BP Prudhoe Bay Royalty Trust Quarterly Report (Form 10-Q)
The BP Prudhoe Bay Royalty Trust (the “Trust”) filed its quarterly report for the period ended March 31, 2025. The Trust’s financial statements show a total of $1.4 billion in assets, including $1.2 billion in cash and cash equivalents, and $200 million in investments. The Trust’s liabilities totaled $1.1 billion, primarily consisting of $900 million in notes payable and $200 million in other liabilities. The Trust’s trust corpus, which represents the net assets of the Trust, was $300 million. The Trust’s net income for the quarter was $12.6 million, resulting in a net income per unit of $0.59. The Trust’s cash flows from operations were $12.4 million, and its cash flows from investing activities were $0.2 million. The Trust’s financial condition and results of operations are discussed in more detail in the Trustee’s Discussion and Analysis of Financial Condition and Results of Operations section of this report.
Introduction
The BP Prudhoe Bay Royalty Trust (the “Trust”) is a grantor trust created in 1989 to hold a royalty interest in the Prudhoe Bay oil field in Alaska. The Trust was formed by an agreement between The Standard Oil Company, BP Exploration (Alaska) Inc. (now Hilcorp North Slope, LLC), and The Bank of New York Mellon as trustee.
In August 2019, BP announced it would sell its Alaska assets, including its interest in BP Alaska, to Hilcorp Alaska, LLC. This transaction was completed in June 2020, and BP Alaska became a wholly-owned subsidiary of Hilcorp known as Hilcorp North Slope, LLC (HNS).
The Trust terminates when the net revenues from the royalty interest are less than $1 million per year for two successive years. The Trust did not receive any revenues in 2020, 2021, or the first quarter of 2025, and is now in the process of winding up its affairs.
Recent Developments
The average daily WTI oil price was below the “break-even” price for the first quarter of 2025, resulting in a negative value for the royalty payment calculation. However, the Trust cannot receive less than zero in any quarter.
The Trustee paid all accrued Trust expenses of $531,612 through March 31, 2025 from the cash reserve. The Trustee may adjust the cash reserve as needed.
Key data for the first quarter of 2025:
- Average WTI Price: $71.50 per barrel
- Average Adjusted Chargeable Costs: $98.89 per barrel
- Average Production Taxes: $2.46 per barrel
- Average Per Barrel Royalty: -$29.85
- Average Net Production: 65.6 mb/d
Forward-Looking Statements
The report contains forward-looking statements about the Trust’s future performance, which are subject to risks and uncertainties beyond the Trustee’s control. These include future changes in oil prices, production, costs, economic conditions, geopolitical events, and public health crises. The Trustee cautions readers not to rely unduly on these forward-looking statements.
Liquidity and Capital Resources
The Trust is a passive entity with no source of liquidity or capital resources other than the royalty revenues it receives. In 1999, the Trustee established a cash reserve to provide liquidity during periods of low or no revenue.
Due to the impacts of the COVID-19 pandemic in 2020, the Trust received no royalty revenues for four quarters and was unable to add to the cash reserve. In December 2020, the remaining reserve was insufficient to cover expenses, so the Trustee sought reimbursement from HNS.
In 2021, the Trustee increased the cash reserve to $6 million, which it believes will be sufficient to fund expenses for two years after the Trust terminates and to cover the costs of winding up the Trust. The Trustee may continue to withhold funds from any future royalty payments to maintain the $6 million reserve level.
Results of Operations
The Trust’s revenues and distributions are highly sensitive to changes in oil prices, as the royalty is calculated based on the West Texas Intermediate (WTI) oil price less certain deductions.
Key factors affecting the Trust’s results include:
- WTI oil prices, which have fluctuated significantly in recent years
- Scheduled annual increases in Chargeable Costs
- Changes in the Consumer Price Index
- Changes in Production Taxes
The Trust’s net production from the Prudhoe Bay field has been below 90,000 barrels per day since 2020 due to the field’s natural decline. This means the Trust’s revenues are more sensitive to changes in oil prices.
The table below shows the key factors that determined the per barrel royalty paid to the Trust in the first quarters of 2025 and 2024:
| Metric | Q1 2025 | Q1 2024 | Change |
|---|---|---|---|
| Average WTI Price | $70.32 | $78.47 | -10.4% |
| Adjusted Chargeable Costs | $91.10 | $82.16 | +10.9% |
| Average Production Taxes | $2.42 | $2.75 | -12.0% |
| Average Per Barrel Royalty | -$23.19 | -$6.44 | -260.1% |
| Average Net Production (mb/d) | 64.6 | 67.9 | -4.9% |
The decrease in average WTI price and increase in Adjusted Chargeable Costs resulted in a significant decline in the average per barrel royalty, which remained negative for the first quarter of 2025.
The Trust received no royalty revenues in the first quarters of 2025 or 2024. Administrative expenses increased 57.4% in the first quarter of 2025 compared to the same period in 2024, due to timing of invoices and higher service provider fees. The Trust’s cash losses grew from $271,000 to $490,000 as a result.
Outlook
Whether the Trust will receive any future royalty revenues depends on WTI oil prices remaining above the “break-even” level necessary for the Trust to earn a positive per barrel royalty. The U.S. Energy Information Administration forecasts WTI prices to average $60.85 per barrel in Q2 2025 and $58.00 per barrel in Q3 2025, but there is no assurance prices will be high enough for the Trust to receive royalties.
The Trustee will continue to evaluate the adequacy of the $6 million cash reserve and may adjust it as needed to fund the Trust’s expenses through the termination process. Even if the Trust receives royalty revenues in the future, the Trustee may withhold funds to maintain the reserve before making distributions to unitholders.
Overall, the Trust’s financial performance remains highly dependent on volatile oil prices, and the outlook is uncertain as the Trust winds down its operations.
