ITEM 1. BUSINESS.
The following is a glossary of certain defined terms used in this Annual Report on Form 10-K.
GLOSSARY
"Administrative Services Agreement" means the Administrative Services Agreement, dated effective May 1, 1993, between Burlington Resources and the Trust, a copy of which is filed as an exhibit to this Form 10-K.
"After-tax Cash Flow per Unit" means the sum of the following amounts that a hypothetical purchaser of a Unit in the Public Offering would have received or been allocated if such Unit were held through the date of such determination: (a) total cash distributions per Unit plus (b) total tax credits available per Unit under Section 29 of the IRC less (c) the total net taxes payable per Unit (assuming a 31 percent tax rate, the highest effective Federal income tax rate applicable to individuals at the time of the Public Offering).
"Bcf" means billion cubic feet of natural gas.
"Blanco Hub Spot Price" means for each month the posted index price (in dollars per MMBtu, on a dry basis) of spot gas delivered to pipelines as published in the first issue of such month during which gas is delivered or such determination is made, as the case may be, in Inside FERC's Gas Market Report for "El Paso Natural Gas Company, San Juan." Pursuant to the Gas Purchase Contract, MOTI has a one-time option to elect to substitute for the foregoing as the Blanco Hub Spot Price either (i) the average of the two posted index prices reported each month in Inside FERC's Gas Market Report for "El Paso Natural Gas Company, San Juan" or (ii) the Blanco Hub posted index price reported by Inside FERC's Gas Market Report, if either such price is then published in such publication. For purposes hereof, "average" prices refer to averages of the relevant monthly prices reported in Inside FERC's Gas Market Report.
"Btu" means British Thermal Unit, the common unit of gross heating value measurement for natural gas.
"Burlington Resources" means Burlington Resources Inc.
"Central Gathering Point" means any one of four central delivery points in the unit gathering system of the Northeast Blanco Unit or any one of two wellhead delivery points.
"Citibank's Base Rate" means a fluctuating interest rate per annum (compounded quarterly) as shall be in effect from time to time which rate per annum shall at all times be equal to the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as its base rate.
"Conveyance" means the Net Profits Interest Conveyance from MOPI to the Trust, a copy of which is filed as an exhibit to this Form 10-K.
"December 31, 1993 Reserve Report" means the Reserve Report, dated March 25, 1994, on the estimated MOPI reserves, estimated future net revenues and the discounted estimated future net revenues distributable to the Royalty Interests and the Underlying Properties as of December 31, 1993, prepared by Netherland, Sewell & Associates, Inc., independenet petroleum engineers, a copy of which is filed as an exhibit to this Form 10-K.
"December 31, 1994 Reserve Report" means the Reserve Report, dated March 15, 1995, on the estimated MOPI reserves, estimated future net revenues and the discounted estimated future net revenues attributable to the Royalty Interests and the Underlying Properties as of December 31, 1994, prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers, a copy of which is filed as an exhibit to this Form 10-K.
"December 31, 1994 Section 29 Tax Credit Report" means the report, dated March 16, 1995, on the estimated MOPI reserves and estimated Section 29 tax credits attributable to the Royalty Interests and the Underlying Properties as of December 31, 1994, prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers, a copy of which is filed as an exhibit to this Form 10-K.
"December 31, 1995 Reserve Report" means the Reserve Report, dated March 18, 1996, on the estimated MOPI reserves, estimated future net revenues and the discounted estimated future net revenues attributable to the Royalty Interests and the Underlying Properties as of December 31, 1995, prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers, a copy of which is filed as an exhibit to this Form 10-K.
"December 31, 1995 Section 29 Tax Credit Report" means the report, dated March 19, 1996, on the estimated MOPI reserves and estimated Section 29 tax credits attributable to the Royalty Interests and the Underlying Properties as of December 31, 1995, prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers, a copy of which is filed as an exhibit to this Form 10-K.
"December 31, 1996 Reserve Report" means the Reserve Report, dated March 20, 1997, on the estimated MOPI reserves, estimated future net revenues and the discounted estimated future net revenues attributable to the Royalty Interests and the Underlying Properties as of December 31, 1996, prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers, a copy of which is filed as an exhibit to this Form 10-K.
"December 31, 1996 Section 29 Tax Credit Report" means the report, dated March 21, 1997, on the estimated MOPI reserves and estimated Section 29 tax credits attributable to the Royalty Interests and the Underlying Properties as of December 31, 1996, prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers, a copy of which is filed as an exhibit to this Form 10-K.
"Delaware Code" means the Delaware Business Trust Act, Title 12, Chapter 38 of the Delaware Code, Sections 3801 et seq.
"Delaware Trustee" means Mellon Bank (DE) National Association, in its capacity as a trustee of the Trust.
"Gas Gathering Contract" means the Gas Gathering, Dehydrating and Treating Agreement, dated as of May 3, 1990, between MOGI and MOTI, as amended, a copy of which is filed as an exhibit to this Form 10-K.
"Gas Purchase Contract" means the Gas Purchase Contract, dated as of May 1, 1993, between MOPI and MOTI, a copy of which is filed as an exhibit to this Form 10-K.
"Grantor trust" means a trust as to which the grantor, or his successor, has retained an interest in the income from the trust.
"Gross acres" means the total number of surface acres of land.
"Gross wells" means the total whole number of gas wells.
"Index Price" means, for each month, 97 percent of the Blanco Hub Spot Price (such 3 percent deduction constituting a discount to compensate MOTI for marketing the gas).
"Infill Net Proceeds" consists generally of the aggregate proceeds based on the price at the Central Gathering Point of gas attributable to MOPI's interest in any Infill Wells less (a) MOPI's working interest share of property, production and related taxes (including severance taxes) in respect of such Infill Wells; (b) MOPI's working interest share of lease operating expenses in respect of such Infill Wells; (c) MOPI's working interest share of capital costs in respect of such Infill Wells, including the costs of drilling and completing such Infill Wells and the costs of associated surface facilities; and (d) interest on the unrecovered portion, if any, of the foregoing costs at Citibank's Base Rate. In no event will any amounts relating to environmental liabilities related to activities occurring on or under, or in connection with, or conditions existing on or under, the Underlying Properties before June 17, 1993 (which liabilities will be borne by MOPI) be deducted in calculating Infill Net Proceeds.
"Infill NPI" refers to one of the net profits interests conveyed to the Trust, entitling the Trust to receive a 20 percent interest in the Infill Net Proceeds.
"Infill Wells" means any additional wells drilled on the Underlying Properties after the date of the Conveyance pursuant to a change in spacing rules or a change allowing additional wells to be drilled on a spacing or proration unit, in either case made effective after such date.
"IRC" means the Internal Revenue Code of 1986, as amended.
"IRR" means the annual discount rate (compounded quarterly) that equates the present value of the After-tax Cash Flow per Unit to the $20.50 per Unit initial price to the public of the Units in the Public Offering.
"Mcf" means thousand cubic feet of natural gas. Natural gas volumes are stated herein at the legal pressure base of 14.73 pounds per square inch absolute at 60 degrees Fahrenheit.
"Minimum Purchase Price" means $1.60 per MMBtu, subject to increase by 2 1/2 percent annually as of May 1 of each year commencing in 2003.
"MMBtu" means million Btu.
"MMcf" means million cubic feet of natural gas.
"MOGI" means Burlington Resources Gathering Inc. (formerly named Meridian Oil Gathering Inc.), a wholly owned subsidiary of Burlington Resources.
"MOPI" means Burlington Resources Oil & Gas Company (formerly named Meridian Oil Inc., which is the successor by merger to Meridian Oil Production Inc.)
"MOPI Payment Obligations" has the meaning assigned to such term under "Item 2

ITEM 2. PROPERTIES.
