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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 Form 10-Q þ
    
    Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the quarterly period ended June 30, 2004
 or o
    
    Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 For the transition period from            to
 Commission File Number: 1-11608 WILLIAMS COAL SEAM GAS ROYALTY TRUST  Delaware
(State or other jurisdiction
of incorporation or
organization)
    
    75-6437433
(I.R.S. Employer
Identification No.)
 Trust Division
Bank of America, N.A.
901 Main Street
17th Floor
Dallas, Texas 75202
(Address of principal executive offices)
(Zip code) (214) 209-2400
(Registrants telephone number, including area code) 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. Yes þ No o Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act. Yes þ No o Number of units of beneficial interest outstanding at August 2, 2004: 9,700,000.    Page 1




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1  Financial StatementsItem 2. Trustees Discussion and Analysis of Financial Condition and Results of Operations.Item 3. Quantitative and Qualitative Disclosures About Market Risk.Item 4. Controls and Procedures.PART II  OTHER INFORMATIONItems 1 through 5.Item 6. Exhibits and Reports on Form 8-K.SIGNATURESINDEX TO EXHIBITSLetter Re: Unaudited Interim Financial InformationCertification by Ron E. Hooper Pursuant to Section 302Certification by Bank of America Pursuant to Section 906    Table of Contents  
 PART I  FINANCIAL INFORMATION  
 Item 1  Financial Statements The financial statements included herein have been prepared by Bank of
America, N.A., as Trustee (the Trustee) of Williams Coal Seam Gas Royalty
Trust (the Trust), pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in annual financial statements have been condensed or omitted pursuant
to such rules and regulations, although the Trustee believes that the
disclosures are adequate to make the information presented not misleading. It
is suggested that these condensed financial statements be read in conjunction
with the financial statements and notes thereto included in the Trusts Annual
Report on Form 10-K for the year ended December 31, 2003 (the 2003 Annual
Report). The December 31, 2003 balance sheet is derived from the audited
balance sheet of that date. In the opinion of the Trustee, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly
the assets, liabilities and trust corpus of the Trust as of June 30, 2004, the
distributable income for the three-month and six-month periods ended June 30,
2004 and 2003, and the changes in trust corpus for the six-month periods ended
June 30, 2004 and 2003, have been included. The distributable income for such
interim periods is not necessarily indicative of the distributable income for
the full year. The financial statements as of June 30, 2004, and for the three-month and
six-month periods ended June 30, 2004 and 2003 included herein have been
reviewed by Ernst & Young LLP, independent public accountants, as stated in
their report appearing herein. Page 2




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Report of Independent Registered Public Accounting Firm The Trustee
Williams Coal Seam Gas Royalty Trust We have reviewed the condensed statement of assets, liabilities and trust
corpus of the Williams Coal Seam Gas Royalty Trust as of June 30, 2004, and the
related condensed statements of distributable income for the three-month and
six-month periods ended June 30, 2004 and 2003, and the condensed statements of
changes in trust corpus for the six-month periods ended June 30, 2004 and 2003.
These financial statements are the responsibility of the Trustees management. We conducted our reviews in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion. As described in Note 2 to the financial statements, these financial statements
have been prepared on a modified cash basis of accounting, which is a
comprehensive basis of accounting other than U.S. generally accepted accounting
principles. Based on our reviews, we are not aware of any material modifications that
should be made to the condensed interim financial statements referred to above
for them to be in conformity with the basis of accounting described in Note 2. We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the statement of assets,
liabilities and trust corpus of the Williams Coal Seam Gas Royalty Trust as of
December 31, 2003, and the related statements of distributable income and
changes in trust corpus for the year then ended not presented herein, and in
our report dated March 10, 2004, we expressed an unqualified opinion on those
financial statements. In our opinion, the information set forth in the
accompanying condensed statement of assets, liabilities and trust corpus as of
December 31, 2003, is fairly stated, in all material respects, in relation to
the statement of assets, liabilities and trust corpus from which it has been
derived. Ernst & Young LLP Tulsa, Oklahoma
August 4, 2004 Page 3




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WILLIAMS COAL SEAM GAS ROYALTY TRUST CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS (UNAUDITED) June 30,
    
    December 31,2004
    
    2003ASSETSCurrent Assets  cash and cash equivalents
    
    $
    64,224
    
    
    $
    110,588Royalty interests in oil and gas properties
(less accumulated amortization of $125,116,086
at June 30, 2004 and $123,945,801 at
December 31, 2003) (Note 2)
    
    
    13,450,577
    
    
    
    14,620,862TOTAL ASSETS
    
    $
    13,514,801
    
    
    $
    14,731,450LIABILITIES AND TRUST CORPUSCurrent Liabilities:Payable to The Williams Companies, Inc.
(Note 4)
    
    $
    
    
    
    $
    67,914Other accounts payable
    
    
    33,363
    
    
    
    24,70333,363
    
    
    
    92,617Trust corpus - 9,700,000 units of beneficial
interest authorized and outstanding (Note 2)
    
    
    13,481,438
    
    
    
