**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**
| **(Mark One)**        | ** **                                              | ** ** |
|-----------------------|---------------------------------------------------------|------------|
| ** **            | ** **                                              | ** ** |
| **x****  ** | **QUARTERLY  REPORT UNDER SECTION 13 OR 15 (d)**        | ** ** |
| ** **            | **OF THE  SECURITIES EXCHANGE ACT OF 1934**             | ** ** |
| ** **            |                                                    |       |
| ** **            | **For the  quarterly period ended June 30, 2006**       | ** ** |
| ** **            |                                                    |       |
| ** **            | **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 1-11748**

**EASTERN AMERICAN NATURAL GASTRUST**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                     |   | **36-7034603**       |
|----------------------------------|--------|----------------------|
| (State or other  jurisdiction of |   | (I.R.S. Employer     |
| incorporation or  organization)  |   | Identification  No.) |

 

**JPMorgan Chase Bank, N.A.,Trustee**

**Institutional Trust Services**

**221 West Sixth Street, 1****st Floor**

**Austin, Texas**

(Address of principalexecutive offices)

 

**78701**

(Zip Code)

 

**(800) 852-1422**

(Registrant’s telephone number, including area code)

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filing requirementsfor the past 90 days.

Yes   x              No   o

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,or a non-accelerated filer (as defined in Exchange Act Rule 12b-2 of theExchange Act).

Large accelerated filer  o                 Accelerated filer  x                    Non-accelerated filer o

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).

Yes   o              No   x

 As of August 4,2006, 5,900,000 Units of Beneficial Interest in Eastern American Natural GasTrust were issued, outstanding and held by non-affiliates of the registrant(the “Outstanding Units”).  Of theOutstanding Units, 19,900 Units of Beneficial Interest (the “Withdrawn Units”)have been withdrawn from trading by voluntary action of Holders and may not betraded unless such Holders comply with certain requirements provided in therelated Trust Agreement.

 

 

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**PART I — FINANCIAL INFORMATION**

**ITEM1.   Financial Statements**

**EASTERN AMERICAN NATURAL GASTRUST**

** **

**CONDENSED STATEMENTS OFDISTRIBUTABLE INCOME**

*(Unaudited)*
| ** **                                                                  | ** ** | **Six Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------|------------|----------------------------------|------------|
| ** **                                                                  | ** ** | **June 30**               | ** ** | **June 30**                 | ** ** |
| ** **                                                                  | ** ** | **2006**                       | ** ** | **2005**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                        |       |                           |       |                             |       |   |   |   |   |
| Royalty Income                                                              |       | $                              | 9,958,436  |                             | $          | 7,561,956 |   | $ | 4,595,350 |   | $ | 3,913,559 |   |
|                                                                        |       |                           |       |                             |       |   |   |   |   |
| Operating Expenses                                                          |       |                           |       |                             |       |   |   |   |   |
| Taxes on  production and property                                           |       | 730,090                        |       | 519,207                          |       | 339,107 |   | 265,536 |   |
| Operating cost  charges                                                     |       | 280,534                        |       | 267,174                          |       | 140,267 |   | 133,587 |   |
|                                                                        |       |                           |       |                             |       |   |   |   |   |
| Total Operating  Expenses                                                   |       | 1,010,624                      |       | 786,381                          |       | 479,374 |   | 399,123 |   |
|                                                                        |       |                           |       |                             |       |   |   |   |   |
| Net Proceeds to the  Trust                                                  |       | 8,947,812                      |       | 6,775,575                        |       | 4,115,976 |   | 3,514,436 |   |
|                                                                        |       |                           |       |                             |       |   |   |   |   |
| General and  Administrative Expenses                                        |       | (783,310                       | )          | (611,912                         | )          | (336,090 | ) | (308,439 | ) |
|                                                                        |       |                           |       |                             |       |   |   |   |   |
| Interest Income                                                             |       | —                         |       | 500                              |       | — |   | — |   |
|                                                                        |       |                           |       |                             |       |   |   |   |   |
| Distributable  Income                                                       |       | 8,164,502                      |       | 6,164,163                        |       | 3,779,886 |   | 3,205,997 |   |
|                                                                        |       |                           |       |                             |       |   |   |   |   |
| Cash Reserve                                                                |       | —                         |       | (185,000                         | )          | — |   | (185,000 | ) |
|                                                                        |       |                           |       |                             |       |   |   |   |   |
| Distribution  Amount                                                        |       | $                              | 8,164,502  |                             | $          | 5,979,163 |   | $ | 3,779,886 |   | $ | 3,020,997 |   |
|                                                                        |       |                           |       |                             |       |   |   |   |   |
| Distributable Income  Per Unit (5,900,000 units authorized and outstanding) |       | $                              | 1.3838     |                             | $          | 1.0448 |   | $ | 0.6407 |   | $ | 0.5434 |   |
|                                                                        |       |                           |       |                             |       |   |   |   |   |
| Distribution Amount Per Unit (5,900,000 units authorized and  outstanding)  |       | $                              | 1.3838     |                             | $          | 1.0134 |   | $ | 0.6407 |   | $ | 0.5120 |   |

