SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
 
FORM 10-Q
   
xþ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2005
OR
For the quarterly period ended March 31, 2006
OR
   
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period fromto
For the transition period fromto
Commission file number1-10243
BP PRUDHOE BAY ROYALTY TRUST
(Exact Name of Registrant as Specified in Its Charter)
   
Delaware 13-6943724
   
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer
Identification No.)
   
The Bank of New York, 101 Barclay Street, New York, NY 10286
   
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (212) 815-2492815-6908
     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ Noo
     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, (as definedor a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. Yes(Check one):
Large Accelerated filerþ NoAccelerated filero Non-accelerated filero
     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yeso Noþ
     As of November 9, 2005,May 10, 2006, 21,400,000 Units of Beneficial Interest were outstanding.

 

TABLE OF CONTENTS

PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Assets, Liabilities and Trust Corpus
Statements of Cash Earnings and Distributions
Statements of Changes in Trust Corpus
Notes to Financial Statements (Unaudited)
Item 2. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations.Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk.Risk
Item 4. Controls and Procedures.Procedures
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.1.Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Proceeds
Item 3. Defaults Upon Senior Securities.Securities
Item 4. Submission of Matters to a Vote of Security Holders.Holders
Item 5. Other Information.Information
Item 6. Exhibits.Exhibits
SIGNATURE
INDEX TO EXHIBITS
EX-31:EX-31 302 CERTIFICATION
EX-32:EX-32 906 CERTIFICATION

PART I
FINANCIAL INFORMATION
Item 1. Financial Statements

 

BP Prudhoe Bay Royalty Trust
Statement of Assets, Liabilities and Trust Corpus

(Prepared on a modified basis of cash receipts and disbursements)
(Unaudited)
(In thousands, except unit data)
                
 September 30, December 31,  March 31, December 31, 
 2005 2004  2006 2005 
Assets
  
Royalty Interest, net (Notes 1, 2, and 3) $10,545 $12,051 
 
Royalty Interest, net (Notes 1, 2 and 3) $9,541 $10,043 
 
Cash and cash equivalents (Note 2) 1,005 1,001  1,005 1,011 
     
      
Total Assets $11,550 $13,052  $10,546 $11,054 
          
 
Liabilities and Trust Corpus
  
 
Accrued expenses $210 $171  $316 $178 
 
Trust Corpus (40,000,000 units of beneficial
interest authorized, 21,400,000 units issued
and outstanding)		 11,340 12,881  10,230 10,876 
     
      
Total Liabilities and Trust Corpus $11,550 $13,052  $10,546 $11,054 
          
See accompanying notes to financial statements (unaudited).

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BP Prudhoe Bay Royalty Trust
Statements of Cash Earnings and Distributions

(Prepared on a modified basis of cash receipts and disbursements)
(Unaudited)
(In thousands, except unit data)
                        
 Three Months Ended Nine Months Ended  Three Months Ended 
 September 30, September 30,  March 31, 
 2005 2004 2005 2004  2006 2005 
Royalty revenues $37,357 $21,566 $103,967 $54,567  $45,383 $33,197 
Interest income 11 2 25 7  14 5 
 
Less: Trust administrative expenses  (388)  (212)  (906)  (752)  (157)  (151)
     
          
Cash earnings $36,980 $21,356 $103,086 $53,822  $45,240 $33,051 
              
 
Cash distributions $36,971 $21,352 $103,082 $53,804  $45,246 $33,051 
     
          
Cash distributions per unit $1.7276 $0.9978 $4.8169 $2.5142  $2.1143 $1.5444 
              
 
Units outstanding 21,400,000 21,400,000 21,400,000 21,400,000  21,400,000 21,400,000 
              
See accompanying notes to financial statements (unaudited).

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BP Prudhoe Bay Royalty Trust
Statements of Changes in Trust Corpus

(Prepared on a modified basis of cash receipts and disbursements)
(Unaudited)
(In thousands)
                        
 Three Months Ended Nine Months Ended  Three Months Ended 
 September 30, September 30,  March 31, 
 2005 2004 2005 2004  2006 2005 
Trust Corpus at beginning of period $11,635 $13,822 $12,881 $14,730  $10,876 $12,881 
Cash earnings 36,980 21,356 103,086 53,822  45,240 33,051 
Decrease (increase) in accrued expenses 198  (10)  (39) 72 
(Increase) in accrued expenses  (138)  (208)
Cash distributions  (36,971)  (21,352)  (103,082)  (53,804)  (45,246)  (33,051)
Amortization of Royalty Interest  (502)  (503)  (1,506)  (1,507)  (502)  (502)
              
 
Trust Corpus at end of period $11,340 $13,313 $11,340 $13,313  $10,230 $12,171 
              
See accompanying notes to financial statements (unaudited).