THE ROYALTY INTERESTS
The Royalty Interests conveyed to the Trust entitle the Unitholders to receive 95 percent of the NPI Net Proceeds attributable to MOPI's interest in the Underlying Properties and 20 percent of MOPI's interest in the Infill Net Proceeds attributable to any Infill Wells that may be drilled after May 1, 1993. The Royalty Interests were conveyed to the Trust by means of a single instrument of conveyance. The Conveyance was recorded in the appropriate real property records in San Juan and Rio Arriba counties in New Mexico so as to give notice of the Royalty Interests to creditors and any transferees, who would take an interest in the Underlying Properties subject to the Royalty Interests. The Conveyance was intended to convey the Royalty Interests as real property interests under New Mexico law.
Burlington Resources, through MOPI, owns an interest in the Underlying Properties subject to and burdened by the Royalty Interests conveyed to the Trust pursuant to the Conveyance. MOPI receives all payments relating to its interest in the Underlying Properties and is required, pursuant to the Conveyance, to pay to the Trust the portion thereof attributable to the Royalty Interests. Under the Conveyance, the amounts payable by MOPI with respect to the Royalty Interests are computed with respect to each calendar quarter ending prior to termination of the Trust, and such amounts are to be paid to the Trust not later than the 50th day following the end of each calendar quarter. The amounts paid to the Trust will not include interest on any amounts payable with respect to the Royalty Interests which are held by MOPI prior to payment to the Trust. MOPI is entitled to retain all amounts attributable to its interest in the Underlying Properties which are not required to be paid to the Trust with respect to the Royalty Interests.
The following description contains a summary of the material terms of the Conveyance and is subject to and qualified by the more detailed provisions of the Conveyance, a copy of which is filed as an exhibit to this 10-K.
THE UNDERLYING PROPERTIES
The Royalty Interests were conveyed by MOPI to the Trust out of its net revenue interest in the Underlying Properties. All of the production from the Underlying Properties is from the Northeast Blanco Unit in the Fruitland
coal formation in the San Juan Basin in San Juan and Rio Arriba counties in New Mexico. For the purpose of determining the extent of the Underlying Properties, as used in this Form 10-K the term "Northeast Blanco Unit" comprises the Northeast Blanco Unit, a 32,595 acre unit originally formed on July 16, 1951, as well as rights in one communitized gross well with acreage in both the Northeast Blanco Unit and the adjoining San Juan 30-6 Unit. The Underlying Properties do not include MOPI's interest in formations other than the Fruitland coal formation underlying the Northeast Blanco Unit. The Northeast Blanco Unit is located in the north-central portion of the San Juan Basin. The San Juan Basin has been an active area for coal seam gas development, and wells have been drilled on each of the 320 acre drill blocks within the Northeast Blanco Unit.
The Royalty Interests transferred in the Conveyance to the Trust do not burden the mineral interests or overriding royalty interests owned by El Paso Production Company (a wholly owned subsidiary of Burlington Resources), the royalty and overriding royalty interests owned by Southland Royalty Company (a wholly owned subsidiary of Burlington Resources and the sponsor of the San Juan Basin Royalty Trust) or the interests owned by the San Juan Basin Royalty Trust, respectively, in the Northeast Blanco Unit. El Paso Production Company owns a .138 percent working interest and a .178 percent net revenue interest in the Northeast Blanco Unit attributable to its mineral interests and overriding royalty interests. Southland Royalty Company owns a .221 percent net revenue interest in the Northeast Blanco Unit attributable to its royalty interests and overriding royalty interests.
Unitized Areas. Pursuant to the Federal Mineral Leasing Act of 1920, as amended, and applicable state regulations, owners of oil and gas leases in New Mexico created large unitized areas consisting of numerous contiguous sections for the orderly development and conservation of oil and gas reserves. All of the Fruitland coal seam gas wells on the Underlying Properties are located within such a unitized area. Operation and development of the Northeast Blanco Unit is governed by a unit agreement and a unit operating agreement (collectively, the "Unit Agreement"). Under the Unit Agreement and applicable government regulations, the unit operator requests regulatory approval from the New Mexico Commission of Public Lands, the New Mexico Oil Conservation Division and the Bureau of Land Management of the U.S. Department of Interior (the "Bureau of Land Management") to establish or expand participating areas which produce oil and gas in paying quantities from designated formations. The working interests of participants in a participating area are based on the surface acreage included in the participating area. Under the terms of the Unit Agreement, the operator, selected by a vote of the respective working interest owners, performs all operating functions.
The Underlying Properties currently include 102 gross coal seam wells. One additional previously existing well in the Northeast Blanco Unit has ceased production, and no reserves have been attributed to such well in the December 31, 1996 Reserve Report. If subsequently deemed appropriate by the Northeast Blanco Unit working interest owners, such well could be redrilled and, if returned to production, MOPI's interest in that well would be burdened by the NPI. MOPI's working interest share of the capital costs of any such redrilling would be deducted in calculating NPI Net Proceeds and would, therefore, reduce amounts payable to the Trust. In addition, any production from that redrilled well would not entitle Unitholders to Section 29 tax credits. As of December 31, 1996, MOPI had a working interest of approximately 19.6 percent in the Underlying Properties and a net revenue interest of approximately 16.5 percent in the Underlying Properties. The operator of the Underlying Properties is Blackwood & Nichols Co. ("B&N"), an affiliate of Devon Energy Corporation ("Devon") (although the single communitized well included within the Underlying Properties is operated by MOPI).
Adjacent Properties. In addition to the San Juan 30-6 Unit, MOPI and its affiliates own significant interests in five other Federal units and eleven non- unitized wells that are adjacent to the Northeast Blanco Unit. Three of the Federal units (the San Juan 30-6 Unit, the Allison Unit and the Rosa Unit) are operated by MOPI or its affiliates. It is possible that production from these properties could drain coal seam gas from the Underlying Properties and therefore reduce production from the wells burdened by the Royalty Interests. However, if drainage were to occur it should be insignificant because of the well spacing rules and well "set back" rules that have been established by the New Mexico Oil Conservation Division. These rules are designed to protect the correlative rights of each owner by limiting the number of wells that can be drilled and establishing a reasonable distance from adjoining lease or unit boundaries that each well can be drilled. Currently, the rules in effect for the Fruitland coal formation provide for one well to be drilled on a 320 acre drillblock and require each well to be drilled no closer than 790 feet from the adjacent lease boundary.
Working Interest Owners. The following is a list of working interest owners in the Underlying Properties owning at least a one percent working interest as of December 31, 1996.
Well Count and Acreage Summary. The following table shows as of December 31, 1994, 1995 and 1996 the gross and net wells and acreage for the Underlying Properties.
THE NPI
The NPI generally entitles the Trust to receive 95 percent of the NPI Net Proceeds attributable to MOPI's interest in the Underlying Properties, subject to possible decrease as described under "--Possible NPI Percentage Reduction."
MOPI will pay its working interest share of capital costs incurred on the Underlying Properties. Such capital costs will be equal to MOPI's working interest share of the amounts expended by the operator of the Northeast Blanco Unit and MOPI will be invoiced for its share of those costs by the operator. However, the operator and working interest owners of the wells could elect at any time to implement measures to increase the producible reserves. These measures, if implemented, could involve additional compression or enhanced or secondary recovery operations requiring substantial capital expenditures which would be proportionately borne by the NPI. During 1996 significant capital expenditures were made in conjunction with the installation of a looped gas gathering system.
All cumulative lease operating expenses paid after May 1, 1993, and capital expenses paid on or after January 1, 1994, attributable to MOPI's working interest in the Underlying Properties (other than any environmental liabilities related to activities occurring on or under, or in connection with, or conditions existing on or under, the Underlying Properties before June 17, 1993, which liabilities will be borne by MOPI and for which MOPI has indemnified the Trust) will be deducted in calculating NPI Net Proceeds and, therefore, will reduce amounts payable to the Trust.
