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 available after provision is made for anticipated Trust expenses.

The Trust does not engage in any business or extractive operations of any kind in the areas over which it holds royalty rights and is precluded from engaging in such activities by the Trust Agreement. There are no requirements, therefore, for capital resources with which to make capital expenditures or investments in order to continue the receipt of royalty revenues by the Trust.

The properties of the Trust, 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 a concession or leases in the Federal Republic of Germany. The actual concession or leases are held either by Mobil Erdgas-Erdol GmbH ("Mobil Erdgas"), a German operating subsidiary of the ExxonMobil Corporation ("ExxonMobil"), or by Oldenburgische Erdolgesellschaft ("OEG"). As a result of direct and indirect ownership, ExxonMobil owns two-thirds of OEG and the Royal Dutch/Shell Group of Companies owns one-third of OEG. 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. The Oldenburg concession is the primary area from which the natural gas, sulfur and oil are extracted and currently provides 100% of all the royalties received by the Trust. The Oldenburg concession, at approximately 1,386,000 acres, covers virtually the entire former Grand Duchy of Oldenburg and is located in the German federal state of Lower Saxony. None of the leases are active or productive.

In 2002, Mobil Erdgas and BEB Erdgas und Erdol GmbH ("BEB"), a joint venture of ExxonMobil and the Royal Dutch/Shell Group of Companies, formed a company, ExxonMobil Production Deutschland GmbH ("EMPG"), to carry out all exploration, drilling and production activities. All sales activities are still handled by the operating companies, either Mobil Erdgas or BEB.

The operating companies pay monthly royalties to the Trust based on their sales of natural gas, sulfur and oil. Of these three products, natural gas provided approximately 99.10% of the cumulative royalty income received in fiscal 2023. The amount of royalties paid to the Trust is primarily based on four factors: the amount of gas sold, the price of that gas, the area from which the gas is sold and the exchange rate.

On or about the 25th of the months of January, April, July and October of each year, the operating companies determine the amount of royalties that were payable to the Trust based on applicable sales during the relevant period. This amount is paid out to the Trust in three monthly installments as royalty payments (payable on or about the 15th of each month) during its upcoming fiscal quarter. In addition, the operating companies review the actual amount of royalties that were paid to the Trust for that period and calculate the difference between the amounts paid and the amounts payable. Any additional amounts payable by the operating companies would be paid immediately and any overpayment would be deducted from the payment for the first month of the following fiscal quarter. In September of each year, the operating companies make the final determination of any necessary underpayment or overpayment of royalties for the prior calendar year. The Trust's independent accountants based in Germany review the royalty calculations on a biennial basis and are scheduled to begin their examination for 2021 and 2022 in November 2023.

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 before it can be sold. The desulfurization process removes hydrogen sulfide and other contaminants. The hydrogen sulfide in gaseous form is converted to sulfur in a solid form and sold separately. With full operation of the plant, raw gas input capacity stands at approximately 400 million cubic feet. As needed, EMPG conducts maintenance on the plant generally during the summer months when demand is lower. 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 because 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.

Under one set of rights 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 (the "Mobil Agreement"). Under the Mobil Agreement, there is no deduction of costs prior to the calculation of royalties from gas well gas and oil well gas, which together accounted for 99.57% of the cumulative royalty income received under this agreement in fiscal 2023. Historically, the Trust has received significantly greater royalty payments under the Mobil Agreement, as compared to the OEG Agreement described below, due to the higher royalty rate specified by that agreement.

The Trust is also entitled under the Mobil Sulfur Agreement to receive a 2% royalty on gross receipts of sales of sulfur obtained as a by-product of sour gas produced from the western part of Oldenburg. The payment of the sulfur royalty is conditioned upon sales of sulfur by Mobil Erdgas at a selling price above an agreed upon base price. This base price is adjusted annually by an inflation index. In the first fiscal quarter of 2023, the Trust received no royalties under this agreement because prices were below the adjusted base price. In the first quarter of fiscal 2022, the Trust received $59,517 in sulfur royalties under this agreement.

Under another set of rights covering the entire Oldenburg concession and pursuant to the agreement with OEG, the Trust receives royalties at the rate of 0.6667% on gross receipts from sales by BEB of gas well gas, oil well gas, crude oil, condensate and sulfur (removed during the processing of sour gas) less a certain allowed deduction of costs (the "OEG Agreement"). 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.

In 2016, the Mobil and OEG Agreements were amended, establishing a new base for the determination of gas prices upon which the Trust's royalties are calculated. This change reflects a shift to the prices calculated for the German Border Import gas Price ("GBIP"). The average GBIP used under the Mobil and OEG Royalty Agreements has been and will continue to be increased by 1% and 3%, respectively, for the royalty calculations. This change was intended to reduce the scope and cost of the accounting examination, eliminate ongoing disputes with OEG and Mobil regarding sales to related parties, and reduce prior year adjustments to the normally scheduled year-end reconciliation. The pricing basis has eliminated certain costs (transportation and plant gas storage), that were previously deductible prior to the royalty calculation under the OEG Agreement.

For unit owners, changes in the currency exchange rate between the U.S. Dollar and the Euro have an immediate impact. This impact occurs at the time the royalties, which are paid to the Trust in Euros, are converted into U.S. Dollars at the applicable exchange rate and promptly transferred from Germany to the Trust's bank account in the United States. In relation to the U.S. Dollar, a stronger Euro would yield more U.S. Dollars and a weaker Euro would yield less U.S. Dollars.

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. For the time being, EMPG has not scheduled any new gas well drilling through 2023. 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.