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BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
September 30, 2005
(1)Formation of the Trust and Organization
BP Prudhoe Bay Royalty Trust (the “Trust”), a grantor trust, was created as a Delaware business trust pursuant to a Trust Agreement dated February 28, 1989 among The Standard Oil Company (“Standard Oil”), BP Exploration (Alaska) Inc. (the “Company”), The Bank of New York (the “Trustee”) and The Bank of New York (Delaware), as co-trustee (the “Trust Agreement”). Standard Oil and the Company are indirect wholly-owned subsidiaries of BP p.l.c. (“BP”).
On February 28, 1989, Standard Oil conveyed an overriding royalty interest (the “Royalty Interest”) to the Trust. The Trust was formed for the sole purpose of owning and administering the Royalty Interest. The Royalty Interest represents the right to receive, effective February 28, 1989, a per barrel royalty (the “Per Barrel Royalty”) of 16.4246% on the lesser of (a) the first 90,000 barrels of the average actual daily net production of oil and condensate per quarter or (b) the average actual daily net production of oil and condensate per quarter from the Company’s working interest as of February 28, 1989 in the oil and gas unit situated on the North Slope of Alaska (the “Prudhoe Bay Unit”). Trust Unit holders will remain subject at all times to the risk that production will be interrupted or discontinued or fall, on average, below 90,000 barrels per day in any quarter. BP has guaranteed the performance of the Company of its payment obligations with respect to the Royalty Interest.
The trustees of the Trust are The Bank of New York, a New York corporation authorized to do a banking business, and The Bank of New York (Delaware), a Delaware banking corporation. The Bank of New York (Delaware) serves as co-trustee in order to satisfy certain requirements of the Delaware Trust Act. The Bank of New York alone is able to exercise the rights and powers granted to the Trustee in the Trust Agreement.
The Per Barrel Royalty in effect for any day is equal to the price of West Texas Intermediate crude oil (the “WTI Price”) for that day less scheduled Chargeable Costs (adjusted in certain situations for inflation) and Production Taxes (based on statutory rates then in existence). For years subsequent to 2006, Chargeable Costs will be reduced up to a maximum amount of $1.20 per barrel in each year if additions to proved reserves allocated to the Prudhoe Bay Unit as of December 31, 1987 do not meet certain specific levels.
The Trust is passive, with the Trustee having only such powers as are necessary for the collection and distribution of revenues, the payment of Trust liabilities, and the protection of the Royalty Interest. The Trustee, subject to certain conditions, is obligated to establish cash reserves and borrow funds to pay liabilities of the Trust when they become due. The Trustee may sell Trust properties only (a) as authorized by a vote of the Trust Unit Holders, (b) when necessary to provide for the payment of specific liabilities of the Trust then due (subject to certain conditions) or (c) upon termination of the Trust. Each Trust Unit issued and outstanding represents an equal undivided share of beneficial interest in the Trust. Royalty payments are received by the Trust and distributed to Trust Unit Holders, net of Trust

5

BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
September 30, 2005March 31, 2006
(1)Formation of the Trust and Organization
BP Prudhoe Bay Royalty Trust (the “Trust”), a grantor trust, was created as a Delaware business trust pursuant to a Trust Agreement dated February 28, 1989 among The Standard Oil Company (“Standard Oil”), BP Exploration (Alaska) Inc. (“BP Alaska”), The Bank of New York (the “Trustee”) and The Bank of New York (Delaware), as co-trustee (the “Trust Agreement”). Standard Oil and BP Alaska are indirect wholly-owned subsidiaries of BP p.l.c. (“BP”).
On February 28, 1989, Standard Oil conveyed an overriding royalty interest (the “Royalty Interest”) to the Trust. The Trust was formed for the sole purpose of owning and administering the Royalty Interest. The Royalty Interest represents the right to receive, effective February 28, 1989, a per barrel royalty (the “Per Barrel Royalty”) of 16.4246% on the lesser of (a) the first 90,000 barrels of the average actual daily net production of oil and condensate per quarter or (b) the average actual daily net production of oil and condensate per quarter from BP Alaska’s working interest as of February 28, 1989 in the Prudhoe Bay Field situated on the North Slope of Alaska. Trust Unit holders will remain subject at all times to the risk that production will be interrupted or discontinued or fall, on average, below 90,000 barrels per day in any quarter. BP has guaranteed the performance of BP Alaska of its payment obligations with respect to the Royalty Interest.
The trustees of the Trust are The Bank of New York, a New York corporation authorized to do a banking business, and The Bank of New York (Delaware), a Delaware banking corporation. The Bank of New York (Delaware) serves as co-trustee in order to satisfy certain requirements of the Delaware Trust Act. The Bank of New York alone is able to exercise the rights and powers granted to the Trustee in the Trust Agreement.
The Per Barrel Royalty in effect for any day is equal to the price of West Texas Intermediate crude oil (the “WTI Price”) for that day less scheduled Chargeable Costs (adjusted in certain situations for inflation) and Production Taxes (based on statutory rates then in existence).
The Trust is passive, with the Trustee having only such powers as are necessary for the collection and distribution of revenues, the payment of Trust liabilities, and the protection of the Royalty Interest. The Trustee, subject to certain conditions, is obligated to establish cash reserves and borrow funds to pay liabilities of the Trust when they become due. The Trustee may sell Trust properties only (a) as authorized by a vote of the Trust Unit Holders, (b) when necessary to provide for the payment of specific liabilities of the Trust then due (subject to certain conditions) or (c) upon termination of the Trust. Each Trust Unit issued and outstanding represents an equal undivided share of beneficial interest in the Trust. Royalty payments are received by the Trust and distributed to Trust Unit Holders, net of Trust expenses, in the month succeeding the end of each calendar quarter. The Trust will terminate upon the first to occur of the following events:

