MARINE PETROLEUM TRUST 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED UNITHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The units of beneficial interest in the Trust trade on the Nasdaq Capital Market under the symbol “MARPS.” Distributions of cash are made to unitholders quarterly. The Trust is authorized to issue and has issued 2,000,000 units of beneficial interest. On September 15, 2020, these outstanding units of record were held by 219 unitholders. There were no changes in the number of outstanding units of beneficial interest during the fiscal year ended June 30, 2020. The Trust must distribute to its unitholders all cash accumulated each quarter, less an amount reserved for accrued liabilities and estimated future expenses. The amount reserved varies from quarter to quarter and amounted to $46,500 for the distribution paid on June 29, 2020. Such distributions have been made since the Trust’s inception and will continue so long as the income from oil and natural gas royalties exceeds administrative costs. Distributions primarily fluctuate from quarter to quarter due to changes in oil and natural gas prices and production quantities. Distributions are determined by the cash available to the Trust on the determination date less reserves for future expenses. Marine does not maintain any equity compensation plans. The Trust did not repurchase any units of beneficial interest during the quarter ended June 30, 2020. While the Trust’s Annual Report on Form 10-K (excluding exhibits) for the fiscal year ended June 30, 2020 is distributed to unitholders, a copy of the Annual Report on Form 10-K (excluding exhibits) is available without charge to interested parties. There will be copying and mailing charges for copies of any exhibits that are requested. Written requests should be directed to Mr. Ron E. Hooper, Simmons Bank, 2911 Turtle Creek Blvd., Suite 850, Dallas, Texas, 75219. ITEM 6. SELECTED FINANCIAL DATA The following table summarizes selected financial information that has been derived from Marine’s audited consolidated financial statements. You should read the information set forth below in conjunction with “ Item 7. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations ” and the consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K. 11 Table of Contents Fiscal Year Ended June 30, (Dollars in thousands, except per unit amounts) 2020 2019 2018 2017 2016 Consolidated Statements of Distributable Income Selected Data: Income: Oil and natural gas royalties $ 774 $ 839 $ 863 $ 920 $ 829 Oil and natural gas royalties from affiliate — — — 26 76 Interest and other income 14 21 10 3 — $ 788 $ 860 $ 873 $ 949 $ 905 Expenses: General and administrative $ 214 $ 226 $ 211 $ 198 $ 197 Federal income taxes of subsidiary — — — — — 214 226 211 198 197 Distributable income $ 574 $ 634 $ 662 $ 751 $ 708 Distributions to unitholders $ 607 $ 652 $ 694 $ 552 $ 683 Distributable income per unit $ 0.29 $ 0.32 $ 0.33 $ 0.38 $ 0.35 Distributions per unit $ 0.30 $ 0.33 $ 0.35 $ 0.28 $ 0.34 At June 30, Consolidated Statements of Assets, Liabilities and Trust Corpus Selected Data: 2020 2019 2018 2017 2016 Total assets $ 937 $ 969 $ 987 $ 1,019 $ 820 Trust corpus $ 937 $ 969 $ 987 $ 1,019 $ 820 12 Table of Contents ITEM 7. TRUSTEE’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Critical Accounting Policies. The financial statements of Marine have been prepared on the modified cash basis method and are not intended to present Marine’s financial position and results of operations in conformity with GAAP. Under the modified cash basis method: • Royalty income is recognized when received by Marine. • Marine’s expenses (which include accounting, legal, and other professional fees, Trustees’ fees and out-of-pocket expenses) are recorded on an actual paid basis. Reserves for liabilities that are contingent or uncertain in amount may also be established if considered necessary. • Distributions to unitholders are recognized when declared by the Trustee of the Trust. The financial statements of Marine differ from financial statements prepared in conformity with GAAP because of the following: • Royalty income is recognized in the month received rather than in the month of production. • Reserves may be established for certain contingencies that would not be recorded under GAAP. • Expenses are recorded in the month paid rather than in the month incurred. • Depletion is not recorded. This comprehensive basis of accounting corresponds to the accounting principles permitted for royalty trusts by the SEC as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts. The preparation of financial statements in conformity with the modified cash basis method of accounting requires the Trustee to make various estimates and assumptions that affect the reported amount of liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. Actual results may differ from such estimates. Revenue Recognition . In May 2014, the FASB issued updated guidance for recognizing revenue from contracts with customers. This update amends the existing accounting standards for revenue recognition and is based on the principle that revenue should be recognized to depict the transfer of goods and services to a customer at an amount that reflects the consideration a company expects to receive in exchange for those goods or services and revenue streams related solely to oil and gas royalties. The Trust adopted the disclosure standards of this update, as required, beginning with the first quarter of fiscal year 2019. The adoption of this standard has not had a significant impact on its financial statements due to the modified cash basis of reporting used by the Trust. Effective October 19, 2017, Simmons First National Corporation (“SFNC”) completed its acquisition of First Texas BHC, Inc., the