Annual Report 2023
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 21,
2024 beginning at 11:00 a.m. EST via Zoom link as further detailed in the box immediately below.
This will facilitate the participation of any interested unit owners. All unit owners are welcome to
attend.
Unit owners are urged to vote by proxy in the manner provided in the proxy card.
Unit owners are welcome to participate in the annual meeting and ask questions during the question
period by using the following Zoom link, https://us02web.zoom.us/j/86407642473. 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.
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 . . . . . . . . . . . . . . . . . . . . . . .
2023 Tax Letter (Removable) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1-2
3
3-7
8
9-10
11-12
13-15
16
16
17
18-21
IMPORTANT TAX INFORMATION
For your convenience, the information necessary to prepare
your 2023 tax return is included in the removable
“2023 Tax Letter” on Pages 18 through 21.
Please note that there will be no separate mailing of the tax letter.
The 2023 Tax Letter is also available at the Trust’s website, www.neort.com.
Report to Unit Owners:
FOURTH QUARTER 2023
Net income for the Trust for the fourth quarter of fiscal 2023 was $0, a decrease of 100% from
net income of $6,884,050 for the fourth quarter of fiscal 2022. 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. The absence of royalty income payments during the fourth
quarter of fiscal 2023 resulted from the combination of royalty overpayments incurred in the prior
quarter, a continuing decline in gas prices, and a decline in gas sales due to the temporary shutdown at
Grossenkneten. These factors led to a further overpayment of a Euro amount equivalent to $733,028
that had not been offset as of the end of the fourth quarter. Additionally, the negative adjustment for
calendar 2022 in a Euro amount equivalent to $241,662 had not been offset as of the end of the fourth
quarter as well. This overpayment and negative adjustment will reduce royalty income payments in
the first quarter of fiscal 2024. The relevant details for the fourth quarters of fiscal 2023 and 2022 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 9/30/2022
3rd Calendar Quarter
Ended 9/30/2023
Percentage
Change
Mobil Agreement:
Gas Sales (Bcf1)
Gas Prices2 (€cents/kWh3)
Average Exchange Rate4
Gas Royalties
OEG Agreement:
Gas Sales (Bcf)
Gas Prices (€cents/kWh)
Average Exchange Rate
Gas Royalties
2.512
3.2970
0.0
$0
9.318
3.3623
0.0
$0
3.499
8.3302
0.9864
$3,287,124
12.951
8.4951
0.9868
$1,904,864
- 28.21%
- 60.42%
-100.00%
-100.00%
- 28.05%
- 60.42%
-100.00%
-100.00%
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 2023 REPORT
For fiscal 2023, the Trust’s total royalty income increased 23.7% to $22,016,103 from
$17,800,119 in fiscal 2022. The increase in royalty income occurred primarily during the first six
months of fiscal 2023 due to the combination of extremely high gas prices and the provisions of the
royalty agreements that caused the second quarter royalty payments to match first quarter royalty
income paid. Following their peak in the first quarter, gas prices declined steadily through the
remainder of the year resulting in a series of overpayments that could not be completely offset by the
end of fiscal 2023. 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. These adjustments decreased royalty income by a Euro amount
- 1 -
equivalent to $241,662 in fiscal 2023 and increased royalty income by $1,550,020 in fiscal 2022.
During fiscal 2023 and 2022, Mobil sulfur royalties totaled $34,586 and $316,527, respectively. The
total distribution for fiscal 2023 was $2.26 per unit compared to $1.83 per unit for fiscal 2022.
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 2023. 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 2024 and no major work has been
initiated on the exploration side. Maintenance work, including well cleanup
jobs and foam jobs to de-water weak wells, will be continuing to ensure
the wells are operating at maximum efficiency and production levels.