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BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
March 31, 2006
 a. On or prior to December 31, 2010: upon a vote of Trust Unit Holders of not less than 70% of the outstanding Trust Units.
 
 b. After December 31, 2010: (i) upon a vote of Trust Unit Holders of not less than 60% of the outstanding Trust Units, or (ii) at such time the net revenues from the Royalty Interest for two successive years commencing after 2010 are less than $1,000,000 per year (unless the net revenues during such period are materially and adversely affected by certain events).
In order to ensure the Trust has the ability to pay future expenses, the Trust established a cash reserve account which the Trustee believes is sufficient to pay approximately one year’s current and expected liabilities and expenses of the Trust.
(2)Basis of Accounting
In order to ensure the Trust has the ability to pay future expenses, the Trust established a cash reserve account which the Trustee believes is sufficient to pay approximately one year’s current and expected liabilities and expenses of the Trust.(2)Basis of AccountingThe financial statements of the Trust are prepared on a modified cash basis and reflect the Trust’s assets, liabilities, Corpus, earnings, and distributions, as follows:
 a. Revenues are recorded when received (generally within 15 days of the end of the preceding quarter) and distributions to Trust Unit Holders are recorded when paid.
 
 b. Trust expenses (which include accounting, engineering, legal, and other professional fees, trustees’ fees, and out-of-pocket expenses) are recorded on an accrual basis.
 
 c. Cash reserves may be established by the Trustee for certain contingencies that would not be recorded under generally accepted accounting principles.
 
 d. Amortization of the Royalty Interest is calculated based on the units of production method. Such amortization is charged directly to the Trust Corpus, and does not affect cash earnings. The daily rate for amortization per net equivalent barrel of oil for the three months ended September 30,March 31, 2006 and 2005 and 2004 was $0.37 and $0.37 respectively; for the nine months ended September 30, 2005 and 2004 it was $0.37 and $0.37, respectively.during each period. The Trust evaluates impairment of the Royalty Interest by comparing the undiscounted cash flows expected to be realized from the Royalty Interest to the carrying value, pursuant to Statement of Financial Accounting Standards No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets.”If the expected future undiscounted cash flows are less than the carrying value, the Trust recognizes an impairment loss for the difference between the carrying value and the estimated fair value of the Royalty Interest.
While these statements differ from financial statements prepared in accordance with accounting principles generally accepted in the United States of America, the modified cash basis of reporting revenues and distributions is considered to be the most meaningful because quarterly distributions to the Trust Unit Holders are based on net cash receipts. The accompanying modified cash basis financial statements contain all adjustments necessary to

6

BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
September 30, 2005March 31, 2006
This comprehensive basispresent fairly the assets, liabilities and Corpus of accounting other than generally accepted accounting principles corresponds to the accounting permitted for royalty trusts by the SecuritiesTrust as of March 31, 2006 and Exchange Commission, as specified in the Codification of Staff Accounting Bulletins, Topic 12:E, Financial Statements Of Royalty Trusts.
Most accounting pronouncements apply to entities whose financial statements are prepared in accordance with generally accepted accounting principles, directing such entities to accrue or defer revenues2005, and expenses in a period other than when such revenues were received or expenses were paid. Because the Trust’s financial statements are prepared on the modified cash basis, as described above, most accounting pronouncementsearning and distributions and changes in Trust Corpus for the three-month periods ended March 31, 2006 and 2005. The adjustments are not applicableof a normal recurring nature and are, in the opinion of the Trustee, necessary to fairly present the Trust’s financial statements.results of operations.
As of September 30, 2005March 31, 2006 and December 31, 2004,2005, cash equivalents which represent the cash reserve consist of US treasury bills with an initial term of less than three months.
Estimates and assumptions are required to be made regarding assets, liabilities and changes in Trust Corpus resulting from operations when financial statements are prepared. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ, and the differences could be material.
The financial statements should be read in conjunction with the financial statements and related notes in the Trust’s 2004 Annual Report on Form 10-K.10-K for the fiscal year ended December 31, 2005. The cash earnings and distributions for the interim period presented are not necessarily indicative of the results to be expected for the full year.
(3)Royalty Interest
(3)Royalty Interest
The Royalty Interest is comprised of the following at September 30, 2005March 31, 2006 and December 31, 20042005 (in thousands):
                