If, during any calendar quarter, costs and expenses paid by MOPI and deducted in calculating the NPI Net Proceeds exceed gross proceeds (such excess referred to as a "Deficit"), neither the Trust nor Unitholders will be liable to pay such Deficit directly, but the Trust will receive no payments for distribution to Unitholders (although MOPI will pay to the Trust amounts sufficient to pay the administrative expenses of the Trust) until future gross proceeds exceed future costs and expenses plus the cumulative Deficit and interest on such cumulative Deficit at Citibank's Base Rate; provided, however, that in any calendar quarter in which the cumulative Deficit at the end of such quarter is less than $3,000,000, MOPI will pay to the Trust for distribution to Unitholders no less than 20 percent of such quarter's NPI Net Proceeds (calculated before deducting capital costs for such calendar quarter); and provided further, that if at the end of any calendar quarter, the cumulative Deficit is $3,000,000 or more, MOPI will not be obligated to make any payment to the Trust for distribution to Unitholders (although MOPI will pay to the Trust amounts sufficient to pay the administrative expenses of the Trust) until such cumulative Deficit is reduced to less than $3,000,000. As of December 31, 1996 no such deficit existed.
RESERVE REPORT
The following table summarizes net proved reserves estimated as of December 31, 1996, and certain related information for the Royalty Interests and MOPI's interest in the Underlying Properties from the December 31, 1996 Reserve Report prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers. All of such reserves constitute proved developed reserves. Summaries of the December 31, 1996 Reserve Report, the Prior Reserve Reports and the Prior Tax Credit Reports are filed as exhibits to this Form 10-K and incorporated herein by reference. See Note 9 of the Notes to Financial Statements incorporated by reference in Item 8 hereof for additional information regarding the net proved reserves of the Trust.
A net profits interest does not entitle the Trust to a specific quantity of gas but to a portion of gas sufficient to yield a specified portion of the net proceeds derived therefrom. Proved reserves attributable to a net profits interest are calculated by deducting an amount of gas sufficient, if sold at the prices used in preparing the reserve estimates for such net profits interest, to pay the future estimated costs and expenses deducted in the calculation of the net proceeds of such interest. Accordingly, the reserves presented for the Royalty Interests reflect quantities of gas that are free of future costs and expenses if the price and cost assumptions used in the December 31, 1996 Reserve Report occur. The December 31, 1996 Reserve Report was prepared in accordance with criteria established by the Securities and Exchange Commission. At December 31, 1996, the price the Trust was entitled to receive under the Gas Purchase Contract was $2.74 per MMBtu subject to accrued and unrecouped Price Credits in the Price Credit Account (see "-- The Royalty Interests -- Gas Purchase Contract"). For purposes of the preparation of the December 31, 1996 Reserve Report, however, pricing was held constant at the Minimum Purchase Price of $1.60 per MMBtu until the accrued Price Credits were recouped by MOTI, after which $2.74 per MMBtu was utilized for the remaining life of the Royalty Interests.
- ---------------- (a) Although the prices utilized in preparing the estimates in this table are in accordance with criteria established by the Securities and Exchange Commission, those prices were influenced by seasonal demand for natural gas and other factors and may not be the most representative prices for estimating future net revenues or related reserve data. In addition, changes in gas prices have an effect on net reserve data for the NPI at any given level of costs assumed, because such changes in the cost of gas per MMBtu result in changes in the number of MMBtu required to pay a given level of costs. Since December 31, 1996, the Blanco Hub Spot Price has decreased substantially. (b) The gas reserves were estimated by Netherland, Sewell & Associates, Inc. by applying volumetric and decline curve analyses. (c) Estimated future net revenues are defined as the total revenues attributable to MOPI's interest in the Underlying Properties and to the Royalty Interests less the relevant share (MOPI's interest share, in the case of MOPI's interest in the Underlying Properties, and 95 percent thereof, in the case of the Royalty Interests) of royalties, production, property and related taxes (including severance taxes), lease operating expenses and future capital expenditures. Overhead costs (beyond the standard overhead charges for the nonoperated properties) have not been included, nor have the effects of depreciation, depletion and Federal income tax. Estimated future net revenues and discounted estimated future net revenues are not intended and should not be interpreted as representing the fair market value for the estimated reserves.
Based upon the production estimates used in the December 31, 1996 Section 29 Tax Credit Report for the January 1, 1997 through December 31, 2002 period, and assuming constant future Section 29 tax credits at the estimated 1996 rate of $1.05 per MMBtu, the estimated total future tax credits available from the production and sale of the net proved reserves from the Royalty Interests would be approximately $36.1 million, having a discounted present value (assuming a 10 percent discount rate) of approximately $28.5 million.
There are many uncertainties inherent in estimating quantities and values of proved reserves and in projecting future rates of production and the timing of development expenditures. The reserve data set forth herein are estimates only, and actual quantities and values of natural gas are likely to differ from the estimated amounts set forth herein. In addition, the reserve estimates for the Royalty Interests will be affected by future changes in sales prices for natural gas produced and costs that are deducted in calculating NPI Net Proceeds and Infill Net Proceeds. Further, the discounted present values shown herein were prepared using guidelines established by the Securities and Exchange Commission for disclosure of reserves and should not be considered representative of the market value of such reserves or the Units. A market value determination would include many additional factors.
HISTORICAL GAS SALES PRICES AND PRODUCTION
The following table sets forth the actual net production volumes from MOPI's interest in the Underlying Properties, weighted average lifting costs and information regarding historical gas sales prices for each of the years ended December 31, 1994, 1995 and 1996:
POSSIBLE NPI PERCENTAGE REDUCTION
If there has been cumulative production after April 30, 1993 (other than production attributable to Infill Wells) of at least 161.8 Bcf of natural gas attributable to MOPI's interest in the Underlying Properties burdened by the NPI, the percentage of NPI Net Proceeds payable in respect of the NPI will be reduced with respect to any additional production from MOPI's interest in the Underlying Properties if the IRR of the "After-tax Cash Flow per Unit" (as defined below) exceeds 11 percent (or if, as set forth below, a greater amount of gas has been produced and certain other financial tests are met). For purposes hereof, "After-tax Cash Flow per Unit" is equal to the sum of the following amounts that a hypothetical purchaser of a Unit in the Public Offering would have received or been allocated if such Unit were held through the date of such determination: (a) total cash distributions per Unit plus (b) total tax credits available per Unit under Section 29 of the IRC less (c) the total net taxes payable per Unit (assuming a 31 percent tax rate, the highest effective Federal income tax rate applicable to individuals at the time of the Public Offering). IRR is the annual discount rate (compounded quarterly) that equates the present value of the After-tax Cash Flow per Unit to the $20.50 initial price to the public of the Units in the Public Offering. Set forth below is a table that reflects the cumulative production from MOPI's interest in the Underlying Properties after April 30, 1993 (other than production attributable to Infill Wells) and the corresponding percentage of NPI Net Proceeds represented by the NPI and the retained interest of MOPI in the NPI Net Proceeds:
In addition to the foregoing, the percentage of NPI Net Proceeds payable to the Trust will be reduced to 25 percent and MOPI's retained percentage of NPI Net Proceeds will be increased to 75 percent (whether or not the IRR of the After-tax Cash Flow per Unit exceeds 11 percent) if (i)(a) after April 30, 1993 there has been total production (other than production attributable to Infill Wells) attributable to MOPI's interest in the Underlying Properties of more than 191.2 Bcf of natural gas, (b) a hypothetical purchaser of a Unit in the Public Offering would have received a cash return (equal to total cash distributions per Unit) of not less than the $20.50 initial
offering price in the Public Offering and (c) total capital expenditures (excluding capital expenditures in connection with any Infill Wells) incurred between May 1, 1993 and December 31, 2002 and attributable to MOPI's interest in the Underlying Properties do not exceed $20 million (adjusted for inflation between May 1, 1993 and December 31, 2002), or (ii)(a) after April 30, 1993 there has been total production (other than production attributable to Infill Wells) attributable to MOPI's interest in the Underlying Properties of more than 220.7 Bcf of natural gas and (b) a hypothetical purchaser of a Unit in the Public Offering would have received a cash return satisfying the criteria set forth in (i)(b) above.