    14,638,833TOTAL LIABILITIES AND TRUST CORPUS
    
    $
    13,514,801
    
    
    $
    14,731,450
 The accompanying notes are an integral part of these financial statements. See
accountants review report. Page 4




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WILLIAMS COAL SEAM GAS ROYALTY TRUST CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED) THREE MONTHS
    
    THREE MONTHSENDED
    
    ENDEDJune 30, 2004
    
    June 30, 2003Royalty income (Note 2)
    
    $
    4,193,115
    
    
    $
    3,887,756Interest income
    
    
    2,002
    
    
    
    3,102Total
    
    
    4,195,117
    
    
    
    3,890,858General and administrative expenses (Note 4)
    
    
    (197,023
    )
    
    
    (185,912
    )Distributable income
    
    $
    3,998,094
    
    
    $
    3,704,946Distributable income per unit (9,700,000
units) (Note 2)
    
    $
    .41
    
    
    $
    .38
 The accompanying notes are an integral part of these financial statements. See
accountants review report. Page 5




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WILLIAMS COAL SEAM GAS ROYALTY TRUST CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME (UNAUDITED) SIX MONTHS
    
    SIX MONTHSENDED
    
    ENDEDJune 30, 2004
    
    June 30, 2003Royalty income (Note 2)
    
    $
    7,523,687
    
    
    $
    6,127,626Interest income
    
    
    3,444
    
    
    
    4,526Total
    
    
    7,527,131
    
    
    
    6,132,152General and administrative expenses (Note 4)
    
    
    (472,119
    )
    
    
    (450,019
    )Distributable income
    
    $
    7,055,012
    
    
    $
    5,682,133Distributable income per unit (9,700,000
units) (Note 2)
    
    $
    .73
    
    
    $
    .59
 The accompanying notes are an integral part of these financial statements. See
accountants review report. Page 6




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WILLIAMS COAL SEAM GAS ROYALTY TRUST CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS (UNAUDITED) SIX MONTHS
    
    SIX MONTHSENDED
    
    ENDEDJune 30, 2004
    
    June 30, 2003Trust corpus, beginning of period
    
    $
    14,638,833
    
    
    $
    18,165,048Amortization of royalty interest (Note 2)
    
    
    (1,170,285
    )
    
    
    (1,722,900
    )Distributable income
    
    
    7,055,012
    
    
    
    5,682,133Distributions to Unitholders (Note 5)
    
    
    (7,042,122
    )
    
    
    (5,722,137
    )Trust corpus, end of period
    
    $
    13,481,438
    
    
    $
    16,402,144Distributions per unit (9,700,000 units) (Note 5)
    
    $
    .73
    
    
    $
    .59
 The accompanying notes are an integral part of these financial statements. See
accountants review report. Page 7




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WILLIAMS COAL SEAM GAS ROYALTY TRUST NOTES TO FINANCIAL STATEMENTS (UNAUDITED)  1.
    
    TRUST ORGANIZATION AND PROVISIONS Williams Coal Seam Gas Royalty Trust (the Trust) was formed as a
Delaware business trust pursuant to the terms of the Trust Agreement of
Williams Coal Seam Gas Royalty Trust (as amended, the Trust Agreement)
entered into effective as of December 1, 1992, by and among Williams Production
Company, a Delaware corporation (WPC), as trustor, The Williams Companies,
Inc., a Delaware corporation (Williams), and Bank of America, N.A., as
successor to NationsBank, N.A., a national banking association (the Trustee),
and Chemical Bank Delaware, a Delaware banking corporation (the Delaware
Trustee), as trustees. The trustees are independent financial institutions. The Trust was formed to acquire and hold certain net profits interests
(the Royalty Interests) in proved natural gas properties located in the San
Juan Basin of New Mexico and Colorado (the Underlying Properties) owned at
the time of the Trusts formation by WPC. The Trust was initially created
effective as of December 1, 1992, with a $100 contribution by WPC. On January
21, 1993, the Royalty Interests were conveyed to the Trust by WPC pursuant to
the Net Profits Conveyance (the Conveyance) dated effective as of October 1,
1992, by and among WPC, Williams, the Trustee and the Delaware Trustee, in
consideration for all the 9,700,000 authorized units of beneficial interest in
the Trust (Units). WPC transferred its Units by dividend to its parent,
Williams, which sold an aggregate of 5,980,000 Units to the public through
various underwriters in January and February 1993 (the Public Offering).
Subsequently, Williams sold to the public an additional 151,209 Units. During
the second quarter of 1995 Williams transferred its remaining Units to Williams
Holdings of Delaware, Inc. (WHD), a separate holding company for Williams
non-regulated businesses. Effective July 31, 1999, WHD was merged into
Williams and by operation of the merger Williams assumed all assets,
liabilities and obligations of WHD, including without limitation ownership of
WHDs Units. Effective August 11, 2000, Williams sold its Units to Quatro
Finale IV LLC, a Delaware limited liability company (QFIV), in a privately
negotiated transaction. Williams retained the voting rights and retained a
call option on the transferred Units, and QFIV was granted a put option on
the Units. During the period from December 2001 through December 2002, Williams
exercised its option to purchase 960,000 of the QFIV transferred Units and
simultaneously sold the Units to the public. On June 6, 2003, the Trust
received notice of Williams intent to exercise its put option to repurchase
2,608,791 Units in the Trust from QFIV. According to the notice, Williams
exercised its put option on June 13, 2003, and Williams has informed the
Trustee that it sold an additional 551,400 Units to the public through June 30,
2004. Effective May 1, 1997, WPC transferred the Underlying Properties, subject
to and burdened by the Royalty Interests, to Quatro Finale LLC, a
non-affiliated Delaware limited liability company (Quatro Finale). Ownership
of the Underlying Properties reverted back to WPC effective February 1, 2001,
under the terms of the May 1, 1997 transaction. Pursuant to a Purchase and Sale
Agreement dated March 14, 2001 (the 2001 Transaction Agreement), and Page 8