 September 30, December 31,  March 31, December 31, 
 2005 2004  2006 2005 
Royalty Interest (at inception) $535,000 $535,000  $535,000 $535,000 
Less: Accumulated amortization  (350,937)  (349,431)  (351,941)  (351,439)
Impairment write-down  (173,518)  (173,518)  (173,518)  (173,518)
          
 
Balance, end of period $10,545 $12,051  $9,541 $10,043 
          
(4)Income Taxes
(4)Income Taxes
The Trust files its federal tax return as a grantor trust subject to the provisions of subpart E of Part I of Subchapter J of the Internal Revenue Code of 1986, as amended, rather than as an

7

BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
September 30, 2005
association taxable as a corporation. The Trust Unit Holders are treated as the owners of Trust income and Corpus, and the entire taxable income of the Trust will be reported by the Trust Unit Holders on their respective tax returns.
If the Trust were determined to be an association taxable as a corporation, it would be treated as an entity taxable as a corporation on the taxable income from the Royalty Interest, the

7

BP Prudhoe Bay Royalty Trust
Notes to Financial Statements (Unaudited)
(Prepared on a Modified Basis of Cash Receipts and Disbursements)
March 31, 2006
Trust Unit Holders would be treated as shareholders, and distributions to Trust Unit Holders would not be deductible in computing the Trust’s tax liability as an association.

8

Item 2. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary Statement
The Trustee, its officersThis report contains forward looking statements (that is, statements anticipating future events or its agents on behalf of the Trustee may, from time to time, make forward-looking statements (other thanconditions and not statements of historical fact). When used herein, theWords such as “anticipate,” “expect,” “believe,” “intend,” “plan” or “project,” and “should,” “would,” “could,” “potentially,” “possibly” or “may,” and other words “anticipates,” “expects,” “believes,” “intends”that convey uncertainty of future events or “projects” and similar expressionsoutcomes are intended to identify forward-looking statements. ToForward-looking statements in this report are subject to a number of risks and uncertainties beyond the extent that any forward-looking statements are made,control of the Trustee is unable to predictTrustee. These risks and uncertainties include such matters as future changes in oil prices, oil production levels, economic activity, domestic and international political events and developments, legislation and regulation, and certain changes in expenses of the Trust. In addition,
The actual results, performance and prospects of the Trust could differ materially from those expressed or implied by forward-looking statements. Descriptions of some of the risks that could affect the future performance of the Trust appear in Item 1A, “Risk Factors,” of the Trust’s future resultsAnnual Report on Form 10-K for the fiscal year ended December 31, 2005 (the “Annual Report”) and in Item 1A of operationsPart II this report. There may be additional risks of which the Trustee is unaware or which are currently deemed immaterial.
In the light of these risks, uncertainties and other forward looking statements containedassumptions, you should not rely unduly on any forward-looking statements. Forward-looking events and outcomes discussed in this itemthe Annual Report and elsewhere in this report involve a number of risks and uncertainties. As a result of variations in such factors, actual results may differ materially from any forward looking statements. Some of these factors are described below.not occur or may transpire differently. The Trustee disclaims anyundertakes no obligation to update forward lookingforward-looking statements after the date of this report, except as required by law, and all such forward-looking statements in this documentreport are expressly qualified in their entirety by the preceding cautionary statements in this paragraph.statements.
Liquidity and Capital Resources
The Trust is a passive entity, and the Trustee’s activities are limited to collecting and distributing the revenues from the Royalty Interest and paying liabilities and expenses of the Trust. Generally, the Trust has no source of liquidity and no capital resources other than the revenue attributable to the Royalty Interest that it receives from time to time. See the discussion under “THE ROYALTY INTEREST” in Part I, Item 1 of the Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (the “Annual Report”) for a description of the calculation of the Per Barrel Royalty, and the discussion under “THE PRUDHOE BAY UNIT AND FIELD — Reserve Estimates” and “INDEPENDENT OIL AND GAS CONSULTANTS’ REPORT” in Part I, Item 1 of the Annual Report for information concerning the estimated future net revenues of the Trust. However, the Trustee has a limited power to borrow, establish a cash reserve, or dispose of all or part of the Trust Estate, under limited circumstances pursuant to the terms of the Trust Agreement. See the discussion under “THE TRUST” in Part I, Item 1 of the Annual Report.
In 1999, due to declines in oil prices during the fourth quarter of 1998 and the first quarter of 1999, which resulted in the Trust not receiving cash distributions for two quarters, the Trustee established a $1,000,000 cash reserve to provide liquidity to the Trust during any future periods in which the Trust does not receive a distribution. The Trustee will draw funds from the cash

9

reserve account during any quarter in which the quarterly distribution received by the Trust does not exceed the liabilities and expenses of the Trust, and will replenish the reserve from future quarterly distributions, if any. The Trustee anticipates that it will keep this cash reserve program in place until termination of the Trust.
Amounts set aside for the cash reserve are invested by the Trustee in U.S. government or agency securities secured by the full faith and credit of the United States. Interest income received by the Trust from the investment of the reserve fund is added to the distributions received from the CompanyBP Alaska and paid to the holders of Units on each Quarterly Record Date.