The percentage of NPI Net Proceeds payable in respect of the NPI will be reduced at any time and from time to time in the amounts set forth above if the criteria specified in the preceding paragraphs are met. If a reduction in the percentage of NPI Net Proceeds constituting the NPI occurs, that reduced percentage shall continue in effect thereafter unless and until a further reduction occurs. As of December 31, 1996 none of the criteria described above had been met.
GAS PURCHASE CONTRACT
Under the terms of the Gas Purchase Contract, MOTI is obligated to purchase the natural gas attributable to MOPI's interest in the Underlying Properties at the Central Gathering Point. The Gas Purchase Contract commenced as of May 1, 1993, and expires on the termination of the Trust. The monthly price to be paid by MOTI for natural gas purchased pursuant to the Gas Purchase Contract is, subject to applicable adjustment, (i) the $1.60 per MMBtu Minimum Purchase Price less (ii) all costs to be incurred in connection with gathering and/or transportation charges, taxes, treating and processing costs and other costs payable in connection with such services from the Central Gathering Point to main line delivery (collectively, "Deductible Costs"). Additionally, if MOTI's arrangements for gathering, treating, processing and transporting gas from the Central Gathering Point are altered by any governmental order, decree, legislation or regulation relating generally to gathering and transportation arrangements in the natural gas industry and such alterations materially increase MOTI's costs of performing its obligations under the Gas Purchase Contract, such increased costs shall be included in Deductible Costs to the extent that such increased costs are not recouped by MOTI from its gas purchaser. The monthly price is subject to adjustments under certain circumstances as described below:
(a) If the Index Price in any month is greater than the $2.04 per MMBtu Sharing Price, then MOTI will pay MOPI an amount for each MMBtu of gas purchased equal to the Sharing Price for such month, less the Deductible Costs for such month, plus 50 percent of the excess of the Index Price for such month over the Sharing Price (the "Price Differential") for such month, provided MOTI has no accrued and unrecouped Price Credits (defined below) in the Price Credit Account (defined below). If MOTI has accrued and unrecouped Price Credits in the Price Credit Account, then MOTI will be entitled to reduce the amount in excess of the Minimum Purchase Price (before deducting the Deductible Costs) that otherwise would be payable for such month by the quotient of the balance of accrued and unrecouped Price Credits in the Price Credit Account as of the beginning of such month divided by the quantity of MOPI's gas purchased for such month under the Gas Purchase Contract.
(b) If the Index Price in any month is greater than or equal to the Minimum Purchase Price but less than or equal to the Sharing Price for such month, then MOTI will pay MOPI an amount for each MMBtu of gas purchased during such month equal to the Index Price for such month less the Deductible Costs for such month provided MOTI has no accrued and unrecouped Price Credits in the Price Credit Account. If MOTI has accrued and unrecouped Price Credits in the Price Credit Account, then MOTI will be entitled to reduce the amount in excess of the Minimum Purchase Price (before deducting the Deductible Costs) that otherwise would be payable for such month by the quotient of the balance of accrued and unrecouped Price Credits in the Price Credit Account as of the beginning of such month divided by the quantity of MOPI's gas purchased for such month under the Gas Purchase Contract.
(c) If the Index Price in any month commencing after December 31, 1993 is less than the Minimum Purchase Price, then MOTI will pay for each MMBtu of gas purchased the Minimum Purchase Price less the Deductible Costs for such month, and MOTI will receive a credit (a "Price Credit") from MOPI for each MMBtu of natural gas so purchased by MOTI equal to the difference between the Minimum Purchase Price
and the Index Price. MOTI is required to establish and maintain an account (the "Price Credit Account") containing the accrued and unrecouped amount of such Price Credits.
The Index Price was below the Minimum Purchase Price from June 1994 through 1996, with the exception of the months of August, November and December of 1996. MOTI estimates that, as of December 31, 1996, MOTI had aggregate Price Credits in the Price Credit Account of approximately $8.9 million of which the Trust's 95 percent interest was approximately $8.5 million.
This entitlement to recoup the Price Credits means that if and when the Index Price is above the Minimum Purchase Price, future royalty income paid to the Trust would be reduced until such time as such Price Credits have been fully recouped. Corresponding cash distributions to Unitholders would also be reduced.
Each of the Minimum Purchase Price and the Sharing Price will increase by 2.5 percent per annum as of May 1 of each year commencing in 2003.
The Central Gathering Point price in the Gas Purchase Contract is determined by utilizing a published price (which is before deduction of Deductible Costs), and then deducting Deductible Costs. As used herein, "Index Price" means for each month 97 percent of the Blanco Hub Spot Price (such 3 percent deduction constituting a discount to compensate MOTI for marketing the gas). The Blanco Hub Spot Price is a posted index price in dollars per MMBtu on a dry basis published in the first issue of such month in Inside FERC's Gas Market Report for "El Paso Natural Gas Company, San Juan." Pursuant to the Gas Purchase Contract, MOTI will have a one-time option to elect to substitute for the foregoing as the Blanco Hub Spot Price either (i) the average of the two posted index prices reported each month in Inside FERC's Gas Market Report for "El Paso Natural Gas Company, San Juan" or (ii) the Blanco Hub posted index price reported by Inside FERC's Gas Market Report, if either such price is then published in such publication. All prices used as index prices are delivered prices at the specified point of delivery and are, therefore, before deducting Deductible Costs.
In any month in which MOTI recoups Price Credits under the Gas Purchase Contract, MOPI may be required to calculate royalty payments attributable to production from the Underlying Properties based on the higher price MOTI receives when it resells the gas production instead of the lower price payable by MOTI to MOPI under the Gas Purchase Contract (which price takes into account the Price Credits recouped by MOTI in such month). Royalties that are payable by MOPI in respect of such higher gas price will not reduce the NPI Net Proceeds payable to the Trust. However, the portion of the recouped Price Credits that is attributable to the royalty percentage of the gas sold in such month shall be returned to the Price Credit Account by MOTI and recouped by MOTI in future months.
The Underlying Properties are subject to a gas balancing agreement which, under certain circumstances, allows any working interest owner (including MOPI) to take more or less than his working interest share of gas produced. NPI Net Proceeds and Infill Net Proceeds are calculated on an "entitlements basis," whereby the aggregate proceeds from the sale of gas are determined by MOPI as if MOPI had produced and sold its share of production from the Underlying Properties, even if the actual volumes delivered to and sold by MOPI are different from its entitled interest volumes. The effect of such an entitlements basis calculation is that NPI Net Proceeds or Infill Net Proceeds and, therefore, the amount thereof paid to the Trust, may include amounts in respect of production not taken by MOPI because of an imbalance (an imbalance is where an interest owner is delivered more or less than the actual share of production to which it is entitled). Likewise, in the event MOPI actually takes and sells more than its share of production but pays the NPI Net Proceeds or the Infill Net Proceeds on an entitlements basis, MOPI will receive revenues in excess of those distributed to the Trust. In the event the price of gas is lower when the other interest owners make-up the overproduction taken and sold by MOPI than the price received by MOPI, MOPI will retain the excess of such higher price over the lower price.
MOPI bases such entitlements calculations upon production estimates furnished to MOPI by the operator of the Underlying Properties, which estimates may be subject to subsequent adjustment by the operator after the collection and evaluation of field data. Because the operator may not determine that such an adjustment is required until several months after the original estimates are furnished to MOPI, it is possible that an adjustment with respect to
a particular quarter will not be made until cash amounts have been distributed, and depletion and Section 29 tax credits have been allocated to Unitholders by the Trust. MOPI will take such an adjustment into account for the quarter in which MOPI is advised of such adjustment. The cash distributions made, and depletion deductions and Section 29 tax credits allocated, in respect of a future quarterly period on a Unit could be based in part upon such an adjustment, notwithstanding that the owner of such Unit did not own the Unit during the quarter in respect of which such adjustment is made.