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 2023. The 2023 cost depletion percentage of
8.8130% and related tax information is contained in the removable "2023 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, 2023. (The complete text of the
report is available in the Trust’s 2023 Report on Form 10-K as exhibit 99.1.) The report indicates that
net Trust gas reserves decreased 26.0% to 7.828 Bcf from 10.582 Bcf on net sales for 2023 of 0.759
Bcf and a negative reserve adjustment of 1.995 Bcf.
Respectfully submitted,
John R. Van Kirk
Managing Director
December 29, 2023
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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 paid under the Mobil Agreement totaled $34,586 and
$316,527 during fiscal 2023 and 2022, 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 100% of the total royalties in
fiscal 2023. 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 produced, 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 or no contaminants and needs very minor treatment before it can be sold. Sour
gas, in comparison, must be processed at the Grossenkneten desulfurization plant which commenced
operations in 1972. The desulfurization process removes hydrogen sulfide and other contaminants
before the clean gas can be sold. The hydrogen sulfide in gaseous form is converted to sulfur in a solid
form and sold separately.
EMPG decommissioned one of the remaining two sulfur processing units ("trains"). The
decommissioning was conducted during May-July 2023. For a period of twenty-four days beginning
on June 25, 2023, there was no through-put at the plant while the shutdown of one train and the
refurbishment and maintenance of the remaining train were completed. The cost of this work was
approximately 50 million Euros. The plant is subject to an ongoing schedule of inspections which may
result in shutdowns while required repairs are conducted. Full operation of the remaining train is
approximately 200 million cubic feet ("MMcf") per day following the shutdown. It is expected that the
single train will be sufficient to handle sour gas production through-put from the concession. It is also
expected that operating expenses in the future may be reduced by this measure. Since sour gas
accounts for 71% of overall gas sales and 97% of western gas sales, any future shutdown of the
remaining train 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
- 4 -
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.
Results: Fiscal 2023 versus Fiscal 2022
Russia’s current war against Ukraine derailed the European energy system, with Germany hit
particularly hard. With Russian gas making up such a large portion of Germany’s energy needs,
Germany took steps to rebuild its reserves for the following winter and ensure a steady source of future
supply. As a result of the increase in demand for alternative sources of gas, in August 2022 the GBIP
spiked 645% year over year. These high gas prices resulted in the destruction of some industrial
demand and a general reduction in consumer demand. However, the increase in gas prices was short
lived and following a warm winter with further reduced demand, the GBIP continued to decline
through the end of the year.
Beginning at the end of the second quarter of fiscal 2023, large negative adjustments dictated
by the pricing system in the Trust’s royalty agreements were accrued and subsequently applied against
royalty income in the following quarter. The ongoing price decline in conjunction with the accrued
negative adjustments was repeated in the third and fourth quarters of fiscal 2023. The decline in
royalty income resulted in a $.21 distribution in the third quarter and no distribution in the final
quarter.
For fiscal 2023, the Trust’s gross royalty income increased 23.7% to $22,016,103 from
$17,800,119 in fiscal 2022. The total distribution for fiscal 2023 was $2.26 per unit compared to $1.83
per unit for fiscal 2022. 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
2023 increased by $2,664,909 as compared to fiscal 2022. Royalty income received under the OEG
Agreement in fiscal 2023 increased by $1,549,381 as compared to fiscal 2022.
The Trust receives adjustments from the operating companies based on their final calculations
of royalties payable during the previous periods. During fiscal 2023, the adjustments based on
royalties payable for 2022 decreased royalty income by €228,631. During fiscal 2022, the adjustments
based on royalties payable for 2021 increased royalty income by $1,550,020. In fiscal 2023 and 2022,
Mobil sulfur royalties totaled $34,586 and $316,527, respectively.