 

**The accompanying notes are anintegral part of these condensed financial statements.**

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** **

**EASTERN AMERICAN NATURAL GAS TRUST**

**CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS**
| ** **                                                       | ** ** | **June 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| ** **                                                       | ** ** | **(Unaudited)**             | ** ** | ** **                      | ** ** |
| ** **                                                       | ** ** | ** **                  | ** ** | ** **                      | ** ** |
| Assets:                                                          |       |                        |       |                            |       |
|                                                             |       |                        |       |                            |       |
| Cash                                                             |       | $                           | 1,046,108  |                            | $          | 43,478 |   |
| Net Proceeds Receivable                                          |       | 4,115,976                   |       | 5,408,091                       |       |
| Net Profits Interests in Gas Properties                          |       | 93,162,180                  |       | 93,162,180                      |       |
| Accumulated Amortization                                         |       | (67,170,941                 | )          | (65,658,915                     | )          |
|                                                             |       |                        |       |                            |       |
| Total Assets                                                     |       | $                           | 31,153,323 |                            | $          | 32,954,834 |   |
|                                                             |       |                        |       |                            |       |
| Liabilities and  Trust Corpus:                                   |       |                        |       |                            |       |
|                                                             |       |                        |       |                            |       |
| Trust General and Administrative Expenses Payable                |       | $                           | 182,198    |                            | $          | 318,120 |   |
| Distributions Payable                                            |       | 3,779,886                   |       | 3,933,449                       |       |
| Trust Corpus (5,900,000 Trust Units authorized and  outstanding) |       | 27,191,239                  |       | 28,703,265                      |       |
|                                                             |       |                        |       |                            |       |
| Total  Liabilities and Trust Corpus                              |       | $                           | 31,153,323 |                            | $          | 32,954,834 |   |

 

**The accompanying notes are an integral part ofthese condensed financial statements.**

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**EASTERN AMERICAN NATURAL GASTRUST**

** **

**CONDENSED STATEMENT OF CHANGES INTRUST CORPUS**

*(Unaudited)*

 
| ** **                                               | ** ** | **Six Months**         | ** ** | **Six Months**        | ** ** |
|----------------------------------------------------------|------------|-----------------------------|------------|----------------------------|------------|
| ** **                                               | ** ** | **Ended**                   | ** ** | **Ended**                  | ** ** |
| ** **                                               | ** ** | **June 30, 2006** | ** ** | **June 30 2005** | ** ** |
|                                                     |       |                        |       |                       |       |
| Trust Corpus,  Beginning of Period                       |       | $                           | 28,703,265 |                       | $          | 31,139,508 |   |
| Distributable  Income                                    |       | 8,164,502                   |       | 6,164,163                  |       |
| Distributions  Payable to Unitholders                    |       | (8,164,502                  | )          | (5,979,163                 | )          |
| Amortization of  Net Profits Interests in Gas Properties |       | (1,512,026                  | )          | (1,669,332                 | )          |
|                                                     |       |                        |       |                       |       |
| Trust Corpus, End of  Period                             |       | $                           | 27,191,239 |                       | $          | 29,655,176 |   |

 

**The accompanying notes are an integral part ofthese condensed financial statements.**

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** **

**EASTERN AMERICAN NATURAL GASTRUST**

**NOTES TO UNAUDITED CONDENSEDFINANCIAL STATEMENTS**

** **

NOTE 1. Organization of the Trust

The Eastern AmericanNatural Gas Trust (the “Trust”) was formed under the Delaware Business TrustAct pursuant to a Trust Agreement (the “Trust Agreement”) among EasternAmerican Energy Corporation (“Eastern American”), as grantor, Bank of MontrealTrust Company, as trustee, and Wilmington Trust Company, as Delaware Trustee(the “Delaware Trustee”).  Effective May8, 2000, The Bank of New York acquired the corporate trust business of the thencurrent Trustee and served as Trustee through December 31, 2004.   On November 20, 2004, the holders of amajority of the Trust Units voting at a special meeting approved theresignation of The Bank of New York, as trustee and depository of the Trust,and the appointment of JPMorgan Chase Bank, N.A. as successor trustee (“Trustee”)of the Trust.  The appointment ofJPMorgan Chase Bank, N.A., as successor trustee, became effective as of January1, 2005.  Effective January 1, 2005, thetransfer agent for the Trust is Bondholder Communications.

 

On April 8, 2006, JPMorgan Chase and Bank of New York announced an agreement pursuant to which Bankof New York would acquire JPMorgan Chase’s corporate trust business.  The transaction has been approved by bothcompanies’ boards of directors.  Subjectto regulatory approvals, the transaction is expected to close in the late thirdquarter or fourth quarter of 2006.  Thetransaction is not expected to have any material effect on the Trust.

 

The Trust was formed toacquire and hold net profits interests (the “Net Profits Interests”) createdfrom the working interests owned by Eastern American in 650 producing gas wellsand 65 proved development well locations (the “Development Wells”) in West Virginiaand Pennsylvania (the “Underlying Properties”).