MOTI's obligation to purchase natural gas pursuant to the Gas Purchase Contract (as well as MOPI's obligation to sell such gas) may be suspended to the extent affected by the occurrence of any event that renders the affected party unable to perform its obligations under the Gas Purchase Contract if the event could not have been prevented with reasonable foresight, at reasonable cost and by the exercise of reasonable diligence including: (i) acts of God, lightning, fires, explosions and other casualties, (ii) strikes and other industrial disturbances, (iii) acts of the public enemy, wars, epidemics, restraints of government, civil disturbances, and acts, orders and regulations of governmental agencies, (iv) inability to acquire or delay in acquiring materials, equipment, rights-of-way and approvals of regulatory bodies, (v) physical constraint or restriction of, or accident or blockage of or to, equipment or lines of pipe and (vi) interruption of MOTI's gathering, treating, processing or transportation arrangements relating to production from the Underlying Properties, including such arrangements under the Gas Gathering Contract. Following any such event, the affected party's obligations under the Gas Purchase Contract will be suspended during the period of its inability to perform, and such party will use reasonable efforts to remedy the event and resume full performance as quickly as reasonably practical.
Although MOTI will likely utilize the natural gas purchased from MOPI pursuant to the Gas Purchase Contract to satisfy its obligations under a number of resale agreements with third parties, none of the gas purchased by MOTI pursuant to any gas purchase agreement (including the Gas Purchase Contract) has been dedicated to any particular resale agreement, and the arrangements made by MOTI with respect to reselling any gas purchased by it vary from time to time. The prices to be paid by third party purchasers, therefore, may also be expected to vary from time to time, and may be either less than or greater than the price paid by MOTI pursuant to the Gas Purchase Contract. At times when the Minimum Purchase Price exceeds the Index Price, MOTI will be required to purchase gas at a price based on the Minimum Purchase Price. At times when the Index Price exceeds the Sharing Price, MOTI will receive a benefit from being able to resell gas at prices generally reflecting the full amount of the excess of the Index Price over the Sharing Price, while paying MOPI and, therefore, the Trust an amount generally reflecting only 50 percent of such excess.
The Gas Purchase Contract may not be terminated without the consent of MOTI and MOPI. Further, it may not be amended in a manner that would materially adversely affect the revenues to the Trust without the approval of the holders of a majority of the Units then outstanding. The Gas Purchase Contract is filed as an exhibit to this Form 10-K. The foregoing summary of the material provisions of the Gas Purchase Contract is qualified in its entirety by reference to the terms of such agreement as set forth in such exhibit.
GAS GATHERING CONTRACT
The prices to be paid to MOPI pursuant to the Gas Purchase Contract are prices payable for the value of gas purchased for production at the Central Gathering Point. Title to the gas purchased pursuant to the Gas Purchase Contract, therefore, passes to MOTI at the Central Gathering Point. MOTI is responsible for gathering, treating, processing and marketing from the Central Gathering Point all gas purchased pursuant to the Gas Purchase Contract. The price paid by MOTI pursuant to the Gas Purchase Contract is after deducting Deductible Costs from the Central Gathering Point. Pursuant to the Gas Gathering Contract, MOGI gathers, treats and processes all of the production attributable to MOPI's interest in the Underlying Properties (excluding production attributable to five wells) from the Central Gathering Point. MOGI, under the Gas Gathering Contract, treats the gas gathered for MOTI to remove carbon dioxide and water and to otherwise bring the gas into compliance with the specifications of the Gas Gathering Contract. At December 31, 1996, MOGI's rates for performing its services under the Gas Gathering Contract varied from approximately $.30 to approximately $.43 per Mcf, depending upon the specific point of delivery to MOGI. MOTI reduces the price that it pays for the gas by the value of gas used by MOGI as fuel for compression and other facilities. These reductions can not exceed 6.5 percent of the value of volumes of gas gathered for MOTI. The rates payable to MOGI pursuant to the Gas Gathering Contract are subject to annual adjustment on January 1 of each year
on the basis of increases or decreases in a published index measuring consumer prices. Additionally, these rates may be increased by the amount of any additional costs incurred by MOGI as a direct result of any governmental action relating generally to gathering and/or treating agreements in the natural gas industry. The term of the Gas Gathering Contract will continue until December 31, 2012; thereafter, such contract will continue in effect on a month-to-month basis.
All of the gas gathered pursuant to the Gas Gathering Contract must first be gathered from the wellhead to the Central Gathering Point by a unit gathering system owned by the working interest owners of the Northeast Blanco Unit. The costs of such initial gathering (including maintenance of the gathering system) are borne by such working interest owners (including MOPI) and deducted as lease operating expenses in calculating the NPI Net Proceeds or Infill Net Proceeds, as the case may be. MOPI does not anticipate any changes in the manner in which gas will be gathered at the wellhead and transported to the Central Gathering Point, or in the arrangements relating to use and maintenance of the Northeast Blanco Unit gathering system.
The Gas Gathering Contract may not be amended in a manner that would materially adversely affect the revenues to the Trust without the approval of the holders of a majority of the Units then outstanding. The Gas Gathering Contract is filed as an exhibit to this Form 10-K. The foregoing summary of the material provisions of the Gas Gathering Contract is qualified in its entirety by reference to the terms of such agreement as set forth in such exhibit.
FEDERAL LANDS
Approximately 80 percent of the Underlying Properties are burdened by royalty interests held by the Federal government. Royalty payments due to the U.S. government for gas produced from Federal lands included in the Underlying Properties must be calculated in conformance with a working interest owner's interpretation of regulations issued by the Minerals Management Service ("MMS"), a subagency of the U.S. Department of the Interior that administers and receives revenues from Federal royalties on behalf of the U.S. government. The MMS regulations cover both valuation standards which establish the basis for placing a value on production and cost allowances which define those post-production costs that are deductible by the lessee.
Where gas is sold by a lessee to an affiliate such as MOTI, the MMS regulations (as well as state regulations with respect to severance taxes) may ignore the lessee-affiliate transaction and consider the arm's-length sale by the affiliate as the point of valuation for royalty purposes. Accordingly, MOPI may be required to calculate royalty payments and severance taxes based on the price MOTI receives when it markets the gas production (the "Resale Price"), notwithstanding the price payable by MOTI to MOPI pursuant to the Gas Purchase Contract. Although the NPI Net Proceeds, 95 percent of which is payable to the Trust, will reflect the deduction of all royalty and overriding royalty burdens and state severance taxes, to the extent that the Resale Price exceeds the price paid for production purchased under the Gas Purchase Contract, NPI Net Proceeds will not be reduced by the royalties, but will be reduced by the severance taxes, payable in respect of such excess. Royalties payable in respect of such excess will be borne by MOPI.
The MMS regulations permit a lessee to deduct from its gross proceeds its reasonable actual costs of transportation and processing to transport the gas from the lease to the point of sale in calculating the market value of its production. Although MOPI will deduct (i) the Deductible Costs paid by MOTI pursuant to the Gas Gathering Contract and (ii) the gathering charges payable by MOPI as a working interest owner of the Northeast Blanco Unit gathering system in calculating the wellhead price of gas produced by MOPI, the MMS could disallow the deduction of some portion of such charges after review of such charges on audit of MOPI's royalty as discussed below. If some portion of such charges is disallowed, the MMS will likely demand additional royalties plus interest on the amount of the underpayment.