Gas sales under the Mobil Agreement decreased 16.4% to 12.439 Bcf in fiscal 2023 from
14.874 Bcf in fiscal 2022. Given the lack of drilling by the operating companies during 2023 and the
renovation work on Grossenkneten, the Trust’s consultant in Germany believes the decline in gas
production is due to the combination of the temporary shutdown of processing at Grossenkneten and
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
2023 Gas Sales
3.519
3.451
2.957
2.512
12.439
2022 Gas Sales
4.105
3.605
3.665
3.499
14.874
Percentage Change
-14.28%
- 4.27%
-19.32%
- 28.21%
- 16.37%
- 5 -
Average prices for gas sold under the Mobil Agreement increased 49.5% to 8.3231 €cents/kWh
in fiscal 2023 from 5.5665 €cents/kWh in fiscal 2022.
Average Gas Prices under the Mobil Agreement in €cents per Kilowatt Hour
Percentage
Change
+362.89%
+ 76.98%
- 23.14%
- 60.42%
+ 49.52%
2023 Average
Gas Prices
14.1664
9.1043
4.7294
3.2970
8.3231
2022 Average
Gas Prices
3.0604
5.1442
6.1535
8.3302
5.5665
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 $23.54 per thousand cubic feet (“Mcf”), an increase of 42.1% from fiscal 2022’s average price of
$16.56/Mcf. For fiscal 2023, royalties paid under the Mobil Agreement were converted and
transferred at an average Euro/U.S. dollar exchange rate of 0.9900, a decrease of 4.9% from the
average Euro/U.S. dollar exchange rate of 1.0405 for fiscal 2022.
Average Euro Exchange Rate under the Mobil Agreement
Fiscal Quarter
First
Second
Third
Fourth
Fiscal Year Average
2023 Average
Euro Exchange Rate
1.0706
1.0698
1.1099
0.0000
0.9900
2022 Average
Euro Exchange Rate
1.1256
1.0883
1.0236
0.9864
1.0405
Percentage
Change
- 4.89%
- 1.70%
+ 8.43%
-100.00%
- 4.85%
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 2023, the volume of gas sold from western Oldenburg accounted for only 27.7%
of the volume of all gas sales. However, western Oldenburg gas royalties provided approximately
73.6% or $16,192,614 out of a total of $22,016,103 in overall Oldenburg gas royalties.
Gas sales under the OEG Agreement decreased 15.8% to 44.944 Bcf in fiscal 2023 from 53.385
Bcf in fiscal 2022. Given the lack of drilling by the operating companies during 2023 and the
maintenance work on Grossenkneten, the Trust’s consultant in Germany believes the decline in gas
production is due to the combination of the temporary shutdown of processing at Grossenkneten and
the normal reduction in well pressure that is experienced over time.
- 6 -
Quarterly and Yearly Gas Sales under the OEG Agreement in Billion cubic feet
Fiscal Quarter
First
Second
Third
Fourth
Fiscal Year Total
2023 Gas Sales
12.881
12.242
10.503
9.318
44.944
2022 Gas Sales
13.970
13.123
13.341
12.951
53.385
Percentage Change
- 7.80%
- 6.71%
- 21.27%
- 28.05%
- 15.81%
Average gas prices for gas sold under the OEG Agreement increased 48.2% to 8.4965
€cents/kWh in fiscal 2023 from 5.7342 €cents/kWh in fiscal 2022.
Average Gas Prices under the OEG Agreement in €cents per Kilowatt Hour
Fiscal Quarter
First
Second
Third
Fourth
Fiscal Year Average
2023 Average
Gas Prices
14.4469
9.2846
4.8230
3.3623
8.4965
2022 Average
Gas Prices
3.1210
5.2460
6.2753
8.4951
5.7342
Percentage
Change
+362.89%
+ 76.98%
- 23.14%
- 60.42%
+ 48.17%
Converting gas prices into more familiar terms, using the average exchange rate, yielded a price
of $23.85/Mcf, an increase of 43.7% from fiscal 2022’s average price of $16.60/Mcf. For fiscal 2023,
royalties paid under the OEG Agreement were converted and transferred at an average Euro/U.S.
dollar exchange rate of 1.0069, a decrease of 3.0% from the average Euro/U.S. dollar exchange rate of
1.0375 for fiscal 2022.