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effective March 1, 2001, WPC sold the Underlying Properties subject to and
burdened by the Royalty Interests to Quatro Finale V LLC, an unaffiliated
Delaware limited liability company. On June 3, 2003, the Trust received notice
from WPC of its exercise of the right to repurchase interests in the Underlying
Properties from Quatro Finale V LLC pursuant to the 2001 Transaction Agreement.
According to the notice, the acquisition of the Underlying Properties closed
May 8, 2003, upon WPCs execution of the Assignment and Bill of Sale, and the
transaction had an effective date of January 1, 2003. Unless otherwise dictated
by context, references herein to WPC with respect to the ownership of the
Underlying Properties for any period from May 1, 1997 through February 28,
2001, and for the period from March 1, 2001 through January 1, 2003, shall be
deemed to refer to Quatro Finale. The Trustee has the power to collect and distribute the proceeds received
by the Trust and to pay Trust liabilities and expenses. The Delaware Trustee
has only such powers as are set forth in the Trust Agreement and is not
empowered to otherwise manage or take part in the business of the Trust. The
Royalty Interests are passive in nature and neither the Delaware Trustee nor
the Trustee has any control over or any responsibility relating to the
operation of the Underlying Properties. The Trust will terminate no later than December 31, 2012, subject to
earlier termination under certain circumstances described in the Trust
Agreement (the Termination Date). Cancellation of the Trust will occur on or
following the Termination Date when all Trust assets have been sold and the net
proceeds therefrom distributed to holders of Units in the Trust
(Unitholders). The only assets of the Trust, other than cash and cash equivalents being
held for the payment of expenses and liabilities and for distribution to
Unitholders, are the Royalty Interests. The Royalty Interests consist primarily
of a net profits interest (the NPI) in the Underlying Properties. The NPI
generally entitles the Trust to receive 60 percent of the NPI Net Proceeds, as
defined below, attributable to (i) gas produced and sold from WPCs net revenue
interests (working interests less lease burdens) in the properties in which WPC
has a working interest (the WI Properties) and (ii) the revenue stream
received by WPC attributable to its 35 percent NPI in 5,348 gross acres in La
Plata County, Colorado (the Farmout Properties). The Royalty Interests also
include a 20 percent interest in WPCs Infill Net Proceeds, as defined below,
from the sale of production if well spacing rules are effectively modified and
additional wells are drilled on producing drilling blocks on the WI Properties
(the Infill Wells) during the term of the Trust. To date, one hundred
thirty-seven Infill Wells have been drilled and are producing. The current
status of the Infill Wells reflects the Infill Net Profit Costs exceeding the
Infill Net Profit Gross Proceeds. The Trust will not be liable for such excess
costs, and such excess costs will hereafter constitute Excess Infill Net Profit
Costs until recovered by WPC. The Trust will not receive its 20 percent
interest in WPCs Infill Net Proceeds until such time as the Infill Gross
Proceeds exceeds the Infill Net Profit Costs. NPI Net Proceeds consists
generally of the revenue stream received by WPC from its 35 percent net profits
interest in the Farmout Properties, plus the aggregate proceeds attributable to
WPCs net revenue interest, based on the price paid at or in the vicinity of
the wellhead (the Wellhead), of gas produced from the WI Properties, less
WPCs share of certain taxes and costs. Infill Net Proceeds consists
generally of the aggregate proceeds, based on the price at the Wellhead, of gas
produced from WPCs net revenue interest in any Infill Wells less certain taxes
and costs. The complete definitions of Infill Page 9




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Net Profit Costs, Infill Net Profit Gross Proceeds, Excess Infill Net
Profit Costs, Infill Gross Proceeds, NPI Net Proceeds and Infill Net Proceeds
are set forth in the Conveyance.  2.
    
    BASIS OF ACCOUNTING The financial statements of the Trust are prepared on a modified cash
basis and are not intended to present financial position and results of
operations in conformity with accounting principles generally accepted in the
United States (GAAP). Preparation of the Trusts financial statements on
such basis includes the following:  
    
    Revenues are recognized in the period in which amounts are received
by the Trust. General and administrative expenses are recognized on an
accrual basis.
    
    Amortization of the Royalty Interests is calculated on a
unit-of-production basis and charged directly to trust corpus.
    