The Trustee has been advised by MOPI that the MMS has from time to time considered the inclusion of the value of the Section 29 tax credits attributable to coal seam gas production in the calculation of gross proceeds for purposes of calculating the royalty that is payable to the MMS. On August 30, 1993, the U.S. Office of the Inspector General (the "OIG") issued an audit report stating the view that Section 29 tax credits should be included in the calculation of gross proceeds and recommending that the MMS pursue collection of additional royalties with
respect to past and future production. On December 8, 1993, however, the Office of the Solicitor of the U.S. Department of the Interior gave its opinion to the MMS that the report of the OIG was incorrect and that Section 29 tax credits are not part of gross proceeds for the purpose of federal royalty calculations. MOPI believes that any inclusion of the value of Section 29 tax credits for purposes of calculating royalty payments required to be made on Federal lands would be inappropriate since all mineral interest owners, including royalty owners, are entitled to Section 29 tax credits for their proportionate share of qualifying coal seam gas production. MOPI has advised the Trustee that it would vigorously oppose any attempt by the MMS to require the inclusion of the value of Section 29 tax credits in the calculation of gross proceeds. However, if regulations so to include such value were adopted and upheld, royalty payments would be increased which would decrease NPI Net Proceeds and, therefore, amounts payable to the Trust. The reduction in amounts payable to the Trust would cause a corresponding reduction in associated Section 29 tax credits available to Unitholders.
The MMS generally audits royalty payments within a six-year period. Although MOPI calculates royalty payments in accordance with its interpretation of the then applicable MMS regulations, MOPI does not know whether the royalty payments made to the U.S. government are totally in conformity with MMS standards until the payments are audited. If an MMS audit, or any other audit by a Federal or state body, results in additional royalty charges, together with interest, relating to production from and after the consummation of the Public Offering in respect of MOPI's interest in the Underlying Properties, certain of such charges and interest will be deducted in calculating NPI Net Proceeds for the quarter in which the charges are paid and in each quarter thereafter until the full amount of the additional royalty charges and interest have been recovered.
The Trust is subject to certain rules of the Bureau of Land Management under which the holding of interests in leases by persons other than citizens, nationals and legal resident aliens of the United States ("Eligible Citizens") may be limited. As a result, non-Eligible Citizens may be prohibited from owning Units. If any Units are acquired by persons or entities not constituting Eligible Citizens, such Unitholders may be required to sell such Units pursuant to a procedure set forth in the Trust Agreement. See "Item 1 - -Description of Units--Possible Divestiture of Units."
SALE AND ABANDONMENT OF UNDERLYING PROPERTIES
MOPI does not have the right to abandon its interest in any well on the Underlying Properties. However, MOPI does not have control over any decisions which may be made by the operator and other working interest owners of the Underlying Properties to abandon any well or property on the Underlying Properties (although MOPI does exercise influence over such decisions to the extent of its working interest). Since MOPI does not operate any of the wells on the Underlying Properties (although MOI operates a single communitized well), MOPI does not normally control the timing of plugging and abandoning wells. The Conveyance provides that MOPI's working interest share of the costs of plugging and abandoning uneconomic wells will be deducted in calculating NPI Net Proceeds or Infill Net Proceeds, as the case may be.
MOPI may sell its interest in the Underlying Properties, subject to and burdened by the Royalty Interests, without the consent of the Trust or the Unitholders. Any purchaser of such interest will be subject to the same standards, and will possess the same influence, set forth in the preceding paragraph. Under the Trust Agreement, MOPI has certain rights (but not the obligation) to purchase the Royalty Interests upon termination of the Trust. See "Item 1 - -Description of the Trust--Termination and Liquidation of the Trust."
THE INFILL NPI
The Royalty Interests include the Infill NPI, a net profits interest in any Infill Wells completed on the Underlying Properties. No Infill Wells have been drilled and none will be drilled unless, prior to any decision to drill any such wells by the working interest owners of the Underlying Properties, the well spacing limitations for coal seam wells in the San Juan Basin are reduced. If such changes occur and Infill Wells are drilled, the Infill NPI will entitle the Trust to receive 20 percent of the Infill Net Proceeds. No reserves have been attributed in the December 31, 1996 Reserve Report or the Prior Reserve Reports to any Infill Wells.
The Trustee has been advised by Burlington Resources that it believes, although no assurances are given, that Infill Wells will be drilled on the Underlying Properties only if the owners of the working interests in such
properties believe that the expenditures required to drill and complete such Infill Wells will be justified by the expected increase in recoverable reserves therefrom. Infill Wells may recover a portion of the reserves producible from wells burdened by the NPI. Accordingly, the drilling of Infill Wells may reduce the proved reserves attributable to wells burdened by the NPI, although Burlington Resources has advised the Trustee that it believes that such reduction will be offset, at least in part, by the reserves then attributable to such Infill NPI. Because the NPI generally entitles the Trust to 95 percent of the NPI Net Proceeds and the Infill NPI entitles the Trust to only 20 percent of the Infill Net Proceeds, no assurance can be given that amounts payable to the Trust will not be reduced if Infill Wells are drilled. Further, under current law no Section 29 tax credits will be available with respect to production attributable to the Infill NPI even if an Infill Well recovers a portion of the reserves that qualified for Section 29 tax credits because prior to the drilling and completion of such Infill Well, they were recoverable from a well burdened by the NPI.
MOPI's working interest share of capital expenditures and operating expenses relating to any Infill Wells will be deducted in calculating the Infill Net Proceeds. Such amounts bear no relation to capital and operating costs which will be deducted in calculating the NPI Net Proceeds. See "--The NPI." During the term of the Trust, MOPI will account for each of the NPI and the Infill NPI separately, with the result that no amounts deductible in calculating the NPI Net Proceeds will be deducted from the Infill NPI revenue stream, and vice versa. If, during any period, costs and expenses (including interest expenses) deductible in calculating the portion of the Infill Net Proceeds payable to the Trust exceed gross proceeds with respect to Infill Wells, neither the Trust nor Unitholders will be liable for such excess, but the Trust will receive no payments for distribution to Unitholders with respect to the Infill NPI until future gross proceeds with respect to such wells exceed future costs and expenses with respect thereto plus the cumulative excess of such costs and expenses plus interest thereon at Citibank's Base Rate.
BURLINGTON RESOURCES' PERFORMANCE ASSURANCES
Pursuant to the Trust Agreement, Burlington Resources has agreed to pay each of the following to the extent not paid by MOPI when due and payable: (i) all liabilities and capital and lease operating expenses which MOPI is required under the Conveyance to pay as a working interest owner of the Underlying Properties; (ii) all NPI Net Proceeds, Infill Net Proceeds and other amounts which MOPI is obligated to pay to the Trust under the Conveyance; (iii) any proceeds from a sale of any remaining Royalty Interests that MOPI may elect to purchase upon termination of the Trust; and (iv) certain indemnification obligations relating to environmental liabilities in connection with MOPI's interest in the Underlying Properties (collectively, "MOPI Payment Obligations"). Burlington Resources has also agreed to pay, to the extent not paid by MOTI when due and payable, all amounts which MOTI is required to pay to MOPI in respect of production attributable to the Royalty Interests pursuant to the terms of the Gas Purchase Contract ("MOTI Payment Obligations"). Burlington Resources may assign such performance assurance obligations, and may be relieved of such obligations, upon the occurrence of certain events and to an entity or entities meeting certain criteria.
TITLE TO PROPERTIES
Burlington Resources has advised the Trustee that it believes that MOPI's title to its interest in the Underlying Properties is, and the Trust's title to the Royalty Interests is, good and defensible in accordance with standards generally accepted in the gas industry, subject to such exceptions which, in the opinion of Burlington Resources, are not so material as to detract substantially from the use or value of MOPI's interest in the Underlying Properties or the Royalty Interests.