parent company of Southwest Bank. SFNC is the parent of Simmons Bank. SFNC merged Southwest Bank, the former corporate Trustee of the Trust, with Simmons Bank effective February 20, 2018. The defined term “Trustee” as used herein shall refer to Southwest Bank for periods through February 19, 2018 and to Simmons Bank for periods on and after February 20, 2018. Results of Operations. Marine’s revenues are derived from the oil and natural gas production activities of third parties. Marine’s revenues and distributions fluctuate from period to period based upon factors beyond Marine’s control, including, without limitation, the number of leases subject to Marine’s interests, the number of productive wells drilled on leases subject to Marine’s interests, the level of production over time from such wells and the prices at which the oil and natural gas from such wells are sold. Marine’s results of operations are significantly impacted by oil and natural gas prices and the quantity of oil and natural gas production. Oil and natural gas prices have historically experienced significant volatility. Marine is not permitted to manage its commodity price risk through the use of fixed price contracts or financial derivatives. Marine’s income consists primarily of oil and natural gas royalties and is based on the value at the well of its percentage interest in oil and natural gas sold without reduction for any of the expenses of production. “Value at the 13 Table of Contents well” for oil means the sellers’ selling price at its receiving point onshore, less the cost of transportation from the offshore lease to the onshore receiving point. “Value at the well” for natural gas means the selling price less the cost of compression, dehydration and transportation from the lease to the delivery point of the pipeline transporting the product to market. In general, value at the well is determined on the basis of the selling price of oil, natural gas and other minerals produced, saved and sold, or at wellhead prices determined by industry standards, where the selling price does not reflect value at the well. In the event an agreement is not arms-length in nature, the value is based upon current market prices. Summary Review. In general, Marine receives royalties two months after oil production and three months after natural gas production. The June 2020 distribution of $0.10 per unit increased from the March 2020 distribution of $0.07 per unit. As disclosed in a press release dated August 21, 2020, the September 2020 distribution of $0.04 per unit will be a decrease from the June 2020 distribution of $0.10 per unit. Marine’s distributable income for fiscal 2020 amounted to $574,110, or $0.29 per unit, as compared to $634,072 or $0.32 per unit, in fiscal 2019, and $661,919, or $0.33 per unit, in fiscal 2018. Distributions to unitholders are calculated and paid out net of reserve for future expenses, which are estimated by the Trustee on a quarterly basis. These results also include income from the Trust’s interest in Tidelands, which amounted to $0 for fiscal 2020, $0 for fiscal 2019 and $56 for fiscal 2018. Income from Tidelands contributed approximately 0% of Marine’s royalty income for fiscal 2020 and fiscal 2019, as compared to 0.01% of Marine’s royalty income in fiscal 2018. The following table shows the number of wells drilled or recompleted on leases in which Marine has an interest (including its interest in Tidelands) and the number of active wells at the end of each of the past three fiscal years. Fiscal Year Ended June 30, 2020 2019 2018 Wells Drilled or Recompleted (Gross) — — — Active Wells (Gross) 201 201 201 The following table and related discussion and analysis shows the royalty income, the net quantities sold, and the average price received for oil and natural gas during fiscal 2020, 2019 and 2018, excluding the Trust’s interest in Tidelands. Fiscal Year Ended June 30, 2020 2019 2018 Income from: Oil royalties $ 691,915 $ 761,232 $ 798,650 Natural gas royalties $ 81,913 $ 77,881 $ 64,285 Totals $ 773,828 $ 839,113 $ 862,935 Net quantities sold: Oil (bbls) 12,628 11,382 15,138 Natural gas (mcf) 33,639 22,147 20,664 Average price: Oil (per bbl) (1) $ 54.79 $ 66.85 $ 50.76 Natural gas, net of expenses (per mcf) (1) $ 2.44 $ 3.52 $ 3.10 (1) These amounts are net of the cost of transportation from offshore leases to onshore receiving points. Fiscal Year 2020 Compared to Fiscal Year 20 19 . During fiscal 2020, Marine received approximately 89% of its royalty income from the sale of oil and 11% of its royalty income from the sale of natural gas, as compared to approximately 91% of its royalty income from the sale of oil and 9% of its royalty income from the sale of natural gas 14 Table of Contents in fiscal year 2019. Income from oil and natural gas royalties in fiscal 2020 decreased approximately 8% from fiscal 2019, primarily due to a decrease in prices realized for oil and natural gas, offset in part by an increase in production of oil and natural gas. Revenue from oil royalties amounted to $691,915 in fiscal 2020, a decrease from the $761,232 realized in fiscal 2019. The average price realized for a barrel of oil decreased to $54.79 in fiscal 2020 from the $66.85 realized in fiscal 2019. In fiscal 2020, oil production increased to 12,628 bbls from the 11,382 bbls produced in fiscal 2019. Revenue from natural gas royalties amounted to $81,913 in fiscal 2020, an increase from the $77,881 realized in fiscal 2019. In fiscal 2020, the average price per mcf of natural gas decreased to $2.44 from the $3.52 realized in fiscal 2019. In fiscal 2020, natural gas production increased to 33,639 mcf from the 22,147 mcf produced in fiscal 2019. General and administrative expenses for fiscal 2020 amounted to $214,075, a decrease from the $226,471 recorded in fiscal 