Average Euro Exchange Rate under the OEG Agreement
Fiscal Quarter
First
Second
Third
Fourth
Fiscal Year Average
2023 Average
Euro Exchange Rate
1.0700
1.0698
1.1170
0.0000
1.0069
2022 Average
Euro Exchange Rate
1.1255
1.0867
1.0236
0.9868
1.0375
Percentage
Change
- 4.93%
- 1.56%
+ 9.12%
- 100.00%
- 2.95%
Interest income for fiscal 2023 of $125,003 increased from interest income of $2,244 for fiscal
2022 due to the higher amount of royalties received and higher interest rates. Trust expenses increased
$253,674, or 35.5%, to $967,591 in fiscal 2023 from $713,917 in fiscal 2022 due to higher Trustees’
fees as specified in the provisions of the Trust Agreement and higher legal expenses.
- 7 -
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 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
royalty income, expenses, and interest income 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:
•
•
•
the fact that 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;
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
• 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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, 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, 2023, 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.
Iselin, NJ
December 29, 2023
- 10 -
NORTH EUROPEAN OIL ROYALTY TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (NOTE 1)
OCTOBER 31, 2023 AND 2022
Current assets - - Cash and cash equivalents
ASSETS
2023
2022
$795,201
$7,193,457
Producing gas and oil royalty rights, net of amortization (Notes 1 and 2)
1
1
Total Assets
$795,202
$7,193,458
LIABILITIES AND TRUST CORPUS
2023
2022
Current liabilities - - Distributions to be paid to unit owners
Trust corpus (Notes 1 and 2)
Undistributed earnings
Total Liabilities and Trust Corpus
$0
1
$6,801,037
1
795,201 392,420
$795,202
$7,193,458
NORTH EUROPEAN OIL ROYALTY TRUST
STATEMENTS OF REVENUE COLLECTED AND EXPENSES PAID (NOTE 1)
FOR THE FISCAL YEARS ENDED OCTOBER 31, 2023 AND 2022
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
2023
2022
$22,016,103 $17,800,119
125,003
2,244
$22,141,106 $17,802,363
($957,067)
($695,071)
(10,524)
(18,846)
($967,591)
($713,917)
$21,173,515 $17,088,446
$2.30
$2.26
$1.86
$1.83
The accompanying notes are an integral part of these financial statements.
- 11 -
NORTH EUROPEAN OIL ROYALTY TRUST
STATEMENTS OF UNDISTRIBUTED EARNINGS (NOTE 1)
FOR THE FISCAL YEARS ENDED OCTOBER 31, 2023 AND 2022
Balance, beginning of year
Net income
Less:
Current year distributions paid or
to be paid to unit owners
Balance, end of year
2023
2022
$392,420 $122,754
21,173,515 17,088,446
$21,565,935 $17,211,200
20,770,734 16,818,780
$795,201 $392,420
NORTH EUROPEAN OIL ROYALTY TRUST
STATEMENTS OF CHANGES IN CASH AND CASH EQUIVALENTS (NOTE 1)
FOR THE FISCAL YEARS ENDED OCTOBER 31, 2023 AND 2022
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
Net increase (decrease) in cash and cash equivalents during the
year
2023
2022
$22,016,103
$17,800,119
125,003 2,244
$22,141,106
$17,802,363
$967,591
$713,917
27,571,771 11,304,426
$28,539,362 $12,018,343
(6,398,256) 5,784,020
Cash and cash equivalents, beginning of year
Cash and cash equivalents, end of year
7,193,457 1,409,437
$795,201
$7,193,457
The accompanying notes are an integral part of these financial statements.
- 12 -
NORTH EUROPEAN OIL ROYALTY TRUST
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 20223 AND 2022
(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.
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, 2023, the uninsured amounts held in the Trust’s U.S. bank accounts were $538,163.
In addition, the Trust held €6,659, the equivalent of $7,038, in its German bank account at
October 31, 2023.