    Distributions to Unitholders are recorded when declared by the
Trustee (See Note 5).
    
    Loss contingencies are recognized in the period in which amounts
are paid by the Trust. The financial statements of the Trust differ from financial statements
prepared in accordance with GAAP because royalty income is not accrued in the
period of production, amortization of the Royalty Interests is not charged
against operating results, and loss contingencies are not charged to operating
results until paid.  3.
    
    FEDERAL INCOME TAXES The Trust is a grantor trust for Federal income tax purposes. As a
grantor trust, the Trust is not required to pay Federal income taxes.
Accordingly, no provision for income taxes has been made in these financial
statements. Because the Trust will be treated as a grantor trust, and because a
Unitholder is treated as directly owning an interest in the Royalty Interests,
each Unitholder is taxed directly on his per Unit pro rata share of income
attributable to the Royalty Interests consistent with the Unitholders taxable
year and method of accounting and without regard to the taxable year or
accounting method employed by the Trust. Coal seam gas produced and sold after December 31, 2002, no longer
generates a Section 29 credit under the Internal Revenue Code (the Code).
Therefore, Unitholders are not entitled to claim Section 29 credits for coal
seam gas produced and sold after 2002. However, a Unitholder may benefit from
unused Section 29 credits for alternative minimum tax purposes. Before its
expiration, the Section 29 credit could be used only to the extent that a
Unitholders regular tax liability exceeded the Unitholders tentative minimum
tax liability after the regular tax liability had been reduced by the foreign
tax credit and certain nonrefundable personal credits. Any part of the Section
29 credit not allowed for the tax year solely because of this alternative
minimum tax limitation was subject to certain carryover provisions relating to
the alternative minimum tax calculation. Except for the foregoing, there were
no other Code provisions that allowed for the carryback or carryforward of
Section 29 credits. As the Page 10




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carryforward of unused Section 29 credits is related to the alternative
minimum tax calculation for succeeding years, carryforwards should continue to
be allowed, even though the Section 29 credit is no longer allowed for coal
seam gas produced and sold after 2002. Each Unitholder should consult his tax adviser regarding Trust tax
compliance matters.  4.
    
    RELATED PARTY TRANSACTIONS Williams provides accounting, bookkeeping and informational services to
the Trust in accordance with an Administrative Services Agreement effective
December 1, 1992. The fee is $50,000 per quarter, escalating 3 percent each
October 1 commencing October 1, 1993. Amounts payable by the Trust to Williams
at December 31, 2003 represent the fourth quarter fee. The second quarter fee
was paid by the Trust to Williams prior to June 30, 2004. Substantially all
production from the WI Properties is sold to a Williams subsidiary.
Additionally, all royalty income is received from Williams.  5.
    
    DISTRIBUTIONS TO UNITHOLDERS The Trustee determines for each quarter the amount of cash available for
distribution to Unitholders. Such amount (the Quarterly Distribution Amount)
is an amount equal to the excess, if any, of the cash received by the Trust, on
or prior to the last day of the month following the end of each calendar
quarter from the Royalty Interests, plus, with certain exceptions, any other
cash receipts of the Trust during such quarter, over the liabilities of the
Trust paid during such quarter, subject to adjustments for changes made by the
Trustee during such quarter in any cash reserves established for the payment of
contingent or future obligations of the Trust. The Trustee distributes the Quarterly Distribution Amount within 60 days
after the end of each calendar quarter to each person who was a Unitholder of
record on the associated record (i.e. the 45th day following the end of each
calendar quarter or if such day is not a business day, the next business day
thereafter), together with interest estimated to be earned on such amount from
the date of receipt thereof by the Trustee to the payment date. In addition to the regular quarterly distributions, under certain
circumstances specified in the Trust Agreement (such as upon a purchase price
adjustment, if any, or pursuant to the sale of a Royalty Interest), the Trust
would make a special distribution (a Special Distribution Amount). A Special
Distribution Amount would be made when amounts received by the Trust under such
circumstances aggregated in excess of $9,000,000. The record date for a
Special Distribution Amount will be the 15th day following receipt of amounts
aggregating a Special Distribution Amount by the Trust (unless such day is not
a business day in which case the record date will be the next business day
thereafter or unless such day is within 10 days of the record date for a
Quarterly Distribution Amount in which case the record date will be the date as
is established for the next Quarterly Distribution Amount). Distribution to
Unitholders of a Special Distribution Amount will be made no later than 15 days
after the Special Distribution Amount record date. Page 11




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6.
    
    SUBSEQUENT EVENTS Subsequent to June 30, 2004, the Trust declared the following
distribution: Quarterly
    
    StatedRecord
    
    Payment
    
    DistributionDate
    
    Date
    
    per UnitAugust 16, 2004
    
    August 27, 2004
    
    $
    .405316
 The distribution per unit increased from $.396403 attributable to the
first quarter of 2004 (paid in the second quarter of 2004) to $.405316
attributable to the second quarter of 2004 (payable in the third quarter of
2004). The slight increase in distributions was primarily the result of an increase in revenue attributable to a positive retroactive adjustment of
$0.04 for the WI Properties in the second quarter of 2004.  7.
    