The Trust had previously disclosed that to the best of its knowledge the Farm-In Agreement between Vermilion Energy Inc. ("Vermilion") and Mobil Erdgas and BEB had expired due to Vermilion's failure to meet its drilling commitments within the Oldenburg Concession. Due to the efforts of the Trust's consultant in Germany, the Trust was informed by EMPG that Vermilion's drilling obligation in the Oldenburg area has been halted for the time being due to difficulties obtaining the required permits, and that Vermilion may or may not mature other prospects in the central and northern parts of the Oldenburg Concession in the future.

Results: First Quarter of Fiscal 2023 versus First Quarter of Fiscal 2022

Total royalty income received during the first quarter of fiscal 2023 was derived from sales of gas, sulfur and oil from the Trust's overriding royalty areas in Germany during the fourth calendar quarter of 2022. The distribution of $1.00 per unit was paid on February 28, 2023 to owners of record as of February 17, 2023. Comparisons of total royalty income and net income for the first quarter of fiscal 2023 and 2022 are shown below.



                           1st Fiscal Quarter   1st Fiscal Quarter    Percentage
                            Ended 1/31/2023      Ended 1/31/2022        Change
Total Royalty Income           $9,765,883           $2,546,539         +283.50%
Net Income                     $9,536,014           $2,351,819         +305.47%
Distribution per Unit            $1.00                $0.25            +300.00%

Despite the lingering economic effects caused by COVID-19 and the ongoing political and economic consequences of Russia's invasion of Ukraine, the German energy market was able, in the short-term, to address the energy shortfall caused by the severe reduction in Russian exports to Germany. This reduction in supply resulted in an increased demand for gas from other sources in order to provide sufficient gas supplies to get through the winter period of peak demand. The steps taken by Germany to stockpile sufficient gas supplies resulted in the increase in gas prices for the August-October 2022 period used in this quarter's royalty calculation and led to the increase in total royalty income between the first quarter of fiscal 2022 and the first quarter of fiscal 2023.

Total royalty income often includes positive and negative adjustments that the operators made during the quarter based upon their corrected royalty calculations for the prior periods, as well as Mobil sulfur royalties. In the first quarter of fiscal 2023, total royalty income was not affected because there were no prior period adjustments and there were no Mobil sulfur royalties. In the first quarter of fiscal 2022, total royalty income also was not affected because there were no prior period adjustments but was increased by Mobil sulfur royalties of $59,517.

The Trust's monthly royalty payments are paid prospectively based on the amount of royalties payable to the Trust in the prior quarter. End of quarter royalty adjustments result from the need to align prospective royalty payments from the operating companies with actual royalties that should have been paid. When actual prices and volumes are reported, there will be a positive reconciliation in the current quarter or a negative reconciliation in the subsequent quarter. Primarily as a result of the recent decline in gas prices, it is now anticipated that royalty payments to the Trust will be subject to a negative adjustment in the third fiscal quarter (May-July 2023). This will likely substantially reduce quarter-over-quarter cash distributions to the unit owners for at least the third quarter.

The table below is intended to illustrate trends based on actual gas sales in each quarter. Gas royalties shown in the table below are determined based on the actual physical gas sales that occurred during the fourth calendar quarters of 2022 and 2021 and the average German Border Import gas Price for the periods of August through October 2022 and 2021. No adjustments for prior periods are reflected in the gas royalties.




                          4th Calendar  4th Calendar
                          Quarter Ended Quarter Ended Percentage
Mobil Agreement            12/31/2022    12/31/2021     Change
Gas Sales (Bcf)1              3.519         4.105      -14.28%
Gas Prices2 (Ecents/Kwh)3    14.1664       3.0604      +362.89%
Average Exchange Rate4       1.0706        1.1256       -4.89%
Gas Royalties              $6,097,114    $1,618,746    +276.66%
Gas Prices ($/Mcf)5          $43.32         $9.86      +339.35%

OEG Agreement
Gas Sales (Bcf)              12.881        13.970       -7.80%
Gas Prices (Ecents/Kwh)      14.4469       3.1210      +362.89%
Average Exchange Rate        1.0700        1.1255       -4.93%
Gas Royalties              $3,580,010     $778,969     +359.58%
Gas Prices ($/Mcf)           $43.12         $9.81      +339.55%



                                  Footnotes
1. Billion cubic feet
2. Gas prices derived from August-October period
3. Euro cents per kilowatt hour
4. Based on average Euro/dollar exchange rates of cumulative royalty transfers
5. Dollars per thousand cubic feet

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 the first quarter of fiscal 2023, gas sales from western Oldenburg accounted for only 27.32% of all gas sales from the Oldenburg concession. However, royalties on these gas sales provided approximately 73.11% or $7,075,967 out of a total of $9,677,986 in Oldenburg royalties attributable to gas.

Trust expenses for the first quarter of fiscal 2023 increased 29.67%, or $57,835, to $252,792 from $194,957 for the first quarter of fiscal 2022. The increase in expenses reflects increased Trustee fees as specified by the Trust Agreement, increased fees associated with the Trust's petroleum consultant, and the preparation and mailing of the annual meeting materials.

The current Statements of Assets, Liabilities and Trust Corpus of the Trust at January 31, 2023, compared to that at fiscal year-end (October 31, 2022), shows an increase in assets due to higher royalty receipts during the first quarter of fiscal 2023.

--------------------------------------------------------------------------------

This report on Form 10-Q may contain forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. Such statements address future expectations and events or conditions concerning the Trust. Many of these statements are based on information provided to the Trust by the operating companies or by consultants using public information sources. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in any forward-looking statements. These include:



     - risks and uncertainties concerning levels of gas production and gas sale
     prices,  general economic conditions and currency exchange rates;

     - the ability or willingness of the operating companies to perform under
     their  contractual obligations with the Trust;

     - potential disputes with the operating companies and the resolution
     thereof; and

     - 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.

© Edgar Online, source Glimpses