9

As discussed under “CERTAIN TAX CONSIDERATIONS” in Part I, Item 1 of the Annual Report, amounts received by the Trust as quarterly distributions are income to the holders of the Units, (as are any earnings on investment of the cash reserve) and must be reported by the holders of the Units, even if such amounts are used to repay borrowings or replenish the cash reserve and are not received by the holders of the Units.
Results of Operations
Relatively modest changes in oil prices significantly affect the Trust’s revenues and results of operations. Crude oil prices are subject to significant changes in response to fluctuations in the domestic and world supply and demand and other market conditions as well as the world political situation as it affects OPEC and other producing countries. The effect of changing economic conditions on the demand and supply for energy throughout the world and future prices of oil cannot be accurately projected.
Royalty revenues are generally received on the fifteenth day of the month following the end of the calendar quarter in which the related Royalty Production occurred (the “Quarterly Record Date”). The Trustee, to the extent possible, pays all accrued expenses of the Trust on the Quarterly Record Date on which the revenues for the quarter are received. For the statement of cash earnings and distributions, revenues and Trust expenses are recorded on a modified cash basis and, as a result, royalties paid to the Trust and distributions to Unit holders in the quarters ended September 30, June 30 and March 31, 20052006 and 2004,2005, respectively, are attributable to the Company’sBP Alaska’s operations during the quarters ended December 31, 2004 and 2003 and March 31 and June 30, 2005 and 2004, respectively.
The following tables show the factors which were employed to compute the Per Barrel Royalty payments received by the Trust during the first three quartersquarter of 20052006 and 20042005 (see Note 1 of Notes to Financial Statements in Part I, Item 1). The information in the table has been furnished by the Company.BP Alaska.
Calendar 2005
                             
          Cost  Adjusted           
  Average  Chargeable  Adjustment  Chargeable  Production  Per Barrel     
  WTI Price  Costs  Factor  Costs  Taxes  Royalty     
2004:                            
4th Qtr
 $48.35  $12.00   1.471  $17.65  $6.29  $24.41     
2005:                            
1st Qtr
  49.69   12.25   1.477   18.09   6.49   25.12     
2nd Qtr
  53.09   12.25   1.497   18.34   6.98   27.77     
Calendar 2004
                                                
 Cost Adjusted      Cost Adjusted    
 Average Chargeable Adjustment Chargeable Production Per Barrel  Average Chargeable Adjustment Chargeable Production Per Barrel
 WTI Price Costs Factor Costs Taxes Royalty  WTI Price Costs Factor Costs Taxes Royalty
2003: 
2005: 
4th Qtr
 $31.23 $11.75 1.421 $16.69 $3.76 $10.78  $60.01 $12.25 1.521 $18.63 $8.01 $33.37 
 
2004: 
4th Qtr
 48.35 12.00 1.471 17.65 6.29 24.41 

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          Cost  Adjusted       
  Average  Chargeable  Adjustment  Chargeable  Production  Per Barrel 
  WTI Price  Costs  Factor  Costs  Taxes  Royalty 
2004:                        
1st Qtr
  35.18   12.00   1.434   17.20   4.34   13.64 
2nd Qtr
  38.31   12.00   1.456   17.47   4.79   16.05 
As long as the Company’sBP Alaska’s average daily net production from the Prudhoe Bay Unit exceeds 90,000 barrels, which the CompanyBP Alaska currently projects will continue until the year 2013,2012, the only factors affecting the Trust’s revenues and distributions to Unit holders are changes in WTI Prices, scheduled annual increases in Chargeable Costs, changes in the Consumer Price Index, changes in Production Taxes and changes in the expenses of the Trust.Trust, contributions to the cash reserve and interest earned on the cash reserve.
See the discussion under “THE ROYALTY INTEREST” in Part I, Item 1 of the Annual Report for a description of the calculation of the Per Barrel Royalty.
Quarter Ended September 30, 2005March 31, 2006 Compared to
Quarter Ended September 30, 2004March 31, 2005
As explained above, Trust royalty revenues received during the thirdfirst quarter of the fiscal year are based on Royalty Production during the secondfourth quarter of the preceding fiscal year. Royalty revenues received by the Trust in the quarter ended September 30, 2005March 31, 2006 increased 73.2%36.7% from the revenues received in the corresponding quarter of 2004,2005, due to a 38.6%24.1% period-to-period increase in the Average WTI Price from $38.31$48.35 per barrel during the quarter ended December 31, 2004 to $60.01 per Barrel during the quarter ended June 30, 2004 to $53.09 per Barrel during the quarter ended June 30,December 31, 2005. A 13.8%An 11.3% period-to-period increase in total deductible costs from $22.26$23.94 per Barrelbarrel to $25.32$26.64 per Barrel was due principally to a 45.7%27.3% increase in Production Taxes chargeable with respect to the quarter ended June 30,December 31, 2005, and partially offset the effect of the increase in the Average WTI Price.
Nine Months Ended September 30, 2005 Compared to
Nine Months Ended September 30, 2004
Trust royalty revenues increased 90.5% in the nine months ended September 30, 2005 over the corresponding period in 2004, reflecting the cumulative effect of increases in revenues received during all three quarters of 2005 over revenues received during the corresponding periods of 2004. The revenue increase resulted from continued increases in Average WTI Prices during recent periods, which averaged $50.38 per Barrel during the nine months ended June 30, 2005 compared to an average of $34.91 per Barrel during the nine months ended June 30, 2004. A 5.3% increase in average Adjustable Chargeable Costs per Barrel and a 53.3% increase in average Production Taxes per Barrel during the nine-month period ended June 30, 2005 over the corresponding average costs during the nine-month period ended June 30, 2004, partially offset the effect of the increases in the Average WTI Prices per Barrel on the Trust’s revenues.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Trust is a passive entity and except for the Trust’s ability to borrow money as necessary to pay liabilities of the Trust that cannot be paid out of cash on hand, the Trust is prohibited from engaging in borrowing transactions. The Trust periodically holds short-term investments