    CONTINGENCIES WPX Gas Resources Company (WPX Gas Resources, as successor in interest
to Williams Gas Marketing Company), purchases natural gas produced from the WI
Properties (except for certain small volumes) at the Wellhead under the terms
of a gas purchase contract dated October 1, 1992, as amended (the Gas Purchase
Contract). The Gas Purchase Contract provides for a pricing mechanism during
an initial
5-year period, which expired on December 31, 1997, and continuing
for one or more consecutive additional 1-year terms unless and until WPX Gas
Resources exercises its annual option, exercisable 15 days prior to the end of
each contract year, to discontinue purchasing gas under the pricing mechanism
of the Gas Purchase Contract and instead purchase gas at a monthly market base
price. WPX Gas Resources has not exercised this option and therefore the
pricing mechanism will continue to remain in effect through at least December
31, 2004. Under the pricing mechanism of the Gas Purchase Contract, when the market
price is less than $1.70 per MMBtu (the Minimum Purchase Price), the Trust
will be paid the Minimum Purchase Price for the gas and an account (the Price
Credit Account) will be maintained to identify the accrued and unrecouped
amount of payments made to the Trust in excess of the market price. Any amounts
in the Price Credit Account are subject to future recoupment when the market
price exceeds the Minimum Purchase Price. As of June 30, 2004, there were no
remaining unrecouped price credits in the Price Credit Account. To the extent
there may in the future be a balance in the Price Credit Account, the
entitlement to recoup 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 Credit Account is once again reduced
to zero. Corresponding cash distributions to Unitholders would also be
reduced. While the terms of the Gas Purchase Agreement pricing mechanism remain in
place and no balance exists in the Price Credit Account, when the market price
for natural gas exceeds $1.94 price per MMBtu, the Trust receives only 50
percent of the excess of the market price over the $1.94 price per MMBtu before
reduction for gathering, processing and certain other costs. Page 12




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For production months in the first quarter of 2004, which are reported as
Royalty Income in second quarter 2004, the index price remained above the
Minimum Purchase Price. The majority of the production attributable to the Trust is within Federal
units. Unit participating areas are formed by pooling production from the
participating area. Entitlement to the pooled production is based on each
partys acreage in the participating area divided by the total participating
acreage. Wells drilled outside the participating area may create an enlargement
to the participating area and a revision of the Unit ownership entitlement. The
Bureau of Land Management (BLM) must approve Unit participating area
expansions. The effective date for Unit expansions is retroactive to the date
the well creating the expansion was tested. For fourth quarter 2002 natural gas
production, as it relates to royalty income received by the Trust in first
quarter 2003, retroactive adjustments were processed on two of the Federal
Units. The first adjustment was related to the Federal Unit expansion of the
San Juan 30-5 Unit. The second adjustment was not related to a Federal Unit
expansion, rather it resulted from a payout adjustment on certain wells in the
San Juan 32-9 Unit, whereby the working interest supporting the NPI of the
Underlying Properties was reduced. The total impact of these adjustments was to
reduce the natural gas attributable to the NPI of the Underlying Properties by
approximately 500,000 MMbtus and that of the Trust by approximately 300,000
MMbtus (approximately $357,000). During the first quarter of 2004, similar
retroactive adjustments were processed on the San Juan 32-9 Federal Unit. The
retroactive adjustments included a favorable impact from unit expansion and an
unfavorable impact from an additional adjustment related to the payout
determination of the Federal Unit. The net effect of these two retroactive
adjustments decreased royalty income for the six months ended June 30, 2004 by
approximately $275,000. The revenues presented in the accompanying statements
of distributable income are on an entitlement basis and reflect the most recent
BLM participating area approvals at June 30, 2004 and 2003, respectively. There
are pending or anticipated applications or approvals for additional
participating area enlargements that could impact future operating results. On January 5, 2001, the State of New Mexico, acting under authority of the
Minerals Management Service (MMS), presented WPC with an Audit Issue Letter
for the alleged underpayment of royalties in the amount of $948,501, on gas
produced from the Underlying Properties due to Federal royalty owners during
the time period from January 1992 through December 1996. MMS regulations
permit a lessee to deduct from its gross proceeds its reasonable actual cost of
transportation and processing to transport the gas from the lease to the point
of sale in calculating the market value of its production. The State of New
Mexico claims that certain costs of removing and transporting carbon dioxide
gas are not deductible. On March 22, 2001, WPC responded to the Audit Issue
Letter and contested the State of New Mexicos claim for additional royalties
as being contrary to law. In early November 2001, WPC received from the MMS an
order to Report and Pay Additional Royalties and Perform Restructured
Accounting on subsequent periods. The order was dated October 30, 2001. The
order requires WPC to (1) pay additional royalties of $943,964 on production
related to the audit period of January 1, 1992 through December 31, 1996; (2)
pay an estimated incremental royalty amount of $991,549 for production covering
January 1, 1997 through March 31, 2001; and (3) perform a restructured
accounting and pay an additional royalty for months after March 2001. On
January 30, 2002, WPC filed its Statement of Reasons in support of its earlier
appeal of the Audit Issue Letter. While WPC has informed the Trustee that it
believes that its past computations have been appropriately stated, applying
the MMS methodology asserted by the State of New Mexico could Page 13