The Underlying Properties are typically subject, in one degree or another, to one or more of the following: (i) royalties and other burdens and obligations, expressed and implied, under oil and gas leases; (ii) overriding royalties and other burdens created by MOPI or its predecessors in title; (iii) a variety of contractual obligations (including, in some cases, development obligations) arising under operating agreements, farmout agreements, production sales contracts and other agreements that may affect the properties or their titles; (iv) liens that arise in the normal course of operations, such as those for unpaid taxes, statutory liens securing unpaid suppliers and contractors and contractual liens under operating agreements; (v) pooling, unitization and communitization agreements, declarations and orders; (vi) irregularities or ambiguities in the instruments of title; and (vii) easements, restrictions, rights-of-way and other matters that commonly affect property. To the extent that such burdens and obligations affect MOPI's
rights to production and the value of production from the Underlying Properties, they have been taken into account in calculating the Trust's interests and in estimating the size and discounted net present value of the reserves attributable to the Royalty Interests. Except as noted below, Burlington Resources believes that the burdens and obligations affecting MOPI's interest in the Underlying Properties and Royalty Interests are conventional in the industry for similar properties, do not, in the aggregate, materially interfere with the use of the Underlying Properties and will not materially and adversely affect the discounted net present value of the Royalty Interests.
Although the matter is not entirely free from doubt, Burlington Resources has advised the Trustee that it believes (based upon the opinions of local counsel to Burlington Resources with respect to matters of New Mexico law) that the Royalty Interests should constitute property interests under applicable state law. Consistent therewith, the Conveyance states that the Royalty Interests constitute property interests and it was recorded in the appropriate real property records of San Juan and Rio Arriba counties, New Mexico, the counties in which the Underlying Properties are located, in accordance with local recordation provisions. If, during the term of the Trust, MOPI becomes involved as a debtor in bankruptcy proceedings under the Federal Bankruptcy Code, it is not entirely clear that all of the Royalty Interests would be treated as property interests under the laws of New Mexico. If in such a proceeding a determination were made that the Royalty Interests constitute property interests, the Royalty Interests should be unaffected in any material respect by such bankruptcy proceeding. If in such a proceeding a determination were made that the Royalty Interests constitute executory contracts (a term used, but not defined, in the Federal Bankruptcy Code to refer to a contract under which the obligations of both the debtor and the other party to such contract are so unsatisfied that the failure of either to complete performance would constitute a material breach excusing performance by the other) and not a property interest under applicable state law, and if such contract were not to be assumed in a bankruptcy proceeding involving MOPI, the Trust would be entitled to damages for breach of such contract covered by the termination of such contract in such bankruptcy proceeding and, with respect to such entitlement, the Trust would be treated as an unsecured creditor of MOPI in the pending bankruptcy. Although no assurance is given, Burlington Resources does not believe that the Royalty Interests should be subject to rejection in a bankruptcy proceeding as executory contracts.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Trust is a party or of which any of its property is the subject.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED UNITHOLDER MATTERS.
Certain information with respect to the Units of the Trust and the market therefor is set forth on the inside front cover of the Trust's Annual Report to Unitholders for the year ended December 31, 1996 under the section entitled "Units of Beneficial Interest" and is incorporated herein by reference.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA.
Selected financial data of the Trust is set forth on the inside front cover of the Trust's Annual Report to Unitholders for the year ended December 31, 1996 under "Selected Financial Data" and is incorporated herein by reference.
ITEM 7.

ITEM 7. TRUSTEE'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The "Trustee's Discussion and Analysis of Financial Condition and Results of Operations" appearing on pages 2 and 3 of the Trust's Annual Report to Unitholders for the year ended December 31, 1996 is incorporated herein by reference.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Trust and the notes thereto, together with the report thereon of Deloitte & Touche LLP, independent auditors, dated March 21, 1997, appearing on pages 4 through 11 of the Trust's Annual Report to Unitholders for the year ended December 31, 1996 are incorporated herein by reference.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Trust has no directors or executive officers. Each of the Trustee and the Delaware Trustee is a corporate trustee that may be removed as trustee under the Trust Agreement, with or without cause, at a meeting duly called and held by the affirmative vote of Unitholders of not less than a majority of all the Units then outstanding. Any such removal of the Delaware Trustee shall be effective only at such time as a successor Delaware Trustee fulfilling the requirements of Section 3807(a) of the Delaware Code has been appointed and has accepted such appointment, and any such removal of the Trustee shall be effective only at such time as a successor Trustee has been appointed and has accepted such appointment.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION.
The following is a description of certain fees and expenses anticipated to be paid or borne by the Trust, including fees expected to be paid to Burlington Resources, the Trustee, the Delaware Trustee, the Transfer Agent, or their affiliates.
Ongoing Administrative Expenses. The Trust is responsible for paying all legal, accounting, engineering and stock exchange fees, printing costs and other administrative and out-of-pocket expenses incurred by or at the direction of the Trustee or Delaware Trustee and the out-of-pocket expenses of the Transfer Agent.
Compensation of the Trustee, Delaware Trustee and Transfer Agent. The Trust Agreement provides for compensation to the Trustee and the Delaware Trustee for administrative services, out of the Trust assets. The Trustee was paid a 1996 base amount of $39,147, plus an hourly charge for services in excess of a combined total of 300 hours annually at the Trustee's then standard rate. The Trustee received total compensation for 1996 of $39,147. The Trustee's annual base fee escalates at the rate of 3 percent per year. The Delaware Trustee is paid a fixed annual amount of $10,000. The Trustee and the Delaware Trustee are each entitled to reimbursement for out-of-pocket expenses. Upon termination of the Trust, the Trustee will receive, in addition to its out-of-pocket expenses, a termination fee in the amount of $10,000. If a trustee resigns and a successor has not been appointed in accordance with the terms of the Trust Agreement within 210 days after the notice of resignation is received, the fees payable to that trustee will increase significantly until a new trustee is appointed.
The Transfer Agent receives a transfer agency fee of $5.30 annually per account (minimum of $15,000 annually), subject to increase or decrease each December, based upon the change in the Producers' Price Index as published by the Department of Labor, Bureau of Labor Statistics, plus $1.00 for each certificate issued in excess of 10,000 annually. The total of fees paid by the Trust to the Transfer Agent in 1996 was $12,472.
Fees to Burlington Resources. Burlington Resources will receive throughout the term of the Trust, an administrative services fee for accounting, bookkeeping and other administrative services relating to the Royalty Interests as described below in "Item 13 --Administrative Services Agreement".
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners. The Trustee knows of no Unitholder which is a beneficial owner of more than 5 percent of the outstanding Units.
(b) Security Ownership of Management. The Trust has no directors or executive officers. As of March 15, 1997, NationsBank of Texas, N.A., the Trustee, did not beneficially own any Units. As of March 15, 1997, Mellon Bank (DE) National Association, the Delaware Trustee, did not beneficially own any Units.
(c) Changes in Control. The Trustee knows of no arrangements the operation of which may at a subsequent date result in a change in control of the Trust.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
ADMINISTRATIVE SERVICES AGREEMENT
Pursuant to the Trust Agreement, Burlington Resources and the Trust entered into an Administrative Services Agreement effective May 1, 1993. A copy of the Administrative Services Agreement is filed as an exhibit to this Form 10-K.
The Administrative Services Agreement obligates the Trust to pay to Burlington Resources each quarter an administrative services fee for accounting, bookkeeping and other administrative services relating to the Royalty Interests and the Underlying Properties. The annual fee for 1996, payable in equal quarterly installments, was $313,157, and the fee will be adjusted annually, based upon the change in the Producers' Price Index.
BURLINGTON RESOURCES' CONDITIONAL RIGHT OF REPURCHASE
Burlington Resources retains in the Trust Agreement the right to repurchase all (but not less than all) outstanding Units at any time at which 15 percent or less of the outstanding Units is owned by persons or entities other than Burlington Resources and its affiliates. Any such repurchase would generally be at a price equal to the greater of (i) the highest price at which Burlington Resources or any of its affiliates acquired Units during the 90 days immediately preceding the Determination Date and (ii) the average closing price of Units on the New York Stock Exchange for the 30 trading days immediately preceding the Determination Date. Any such repurchase would be conducted in accordance with applicable Federal and state securities laws. See "Item 1 - -Description of Units- - -Conditional Right of Repurchase."