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, 2023 and 2022, 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 $10,524 and
$5,256 in fiscal 2023 and 2022, 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 2023 and
2022 calendar years.
- 14 -
(5) Quarterly results (unaudited):
The tables below summarize the quarterly results and distributions of the Trust for the
fiscal years ended October 31, 2023 and 2022:
Fiscal 2023 by Quarter and Year
First
Second
Third
Fourth
Year
Royalties received
$9,765,883
$9,760,018 $2,490,778
($576)1
$22,016,103
Net income
$9,536,014
$9,504,566 $2,290,894
($157,959)2
$21,173,515
Net income per unit
$1.04
$1.03
$0.25
$0.00
$2.30
Distributions paid
or to be paid
Distributions per unit
paid or to be paid
to unit owners
$9,190,590
$9,650,120 $1,930,024
$0
$20,770,734
$1.00
$1.05
$0.21
$0.00
$2.26
1 At the end of each fiscal quarter, the Trust converts the Euro balance in its account at Deutsche Bank into dollars and includes
this amount in the royalty income total. Since there was no royalty income for the fourth fiscal quarter and there was a loss on
exchange, the total royalty income for the fourth fiscal quarter is a negative number.
2 The negative net income is comprised of the negative royalty income minus the quarterly expenses plus interest income.
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
- 15 -
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, 2023. Based on that evaluation, the
Managing Director concluded that the Trust’s disclosure controls and procedures were effective
as of October 31, 2023.
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, 2023. 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, 2023.
- 16 -
NORTH EUROPEAN OIL ROYALTY TRUST
Trustees
Nancy J. Floyd Prue
Managing Trustee
Managing Director
John R. Van Kirk
Counsel
White & Case LLP
1221 Avenue of the Americas
New York, NY 10020
Ahron H. Haspel
Audit Committee Chairman,
Compensation Committee
Chairman
Lawrence A. Kobrin
Clerk to the Trustees
Willard B. Taylor
Trustee
Office of the
Managing Director
P.O. Box 187
5 N. Lincoln Street
Keene, NH 03431
Tel: (732) 741-4008
E-Mail: neort@neort.com
Website: www.neort.com
Auditors
Mazars USA LLP
200 South Wood Avenue
Suite 125
Iselin, NJ 08830
Petroleum and Natural
Gas Consultants
Graves and Co.
Consulting, LLC
1800 West Loop South
Suite 750
Houston, TX 77027
Transfer Agent
Equiniti Trust Company, LLC
P.O. Box 500
Newark, NJ 07101
Tel: (800) 937-5449
(718) 921-8124
E-Mail: HelpAST@equiniti.com
Website: www.equiniti.com
A copy of the Trust’s Form 10-K Annual Report for fiscal 2023 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 2023 10-K, other pertinent filings and
documents are available on the Trust’s website: www.neort.com.
- 17 -
North European Oil Royalty Trust
P.O. Box 187
Keene, New Hampshire 03431
(732) 741-4008
IMPORTANT – 2023 TAX LETTER
RETAIN THIS LETTER FOR PREPARATION OF YOUR
2023 INCOME TAX RETURNS
January 2, 2024
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, 2023.
This letter serves to assist unit owners, and their tax professionals, in determining the accurate and true
income from the Trust for income tax reporting purposes. 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 2023, 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 2023 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. Interest income should be reported on the first page of Federal Income Tax Form 1040 on Line 2b,
Taxable Interest. 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 8.8130% for the 2023 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 2023 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 $1.9797. 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 $0.1030. 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 .088130. On the Federal Income
Tax Form 1040, Schedule E, your cost depletion deduction should be entered on Line 18.
D. If you owned all your units for the entire year, you would calculate your interest income
by multiplying the number of units you owned by $0.0128. On the first page of Federal Income Tax
Form 1040, your interest income should be entered on Line 2b, Taxable interest.
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, cost depletion deduction, and
interest income.
- 19 -
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