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potentially result in negative adjustments to amounts previously paid to
the Trust of approximately $3,500,000. If WPC were to lose its appeal, this
would result in an adjustment to royalty income otherwise payable from WPC to
the Trust and a corresponding decrease in distributions to Unitholders, which
could eliminate entirely such distributions for one or more future quarterly
periods. 
 Item 2. Trustees Discussion and Analysis of Financial Condition and Results
of Operations. The Trust makes quarterly cash distributions to Unitholders. The only
assets of the Trust, other than cash and cash equivalents being held for the
payment of expenses and liabilities and for distribution to Unitholders, are
net profits interests (the Royalty Interests) in certain proved coal seam gas
properties located in the San Juan Basin of New Mexico and Colorado (the
Underlying Properties). The Royalty Interests owned by the Trust burden the
Underlying Properties, which are owned by WPC and not the Trust. Distributable income of the Trust consists of the excess of royalty income
plus interest income over the general and administrative expenses of the Trust.
Upon receipt by the Trust, royalty income is invested in short-term
investments in accordance with the Trust Agreement until its subsequent
distribution to Unitholders. The amount of distributable income of the Trust for any quarter may differ
from the amount of cash available for distribution to Unitholders in such
quarter due to differences in the treatment of the expenses of the Trust in the
determination of those amounts. The financial statements of the Trust are
prepared on a modified cash basis pursuant to which general and administrative
expenses of the Trust are recognized on an accrual basis. Consequently, the
reported distributable income of the Trust for any quarter is determined by
deducting from the income received by the Trust the amount of expenses incurred
by the Trust during such quarter. The amount of cash available for
distribution to Unitholders, however, is determined in accordance with the
provisions of the Trust Agreement and reflects the deduction from the income
actually received by the Trust of the amount of expenses actually paid by the
Trust and adjustments for changes in reserves for unpaid liabilities. See Note
5 to the financial statements of the Trust appearing elsewhere in this Form
10-Q for additional information regarding the determination of the amount of
cash available for distribution to Unitholders. Three Months and Six Months Ended June 30, 2004 Compared to Three Months and
Six Months Ended June 30, 2003. For the quarter ended June 30, 2004, royalty income received by the Trust
amounted to $4,193,115 as compared to $3,887,756 received for the same quarter
in 2003. The increase in royalty income is primarily due to higher natural gas
prices. Production related to the royalty income received by the Trust in the
second quarter of 2004 was 1,833,622 MMBtu as compared to 1,856,241 MMBtu for
the same quarter in 2003. Royalty income for the six months ended June 30,
2004 was $7,523,687 as compared to $6,127,626 for the same period in 2003.
Production related to the royalty income received by the Trust for the six
months ended June 30, 2004 was 3,077,609 MMBtu as compared to 3,367,522 MMBtu
for the six months ended June 30, 2003. The decrease in production volume was
offset by higher natural gas prices compared to the previous year. The effects
of this resulted in higher royalty income for the six Page 14




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months ended June 30, 2004. Interest income was lower for the three and
six month periods ended June 30, 2004 due to a decline in interest rates.
General and administrative expenses for the three month and six month periods
ended June 30, 2004 were higher than prior year due to an increase in all
professional fees. Distributable income for the quarter ended June 30, 2004 was $3,998,094 or
$.41 per Unit, compared to $3,704,946, or $.38 per Unit, for the second quarter
of 2003. This increase was the result of higher natural gas prices in 2004
than in 2003. A distribution of $.396403 per Unit was made on May 28, 2004 to
Unitholders of record on May 17, 2004. Distributable income for the six months
ended June 30, 2004 was $7,055,012 as compared to $5,682,133 for the same
period in 2003. This increase was the result of higher natural gas prices in
2004 than in 2003. Because the Trust incurs administrative expenses throughout a quarter but
receives its royalty income only once in a quarter, the Trustee established in
the first quarter of 1993 a cash reserve for the payment of expenses and
liabilities of the Trust. The Trustee thereafter has adjusted the amount of
such reserve in certain quarters as required for the payment of the Trusts
expenses and liabilities, in accordance with the provisions of the Trust
Agreement. The Trustee anticipates that it will maintain for the foreseeable
future a cash reserve which will fluctuate as expenses are paid and royalty
income is received. Royalty income to the Trust is attributable to the sale of depleting
assets. All of the Underlying Properties burdened by the Royalty Interests
consist of producing properties. Accordingly, the proved reserves attributable
to WPCs interest in the Underlying Properties are expected to decline
substantially during the term of the Trust and a portion of each cash
distribution made by the Trust will, therefore, be analogous to a return of
capital. Accordingly, cash yields attributable to the Units are expected to
decline over the term of the Trust. Royalty income received by the Trust in a given calendar quarter will
generally reflect the sum of (i) proceeds from the sale of gas produced from
the WI Properties during the preceding calendar quarter, plus (ii) cash
received by WPC with respect to the Farmout Properties either (a) during the
preceding calendar quarter or (b) if received in sufficient time to be paid to
the Trust, in the month immediately following such calendar quarter.
Accordingly, the royalty income included in distributable income for the
quarter ended June 30, 2004, was based on production volumes and natural gas
prices for the period January 2004 through March 2004, as shown in the table
below. Due to delays associated with the receipt of income related to the
Farmout Properties, the Trusts royalty income for the second quarter of 2004
reflects estimated production volumes from the Farmout Properties for the
months of December 2003 through February 2004, as shown in the table below.
The production volumes included in the table below are for production
attributable to net profits of the Underlying Properties, and not for
production attributable to the Trusts Royalty Interests. Page 15