POTENTIAL CONFLICTS OF INTEREST
The interests of Burlington Resources and its subsidiaries and the interests of the Trust and the Unitholders with respect to the Underlying Properties could at times be different. As an interest owner in the Underlying Properties, MOPI could have interests that conflict with the interests of the Trust and Unitholders. For example, such conflicts could be due to a number of factors including, but not limited to, future budgetary considerations and the absence of any contractual obligation on the part of MOPI to spend for development of the Underlying Properties, except as noted herein. Such decisions may have the effect of changing the amount or timing of future distributions to Unitholders. MOPI's interest may also conflict with those of the Trust and Unitholders in situations involving the sale or abandonment of Underlying Properties. MOPI has the right at any time, pursuant to the terms of the Conveyance, to sell any of its interest in the Underlying Properties subject to the Royalty Interests. Such sales may not be in the best interest of the Trust. Except for amendments to the Gas Purchase Contract, the Gas Gathering Contract or the Conveyance which must be approved by the vote of the holders of a majority of all Units then outstanding if such amendment would materially adversely affect Trust revenues, no mechanism or procedure has
been included to resolve potential conflicts of interest between the Trust and Burlington Resources, MOPI, MOTI or MOGI. To the extent that any matters are brought to a vote of Unitholders where the interests of Burlington Resources conflict, or potentially conflict, with the interests of the Trust or Unitholders, Burlington Resources can be expected to vote in its own self interest. See "Item 2 - -The Royalty Interests--Sale and Abandonment of Underlying Properties," "--Gas Purchase Contract" and "--Gas Gathering Contract."
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. Financial Statements (incorporated by reference in Item 8. of this report)
PAGE IN 1996 ANNUAL REPORT TO UNITHOLDERS (INCORPORATED BY REFERENCE) --------------
Independent Auditors' Report................................... 4 Statements of Assets, Liabilities and Trust Corpus as of December 31, 1996 and 1995....................... 5 Statements of Distributable Income for the years ended December 31, 1996, 1995 and 1994............................. 5 Statements of Changes in Trust Corpus for the years ended December 31, 1996, 1995 and 1994............................. 5 Notes to Financial Statements.................................. 6
2. Financial Statement Schedules
Financial statement schedules are omitted because of the absence of conditions under which they are required or because the required information is included in the financial statements and notes thereto.
3. Exhibits
EXHIBIT NUMBER EXHIBIT ------ -------
3.1 -- Certificate of Trust of Burlington Resources Coal Seam Gas Royalty Trust (filed as Exhibit 3.1 to the Registrant's Form 10-K for the year ended December 31, 1993 and incorporated herein by reference).
3.2 -- Certificate of Amendment to the Certificate of Trust of Burlington Resources Coal Seam Gas Royalty Trust (filed as Exhibit 3.2 to the Registrant's Form 10-K for the year ended December 31, 1993 and incorporated herein by reference).
4.1 -- Trust Agreement of Burlington Resources Coal Seam Gas Royalty Trust effective as of May 1, 1993, by and among Meridian Oil Production Inc., Burlington Resources Inc. and Mellon Bank (DE) National Association and NationsBank of Texas, N.A., as trustees (filed as Exhibit 4.1 to the Registrant's Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).
EXHIBIT NUMBER EXHIBIT ------ -------
10.1 -- Net Profits Interest Conveyance effective as of May 1, 1993, from Meridian Oil Production Inc. to Burlington Resources Coal Seam Gas Royalty Trust (filed as Exhibit 10.1 to the Registrant's Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).
10.2 -- Administrative Services Agreement effective May 1, 1993, by and between Burlington Resources Inc. and Burlington Resources Coal Seam Gas Royalty Trust (filed as Exhibit 10.2 to the Registrant's Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).
10.3 -- Gas Purchase Contract dated as of May 1, 1993, by and between Meridian Oil Production Inc. and Meridian Oil Trading Inc. (filed as Exhibit 10.3 to the Registrant's Form 10-Q for the quarter ended June 30, 1993 and incorporated herein by reference).
10.4 -- Gas Gathering, Dehydrating and Treating Agreement dated as of May 3, 1990 between Meridian Oil Gathering Inc. and Meridian Oil Trading Inc., as amended (filed as Exhibit 10.4 to the Registrant's Form 10- Q for the quarter ended June 30, 1993 and incorporated herein by reference).
13.1 -- 1996 Annual Report to Unitholders.
23.1 -- Consent of Netherland, Sewell & Associates, Inc.
27.1 -- Financial Data Schedule.
99.1 -- The information under the section captioned "Tax Considerations" on pages 26-27, the information under the section captioned "Federal Income Tax Consequences" on pages 57-64, the information under the section captioned "ERISA Considerations" on pages 64-65, and Exhibit A of the Prospectus dated June 10, 1993, which constitutes a part of the Registration Statement on Form S-3 of Burlington Resources Inc. (Registration No. 33-61164) is incorporated herein by reference to such Registration Statement.
99.2 -- Reserve Report, dated March 25, 1994, on the estimated reserves, estimated future net revenues and discounted estimated future net revenues attributable to the Royalty Interests and MOPI's interest in the Underlying Properties as of December 31, 1993, prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers (filed as Exhibit 99.2 to the Registrant's Form 10-K for the year ended December 31, 1993 and incorporated herein by reference).
99.3 -- Reserve Report, dated March 15, 1995, on the estimated reserves, estimated future net revenues and discounted estimated future net revenues attributable to the Royalty Interests and MOPI's interest in the Underlying Properties as of December 31, 1994, prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers (filed as Exhibit 99.3 to the Registrant's Form 10-K for the year ended December 31, 1994 and incorporated herein by reference).
99.4 -- Report, dated March 16, 1995, on the estimated Section 29 tax credits attributable to the Royalty Interests as of December 31, 1994, prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers (filed as Exhibit 99.4 to the Registrant's Form 10-K for the year ended December 31, 1994 and incorporated herein by reference).
99.5 -- Reserve Report, dated March 18, 1996, on the estimated reserves, estimated future net revenues and discounted estimated future net revenues attributable to the Royalty Interests and MOPI's interest in the Underlying Properties as of December 31, 1995, prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers (filed as Exhibit 99.5 to the Registrant's Form 10-K for the year ended December 31, 1995 and incorporated herein by reference).
EXHIBIT NUMBER EXHIBIT ------ -------
99.6 -- Report, dated March 19, 1996, on the estimated Section 29 tax credits attributable to the Royalty Interests as of December 31, 1995, prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers (filed as Exhibit 99.6 to the Registrant's Form 10-K for the year ended December 31, 1995 and incorporated herein by reference).
99.7 -- Reserve Report, dated March 20, 1997, on the estimated reserves, estimated future net revenues and discounted estimated future net revenues attributable to the Royalty Interests and MOPI's interest in the Underlying Properties as of December 31, 1996, prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers.
99.8 -- Report, dated March 21, 1997, on the estimated Section 29 tax credits attributable to the Royalty Interests as of December 31, 1996, prepared by Netherland, Sewell & Associates, Inc., independent petroleum engineers.
(b) Reports on Form 8-K. No report on Form 8-K was filed by the Registrant during the last quarter of the period covered by this report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BURLINGTON RESOURCES COAL SEAM GAS ROYALTY TRUST
By: NATIONSBANK OF TEXAS, N.A., Trustee
By: /s/ Ron E. Hooper ---------------------------------------- Ron E. Hooper Vice President and Administrator
Date: March 31, 1997
(The Registrant has no directors or executive officers.)