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acquired with funds held by the Trust pending distribution to Unit holders and funds held in reserve for the payment of Trust expenses and liabilities. Because of the short-term nature of these investments and limitations on the types of investments which may be held by the Trust, the Trust is not subject to any material interest rate risk. The Trust does not engage in transactions in foreign currencies which could expose the Trust or Unit holders to any foreign currency related market risk or invest in derivative financial instruments. It has no foreign operations and holds no long-term debt instruments.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Trustee has disclosure controls and other procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. These controls and procedures include but are not limited to controls and procedures designed to ensure that information required to be disclosed by the Trust in the reports that it files or submits under the Exchange Act is accumulated and communicated to the responsible trust officers of the Trustee to allow timely decisions regarding required disclosure.

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Under the terms of the Trust Agreement and the Conveyance, BP Alaska has significant disclosure and reporting obligations to the Trust. BP Alaska is required to provide the Trust such information concerning the Royalty Interest as the Trustee may need and to which BP Alaska has access to permit the Trust to comply with any reporting or disclosure obligations of the Trust pursuant to applicable law and the requirements of any stock exchange on which the Units are issued. These reporting obligations include furnishing the Trust a report by February 28 of each year containing all information of a nature, of a standard and in a form consistent with the requirements of the SEC respecting the inclusion of reserve and reserve valuation information in filings under the Exchange Act and with applicable accounting rules. The report is required to set forth, among other things, BP Alaska’s estimates of future net cash flows from proved reserves attributable to the Royalty Interest, the discounted present value of such proved reserves, the assumptions utilized in arriving at the estimates contained in the report, and the estimate of the quantities of proved reserves (including reductions of proved reserves as a result of modification of BP Alaska’s estimates of proved reserves from prior years) added during the preceding year to the total proved reserves allocated to the BP Working Interests as of December 31, 1987. (See “THE ROYALTY INTEREST — Chargeable Costs” in Part I, Item 1 of the Annual Report.)
In addition, the Conveyance gives the Trust and its independent accountants certain rights to inspect the books and records of BP Alaska and discuss the affairs, finances and accounts of BP Alaska relating to the BP Working Interests with representatives of BP Alaska; it also requires BP Alaska to provide the Trust with such other information as the Trustee may reasonably request from time to time and to which BP Alaska has access.
The Trustee’s disclosure controls and procedures include ensuring that the Trust receives the information and reports that BP Alaska is required to furnish to the Trust on a timely basis, that the appropriate responsible personnel of the Trustee examine such information and reports, and that information requested from and provided by BP Alaska is included in the reports that the Trust files or submits under the Exchange Act.
As of the end of the period covered by this report, the trust officers of the Trustee responsible for the administration of the Trust conducted an evaluation of the Trust’s disclosure controls and procedures. TheseTheir evaluation considered, among other things, that the Trust Agreement and the Conveyance impose enforceable legal obligations on BP Alaska, and that BP Alaska has provided the information required by those agreements and other information requested by the Trustee from time to time on a timely basis. The officers concluded that the Trust’s disclosure controls and procedures are effective, but are subject to certain inherent limitations resulting from the limited powers granted to, and the limited duties assumed by, the Trustee in the Trust Agreement and the Overriding Royalty Conveyance dated February 27, 1989 from the Company to Standard Oil and the Trust Conveyance dated February 28, 1989 from Standard Oil to the Trust (collectively, the “Conveyance”), the instruments which govern the operation of the Trust. The governing instruments give the Trustee no responsibility for the operation of the Prudhoe Bay Unit or authority over the Company, Standard Oil or BP. Under the terms of the Conveyance, however, the Company has various disclosure and reporting obligations, including those summarized below.
The Conveyance requires the Company to provide the Trust with the following information and reports:
1.Such information concerning the Royalty Interest as the Trustee may need and to which the Company has access to permit the Trust to comply with any reporting or disclosure obligations of the Trust pursuant to applicable law and the requirements of any stock exchange on which the Units are issued.
2.A report by February 28 of each year containing all information of a nature, of a standard and in a form consistent with the requirements of the SEC respecting the inclusion of reserve and reserve valuation information in filings under the Exchange Act and with applicable accounting rules. The report is required to set forth, among other things, the Company’s estimates of future net cash flows from proved reserves attributable to the Royalty Interest, the discounted present value of such proved reserves, the assumptions