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Three Months
    
    Three MonthsEnded
    
    EndedMarch 31, 2004
    
    March 31, 2003Production (MMBtu) (1)WI Properties
    
    
    4,249,809
    (2)
    
    
    4,646,799
    (4)Farmout Properties
    
    
    873,862
    (3)
    
    
    679,374
    (5)Blanco Hub Spot Price ($/MMBtu) (6)
    
    $
    4.84
    
    
    $
    4.98Net Wellhead Price WI Properties ($/MMBtu) (6)
    
    $
    2.42
    
    
    $
    2.38
   (1)
    
    Million British Thermal Units.(2)
    
    Includes retroactive adjustments of 282,959 MMBtu.(3)
    
    Reflects estimated volumes for December 2003 through February 2004.(4)
    
    Includes retroactive adjustments of (18,511) MMBtu.(5)
    
    Reflects estimated volumes for December 2002 through February 2003.(6)
    
    Simple average of estimates for the months included in the period
presented. Production from the WI Properties is generally sold by WPC to WPX Gas
Resources pursuant to the Gas Purchase Contract that provides certain
protections for WPC and Unitholders by providing that WPX Gas Resources will
purchase gas from WPC at a minimum purchase price of $1.70 even when the
applicable index price (which is equal to 97% of the Blanco Hub Spot Price)
falls below $1.70 per MMBtu, provided that WPX Gas Resources is entitled to
accrue price credits in the amount of any excess of the minimum price so paid
over the applicable index price. When the applicable index price exceeds $1.70
per MMBtu, WPX Gas Resources is entitled to recoup any price credits previously
accrued. When the applicable index price is greater than $1.94 per MMBtu, the
Gas Purchase Contract protects and benefits WPX Gas Resources by allowing it to
purchase gas from WPC at a contract price equal to $1.94 per MMBtu plus only 50
percent of the difference between the applicable index price and $1.94 per
MMBtu. The Gas Purchase Contract also provides that the price paid for gas by
WPX Gas Resources is reduced by the amount of gathering, processing and certain
other costs paid by WPX Gas Resources. See Item 2 Properties  The Royalty
Interests  Gas Purchase Contract in the 2003 Annual Report for detailed
information about the Gas Purchase Contract and its impact on Trust income. The initial five-year term of the pricing provision (Primary Term) of
the Gas Purchase Contract expired on December 31, 1997. Following the
expiration of the Primary Term, the pricing provision will continue in effect
for one or more consecutive additional one-year terms (each such term a
Contract Year) unless and until WPX Gas Resources exercises its annual
option, exercisable 15 days prior to the end of each Contract Year, to
discontinue purchasing gas from WPC under the pricing provision of the Gas
Purchase Contract and instead purchase gas at a monthly price equal to the
index price of 97 percent of the Blanco Hub Spot Price. WPX has not yet
exercised this option and the pricing mechanism of the Primary Term therefore
has been and will continue to remain in effect through at least December 31,
2004. For the six months ended June 30, 2004, which is based on production
volumes and natural gas prices for the three months ended March 31, 2004, the
Blanco Hub Spot Price was above $2.00 per MMBtu and therefore the applicable
index price under the Gas Purchase Page 16




