
$0.38
$0.46
$0.74
$1.83
Fiscal 2021 by Quarter and Year
First
Second
Third
Fourth
Year
Royalties received
$283,439
$1,400,159
$1,480,863
$1,437,949
$4,602,410
Net income
$111,842
$1,198,447
$1,363,590
$1,302,678
$3,976,557
Net income per unit
$0.01
$0.13
$0.15
$0.14
$0.43
Distributions paid
or to be paid
Distributions per unit
paid or to be paid
to unit owners
$367,624
$1,286,682
$1,378,588
$1,286,683
$4,319,577
$0.04
$0.14
$0.15
$0.14
$0.47
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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, 2022. Based on that evaluation, the Managing Director concluded that the Trust’s
disclosure controls and procedures were effective as of October 31, 2022.
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, 2022.
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, 2022.
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NORTH EUROPEAN OIL ROYALTY TRUST
Managing Director
John R. Van Kirk
Office of the
Managing Director
PO Box 187
5 N. Lincoln St.
Keene, NH 03431
Tel: (732) 741-4008
E-Mail: neort@neort.com
Website: www.neort.com
Petroleum and Natural
Gas Consultants
Graves and Co.
Consulting, LLC
2777 Allen Parkway
Suite 525
Houston, TX 77019
Counsel
Cahill Gordon & Reindel
32 Old Slip
New York, NY 10005
Auditors
Mazars USA LLP
399 Thornall Street
Edison, NJ 08837
Transfer Agent
American Stock Transfer &
Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Tel: (800) 937-5449
(718) 921-8124
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
Nancy J. Prue
A Director of the
National Association 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 2022 as filed with the Securities
and Exchange Commission will be sent upon written request to John R. Van Kirk, Managing
Director, P.O. Box 187, Keene, New Hampshire 03431. In addition to the 2022 10-K, other
pertinent filings and documents are available on the Trust’s website. www.neort.com
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North European Oil Royalty Trust
P.O. Box 187
Keene, New Hampshire 03431
(732) 741-4008
IMPORTANT – 2022 TAX LETTER
RETAIN THIS LETTER FOR PREPARATION OF YOUR
2022 INCOME TAX RETURNS
E
R
E
H
T
U
O
R
A
E
T
January 2, 2023
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, 2022.
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 2022, 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 2022 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, under Line 1b
the type of property is royalties. Royalty income should be entered on Line 4, expenses should be entered
on Line 19 as "miscellaneous Trust expenses" and the cost depletion deduction should be entered on Line
18. Some tax preparation computer programs ask for a tax identification number. North European Oil
Royalty Trust's tax identification number is 22-2084119.
- 18 -
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 7.8894% for the 2022 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 2022 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 $2.2429. 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 $0.0838. 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 .078894. 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.
- 19 -
ROYALTY INCOME PER UNIT FOR THE 2022 TAX YEAR
Last month during which units were owned:
January
$0.1676
February
$0.2584
$0.0908
March
$0.3460
$0.1784
$0.0876
April
$0.5782
$0.4106
$0.3198
$0.2322
May
$0.7063
$0.5387
$0.4479
$0.3603
$0.1281
June
$0.7063
$0.6666
$0.5758
$0.4882
$0.2560
$0.1279
July
$1.0616
$0.8940
$0.8032
$0.7156
$0.4834
$0.3553
$0.2274
August
$1.2177
$1.0501
$0.9593
$0.8717
$0.6395
$0.5114
$0.3835
$0.1561
First month during which
Units were owned:
January
February
March
April
May
June
July
August
September
October
November
December
September
$1.5394
$1.3718
$1.2810
$1.1934
$0.9612
$0.8331
$0.7052
$0.4778
$0.3217
October
$1.8273
$1.6597
$1.5689
$1.4813
$1.2491
$1.1210
$0.9931
$0.7657
$0.6096
$0.2879
November
$2.0324
$1.8648
$1.7740
$1.6864
$1.4542
$1.3261
$1.1982
$0.9708
$0.8147
$0.4930
$0.2051
December
$2.2429
$2.0753
$1.9845
$1.8969
$1.6647
$1.5366
$1.4087
$1.1813
$1.0252
$0.7035
$0.4156
$0.2105
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 2022 TAX YEAR
Last month during which units were owned:
January
$0.0076
February
$0.0143
$0.0067
March
$0.0255
$0.0179
$0.0112
April
$0.0309
$0.0233
$0.0166
$0.0054
May
$0.0393
$0.0317
$0.0250
$0.0138
$0.0084
June
$0.0421
$0.0345
$0.0278
$0.0166
$0.0112
$0.0028
July
$0.0472
$0.0396
$0.0329
$0.0217
$0.0163
$0.0079
$0.0051
August
$0.0557
$0.0481
$0.0414
$0.0302
$0.0248
$0.0164
$0.0136
$0.0085
First month during which
Units were owned:
January
February
March
April
May
June
July
August
September
October
November
December
September
$0.0583
$0.0507
$0.0440
$0.0328
$0.0274
$0.0190
$0.0162
$0.0111
$0.0026
October
$0.0639
$0.0563
$0.0496
$0.0384
$0.0330
$0.0246
$0.0218
$0.0167
$0.0082
$0.0056
November
$0.0752
$0.0676
$0.0609
$0.0497
$0.0443
$0.0359
$0.0331
$0.0280
$0.0195
$0.0169
$0.0113
December
$0.0838
$0.0762
$0.0695
$0.0583
$0.0529
$0.0445
$0.0417
$0.0366
$0.0281
$0.0255
$0.0199
$0.0086
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."
- 20 -
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
$2.2429. The resulting figure is then multiplied by .078894 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
- 21 -