2019, due to a decrease in professional fees, transfer agent fees and printing expenses. Fiscal Year 2019 Compared to Fiscal Year 2018 . During fiscal 2019, Marine received approximately 91% of its royalty income from the sale of oil and 9% of its royalty income from the sale of natural gas, as compared to approximately 93% of its royalty income from the sale of oil and 7% of its royalty income from the sale of natural gas in fiscal 2018. Income from oil and natural gas royalties in fiscal 2019 decreased approximately 3% from fiscal 2018, primarily due to a decrease in production of oil and offset in part by an increase in prices realized for oil and natural gas and the production of natural gas. Revenue from oil royalties amounted to $761,232 in fiscal 2019, a decrease from the $798,650 realized in fiscal 2018. The average price realized for a barrel of oil increased to $66.85 in fiscal 2019 from the $50.76 realized in fiscal 2018. In fiscal 2019, oil production decreased to 11,382 bbls from the 15,138 bbls produced in fiscal 2018. Revenue from natural gas royalties amounted to $77,881 in fiscal 2019, an increase from the $64,285 realized in fiscal 2018. In fiscal 2019, the average price per mcf of natural gas increased to $3.52 from the $3.10 realized in fiscal 2018. In fiscal 2019, natural gas production increased to 22,147 mcf from the 20,664 mcf produced in fiscal 2018. General and administrative expenses for fiscal 2019 amounted to $226,471, an increase from the $210,723 recorded in fiscal 2018, due to an increase in professional fees and printing expenses. Capital Resources and Liquidity . The Trust’s Indenture (and the charter and by-laws of MPC) expressly prohibits the operation of any kind of trade or business. Due to the limited purpose of the Trust as stated in the Trust’s Indenture, there is no requirement for capital. Its only obligation is to distribute to unitholders the distributable income actually collected. As an administrator of oil and natural gas royalty properties, the Trust collects income monthly, pays expenses of administration and disburses all distributable income collected to its unitholders each quarter, less an amount reserved for accrued liabilities and estimated future expenses. Because all of Marine’s revenues are invested in liquid funds pending distribution, Marine does not experience liquidity problems. Marine’s oil and natural gas properties are depleting assets and are not being replaced due to the prohibition against these investments. These restrictions, along with other factors, allow the Trust to be treated as a non-taxable grantor trust for U.S. Federal income tax purposes. Accordingly, all of Marine’s income and deductions should flow through to its unitholders on a proportionate basis. MPC will owe U.S. Federal (and state) income taxes with respect to its income after deducting statutory depletion. MPC’s income specifically excludes 98% of oil and natural gas royalties collected by MPC, which are retained by and delivered to the Trust in respect of the Trust’s net profits interest. The Trust does not currently have any long term contractual obligations, other than the obligation to make distributions to unitholders pursuant to the Indenture. The Trust does not maintain any off-balance sheet arrangements within the meaning of Item 303 of Regulation S-K. 15 Table of Contents Forward-Looking Statements . The statements discussed in this Annual Report on Form 10-K regarding Marine’s future financial performance and results of operations, and other statements that are not historical facts, are forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Marine uses the words “may,” “expect,” “anticipate,” “estimate,” “believe,” “continue,” “intend,” “plan,” “budget,” or other similar words to identify forward-looking statements. All forward-looking statements speak only as of the date on which they are made. You should read statements that contain these words carefully because they discuss future expectations, contain projections of Marine’s financial condition, and/or state other “forward-looking” information. Actual results may differ from expected results because of factors, risks and uncertainties including, but not limited to, the following: reductions in prices or demand for oil and natural gas, due to, for example, the COVID-19 pandemic or the oversupply of crude oil driven by a dispute between members of OPEC and Russia, which might then lead to decreased production or impair Marine’s ability to make distributions; reductions in production due to the depletion of existing wells or disruptions in service, which may be caused by storm damage to production facilities, blowouts or other production accidents, or geological changes such as cratering of productive formations; changes in regulations; general economic conditions; actions and policies of petroleum producing nations; other changes in domestic and international energy markets; the resignation of the Trustee; and the expiration, termination or release of leases subject to Marine’s interests. Events may occur in the future that Marine is unable to accurately predict, or over which it has no control. If one or more of these uncertainties as well as other risks of which we are not aware materialize, or if underlying assumptions prove incorrect, actual outcomes may vary materially from those contained in the forward-looking statements included in this Annual Report on Form 10-K. Website. Marine has an Internet website and has made available its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to such reports, filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, at www.marps-marine.com. Each of these reports will be posted on this website as soon as reasonably practicable after such report is electronically filed with or furnished to the SEC.