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Contract, which is equal to 97% of the Blanco Hub Spot Price, was above
$1.94 per MMBtu through such periods. In general, under the Gas Purchase
Contract, the Trust only receives the benefit of 50 percent of any amount by
which the applicable index price exceeds $1.94 per MMBtu. Consequently,
pursuant to the terms of the Gas Purchase Contract, WPX Gas Resources paid WPC
an amount for gas purchased equal to $1.94 per MMBtu, less the costs paid by
WPX Gas Resources to gather and process such gas and deliver it to specified
delivery points plus 50 percent of the excess of the applicable index price
over $1.94 per MMBtu. The Blanco Hub Spot Price remained above $2.00 per MMBtu
in July 2004. The information in this Form 10-Q concerning production and prices
relating to the Underlying Properties is based on information prepared and
furnished by WPC to the Trustee. The Trustee has no control over and no
responsibility relating to the operation of the Underlying Properties. Forward-Looking Statements This report on Form 10-Q includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical fact included in this Form 10-Q, including,
without limitation, statements contained in this Trustees Discussion and
Analysis of Financial Condition and Results of Operations regarding the
Trusts financial position and industry conditions, are forward-looking
statements. Although the Trustee believes that the expectations reflected in
such forward-looking statements are reasonable, it can give no assurance that
such expectations will prove to have been correct. 
 Item 3. Quantitative and Qualitative Disclosures About Market Risk. The only assets of and sources of income to the Trust are the Royalty
Interests, which generally entitle the Trust to receive a share of the net
profits from natural gas production from the Underlying Properties.
Consequently, the Trusts financial results can be significantly affected by
fluctuations in natural gas prices and the Trust has commodity price risk
exposure associated with the natural gas markets in the United States. The
Royalty Interests do not entitle the Trust to control or influence the
operation of the Underlying Properties or the sale of gas produced therefrom.
Natural gas produced from the WI Properties, which comprises the majority of
production attributable to the Royalty Interests, is currently sold by WPC
pursuant to the terms of the Gas Purchase Contract. Although the Trust is not a
party to the Gas Purchase Contract, the Gas Purchase Contract may significantly
impact revenues to the Trust. Although the Gas Purchase Contract mitigates the
risk to the Trust of low gas prices, it also limits the ability of the Trust to
benefit from the effects of higher gas prices. See Item 2 Properties  The
Royalty Interests  Gas Purchase Contract in the 2003 Annual Report for
detailed information about the Gas Purchase Contract and its impact on the
Trust and Unitholders. The Trust is a passive entity and other than the Trusts ability to
periodically borrow money as necessary to pay expenses, liabilities and
obligations of the Trust that cannot be paid out of cash held by the Trust, the
Trust is prohibited from engaging in borrowing transactions. The amount of any
such borrowings is unlikely to be material to the Trust. The Trust
periodically holds short-term investments acquired with funds held by the Trust
pending Page 17




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distribution to Unitholders and funds held in reserve for the payment of
Trust expenses and liabilities. Because of the short-term nature of these
borrowings and investments and certain limitations upon the types of such
investments which may be held by the Trust, the Trustee believes that 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
Unitholders to any foreign currency related market risk. 
 Item 4. Controls and Procedures. As of the end of the period covered by this report, the Trustee carried
out an evaluation of the effectiveness of the design and operation of the
Trusts disclosure controls and procedures pursuant to Exchange Act Rule 13a-15
and 15d-15. Based upon that evaluation, the Trustee concluded that the Trusts
disclosure controls and procedures are effective in timely alerting the Trustee
to material information relating to the Trust required to be included in the
Trusts periodic filings with the Securities and Exchange Commission. In its
evaluation of disclosure controls and procedures, the Trustee has relied, to
the extent considered reasonable, on information provided by WPC. There has not
been any change in the Trusts internal control over financial reporting during
the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Trusts internal control over
financial reporting. 
 PART II  OTHER INFORMATION 
 Items 1 through 5. Not applicable. 
 Item 6. Exhibits and Reports on Form 8-K. (a)      The exhibits listed below are filed as part of this report: Number
    
    
    
    Exhibit15.1
    
    
    
    Letter regarding unaudited interim financial information dated
August 4, 2004, from the independent accountant which acknowledges
awareness of the use in registration statement of a report on
unaudited interim financial information.31.1
    
    
    
    Certification by Ron E. Hooper, Senior Vice President and
Administrator of Bank of America, Trustee of Williams Coal Seam Gas
Royalty Trust, dated August 9, 2004, and submitted pursuant toRule
13a-14(a)/15d-14(a) and pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    
    
    Certificate by Bank of America, Trustee of Williams Coal Seam Gas
Royalty Trust, dated August 9, 2004, and submitted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350).
 Page 18




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(b)      Reports on Form 8-K. The Trust did not file any reports on Form 8-K during the second quarter
of 2004; however, the following report on Form 8-K was furnished to the SEC
during the second quarter: On May 6, 2004, the Trust furnished a report on Form 8-K indicating
that the Trust issued a press release announcing its quarterly cash
distribution to Unitholders of record on May 17, 2004. Page 19




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SIGNATURES 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. WILLIAMS COAL SEAM GAS ROYALTY TRUSTBy:
    
    BANK OF AMERICA, N.A., TrusteeBy:
    
    /s/ RON E. HOOPERRon E. HooperSenior Vice President and Administrator
 (The Registrant has no directors or executive officers.) Date: August 9, 2004 Page 20




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INDEX TO EXHIBITS Number
    
    
    
    Exhibit15.1
    
    
    
    Letter regarding unaudited interim financial information dated
August 4, 2004, from the independent accountant which acknowledges
awareness of the use in registration statement of a report on
unaudited interim financial information.31.1
    
    
    
    Certification by Ron E. Hooper, Senior Vice President and
Administrator of Bank of America, Trustee of Williams Coal Seam Gas
Royalty Trust, dated August 9, 2004 and submitted pursuant to
Rule
13a-14(a)/15d-14(a) and pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1
    
    
    
    Certificate by Bank of America, Trustee of Williams Coal Seam Gas
Royalty Trust, dated August 9, 2004 and submitted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section
1350).
 Page 21