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utilized in arriving at the estimates contained in the report, and the estimate of the quantities of proved reserves (including reductions of proved reserves as a result of modification of the Company’s estimates of proved reserves from prior years) added to the total proved reserves allocated to the Subject Leases as of December 31, 1987 during the preceding year. (See “THE ROYALTY INTEREST — Chargeable Costs” in Part I, Item 1 of the Annual Report.)
3.At least 12 days prior to each Quarterly Record Date, information as to the amount to be paid to the Trust on the next Quarterly Record Date.
4.A royalty statement within five working days after the end of each calendar quarter consisting of a computation, supported by data required to perform the computation, of the amount to be paid to the Trust at the next Quarterly Record Date.
In addition, the Conveyance gives the Trust and its independent accountants certain rights to inspect the books and records of the Company and discuss the affairs, finances and accounts of the Company relating to the leases subject to the Conveyance with representatives of the Company; it also requires the Company to provide the Trust with such other information as the Trustee may reasonably request from time to time and to which the Company has access.
The Trustee’s disclosure controls and procedures include ensuring that it receives on a timely basis the information and reports provided by the Company, that the appropriate responsible personnel of the Trustee examine such information and reports and that information requested from and provided by the Company is included in the reports that the Trust files or submits under the Exchange Act. However, the Trustee does not have the means to evaluate the accuracy or completeness of the information and reports supplied by the Company, nor does it have the power to ensure that information concerning the Prudhoe Bay Unit and the leases subject to the Conveyance which is not specifically required by the Conveyance, but that might be considered material by the holders of the Units, is supplied to the Trustee by the Company.effective.
Internal Control Over Financial Reporting
There has not been any change in the Trust’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during the Trust’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Trust’s internal control over financial reporting.

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PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors
The following risk factors amend and supplement a risk factor described in the Trust’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005 which appeared under the heading“Construction of a proposed gas pipeline from the North Slope of Alaska to the Midwestern United States could accelerate the decline in net royalty production from the Prudhoe Bay field, result in higher production tax deductions from royalty payments to the Trust, or both.”
•Construction of a proposed gas pipeline from the North Slope of Alaska to the Midwestern United States could accelerate the decline in net royalty production from the Prudhoe Bay field.
     On February 21, 2006 Alaska Governor Frank Murkowski announced that the State and BP Alaska, ConocoPhilips and Exxon Mobil had reached agreement in principle on a natural gas pipeline contract. The proposed $20 billion natural gas pipeline, originally estimated to be completed in six to eight years, would run from Alaska’s North Slope through Canada and into the Midwestern United States. The gas pipeline contract has not been made public and is not final. The Governor has announced that the contract will be made public and submitted to the Alaska Legislature for consideration at a special session called for May 10, 2006.
     At present, extraction of natural gas from the Prudhoe Bay Unit is not economical. Natural gas released by pumping oil is reinjected into the ground, which helps to maintain reservoir pressure and facilitates extraction of oil from the fields. If the proposed natural gas pipeline is constructed (which may depend on the final terms of the petroleum production tax bill discussed below), it will make it economical to extract natural gas from the Prudhoe Bay Unit and transport it to the lower 48 states for sale. Extraction of natural gas from the Prudhoe Bay field will lower reservoir pressure. The lowering of the reservoir pressure may accelerate the decline in production from the BP Working Interests and the time at which royalty payments to the Trust will cease. Since the Trust is not entitled to any royalty payments with respect to natural gas production from the BP Working Interests, the Unit holders will not realize any offsetting benefit from the natural gas production.
•Bills pending in the Alaska Legislature to repeal Alaska’s current oil production tax and provide for a new basis of taxation on the production of oil may result in higher production tax deductions from royalty payments to the Trust.
     Concurrently with his announcement of the proposed natural gas pipeline contract, the Governor of Alaska also announced that he had proposed legislation to reform Alaska’s oil production tax. The new petroleum production tax would replace the current production tax on oil, which is based on a percentage of the gross value of production. Under the Governor’s

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petroleum production tax proposal, producers would have paid a 20 percent tax rate on the production tax value of taxable oil (gross value at the point of production of oil produced for a month, less the producer’s lease expenditures for the month) and would have received a 20 percent tradable capital investment tax credit and a $73 million standard deduction.
     The Governor’s production tax bill was introduced in the Alaska Legislature as SB 305 in the Senate and as HB 488 in the House. On April 24, 2006 the Alaska Senate passed a Committee Substitute for SB 305 and sent it to the House. CSSB 305 as passed by the Senate would impose a 22.5 percent tax on the production tax value of taxable oil, but would allow a 25 percent tax credit for qualified capital expenditures and no standard deduction. An additional progressive tax on production would apply at any time that the prevailing price of Alaska North Slope oil on the West Coast of the United States exceeds $50 per barrel.
     On May 8, 2006, the House passed a House Finance Committee substitute for CSSB 305. The Finance Committee bill (HCS CSSB 305) provides for a 21.5 percent tax rate on the production tax value of taxable oil. It retains the 20 percent tax credit for qualified capital expenditures contained in HB 488, but also includes a progressive tax surcharge that is effective when the production tax value of oil produced exceeds $35 per barrel. Both the Senate bill and the House bill would be retroactive to April 1, 2006.
     The Alaska Senate twice rejected the House changes to the Senate tax bill before adjourning the 2006 legislative session on May 9, 2006.
     At the date of this report, the Trustee is unable to determine the effect prospective changes in Alaska’s petroleum production tax law will have on the Production Taxes chargeable against Royalty Production under the Conveyance. The Per Barrel Royalty payable to the Trust will be reduced if, as appears likely, a new petroleum production tax is enacted which results in a rate of tax chargeable against the Royalty Interest that is higher than the current 15 percent tax imposed on wellhead value. The Trustee expects to enter into discussions with BP Alaska concerning the applicable method of computing and deducting Production Taxes chargeable against Royalty Production under the Conveyance when the final provisions of the new petroleum production tax are known.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
(a)In October 2005 the Trust received a cash distribution of $49,010,804 from the Company with respect to the quarter ended September 30, 2005. On October 19, 2005, after adding interest income received from investment of the cash reserve and deducting Trust administrative expenses, the Trustee distributed $48,825,878 (approximately $2.28 per Unit) to Unit holders of record on October 14, 2005 (Form 8-K, Item 8.01).
(b)     (a) In April 2006 the Trust received a cash distribution of $47,539,503 from BP Alaska with respect to the quarter ended March 31, 2006. On April 20, 2006, after adding

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interest income received from investment of the cash reserve and deducting Trust administrative expenses, the Trustee distributed $47,257,786 (approximately $2.21 per Unit) to Unit holders of record on April 17, 2006 (Form 8-K, Item 8.01).
     (b) Not applicable.
Item 6. Exhibits.
4.1 BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among The Standard Oil Company, BP Exploration (Alaska) Inc., The Bank of New York, Trustee, and F. James Hutchinson, Co-Trustee.
 
4.2 Overriding Royalty Conveyance dated February 27, 1989 between BP Exploration (Alaska) Inc. and The Standard Oil Company.
 
4.3 Trust Conveyance dated February 28, 1989 between The Standard Oil Company and BP Prudhoe Bay Royalty Trust.
 
4.4 Support Agreement dated as of February 28, 1989 among The British Petroleum Company p.l.c., BP Exploration (Alaska) Inc., The Standard Oil Company and BP Prudhoe Bay Royalty Trust.
 
31 Rule 13a-14(a)/15d-14(a) Certification.
 
32 Section 1350 Certification.

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SIGNATURE
Pursuant to the requirements 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.
     
 BP PRUDHOE BAY ROYALTY TRUST
By:  THE BANK OF NEW YORK,
as Trustee  
    
   
 By: /s/ Ming J. RyanBy:THE BANK OF NEW YORK,  
  Ming J. Ryanas Trustee  
  Vice President  
 By:/s/ Ming J. Ryan
Ming J. Ryan
Vice President
Date: November 9, 2005May 10, 2006
The registrant is a trust and has no officers or persons performing similar functions. No additional signatures are available and none have been provided.

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INDEX TO EXHIBITS
   
Exhibit Exhibit
No. Description
*4.1 BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among The Standard Oil Company, BP Exploration (Alaska) Inc., The Bank of New York, Trustee, and F. James Hutchinson, Co-Trustee.
*4.2 Overriding Royalty Conveyance dated February 27, 1989 between BP Exploration (Alaska) Inc. and The Standard Oil Company.
*4.3 Trust Conveyance dated February 28, 1989 between The Standard Oil Company and BP Prudhoe Bay Royalty Trust.
*4.4 Support Agreement dated as of February 28, 1989 among The British Petroleum Company p.l.c., BP Exploration (Alaska) Inc., The Standard Oil Company and BP Prudhoe Bay Royalty Trust.
31. Rule 13a-14(a)/15d-14(a) Certification.
32 Section 1350 Certification.
 
* Incorporated by reference to the correspondingly numbered exhibit to the registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996 (Commission File No. 1-10243).