 

On March 15, 1993, 5,900,000 Depositary Units were issued in a publicoffering at an initial public offering price of $20.50 per DepositaryUnit.  Each Depositary Unit consists ofbeneficial ownership of one unit of beneficial interest (“Trust Unit”) in theTrust and a $20 face amount beneficial ownership interest in a $1,000 faceamount zero coupon United States Treasury Obligation (“Treasury Obligation”)maturing on May 15, 2013.  The financialstatements of the Trust to which these notes relate do not include informationconcerning the Treasury Obligations, the beneficial interest in which is heldfor the Unitholders by the Depositary.

 

The Net Profits Interests are passive in nature, and neither theTrustee nor the Delaware Trustee has management control or authority over, norany responsibility relating to, the operation of the properties subject to theNet Profits Interests.  The TrustAgreement provides, among other things, that the Trust shall not engage in anybusiness or commercial activity or acquire any asset other than the Net ProfitsInterests initially conveyed to the Trust; the Trustee may establish a reservefor payment of any liability that is contingent, uncertain in amount or is not currentlydue and payable; the Trustee is authorized to borrow funds required to payliabilities of the Trust, provided that such

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borrowings are repaid in full prior to further distributions toUnitholders; and the Trustee will make quarterly cash distributions toUnitholders from funds of the Trust.

 

After the Trust wasformed, 59 of the 65 Development Wells were drilled and completed. Theremaining six Development Wells were not drilled. Clear title to two of theDevelopment Wells could not be established, and they were excluded from theTrust in accordance with the conveyance transferring them to the Trust. EasternAmerican asserted the remaining four undrilled Development Wells, if drilled,would be too close to then existing wells on the property or an adjoiningproperty, and thereafter settled its dispute with the Trust about drillingthose four Development Wells by agreeing instead to pay the Trust annually forthe annual volume of gas projected to be produced from those Development Wellsas if they had been drilled.

 

The Net Profits Interestsinitially consisted of a royalty interest (“Royalty NPI”) in 322 wells and aterm interest (“Term NPI”) in the remaining wells and locations. As of June 30,2006, the Trust held Net Profits Interests in 671 wells, consisting of RoyaltyNPI in 317 wells and Term NPI in the remaining wells. The Term NPI expire bytheir terms on May 15, 2013, or such earlier time as 41,683 MMcf of gas hasbeen produced that is attributable to Eastern American’s net revenue interestin the properties burdened by the Term NPI. As of December 31, 2005, based onthe Independent Petroleum Engineer’s Report, 21,814 MMcf of the maximum 41,683MMcf has been produced.

 

Between May 15, 2012 andMay 15, 2013 (the “Liquidation Date”), the Trustee is required to sell all theRoyalty NPI and liquidate the Trust. Under the Trust Agreement, EasternAmerican has the right of first refusal to purchase any of the Royalty NPI theTrustee is required to sell after the Liquidation Date. If it exercises this right,Eastern American must pay the appraised Fair Value (as defined in the TrustAgreement) of the Royalty NPI, or the relevant third party offer price if athird party has offered to purchase the Royalty NPI. Unitholders of record onthe relevant record dates will receive the net proceeds from selling theRoyalty NPI in accordance with the Trust Agreement, and also will receive theirrespective share of the matured face amount of the Treasury Obligations held bythe Depositary.

 

NOTE 2.  Basisof Presentation

The preparation offinancial statements requires estimates and assumptions that affect reportedamounts of assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and the reported amounts ofrevenue and expenses during the reporting period.  Without limiting the foregoing statement, theinformation furnished is based upon certain estimates of production for theperiods presented and is therefore subject to adjustment in future periods toreflect actual production for the periods presented.  The information furnished reflects alladjustments which are, in the opinion of the Trustee, necessary for a fairpresentation of the results for the interim periods presented.  The accompanying financial statements areunaudited interim

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financial statements, and should be read inconjunction with the audited financial statements and notes thereto included inthe Trust’s Annual Report on Form 10-K for the year ended December 31, 2005, asamended.  The year-end condensed balancesheet data was derived from audited financial statements, but does not includeall disclosures required by accounting principles generally accepted in theUnited States of America for complete financial statements.

NOTE 3.  TrustAccounting Policies

The Trust serves as apass-through entity, with items of depletion, interest income and expense, andincome tax attributes being based upon the status and elections ofUnitholders.  Thus, the Statements ofDistributable Income show Distributable Income, defined as Trust incomeavailable for distribution to Unitholders subject to Trustees Cash Reservesdescribed in Part I, Item 2 before application of those Unitholders’ additionalexpenses, if any, for depletion, interest expense, and income taxes.  The Trust uses the accrual basis to recognizerevenue, with Royalty Income recognized as gas reserves are extracted fromproperties and sold.  Expenses are alsopresented on an accrual basis.  Actualcash receipts will vary from the accrual of revenues due to, among otherreasons, the payment provisions of the gas purchase contract between the Trustand Eastern Marketing Corporation  (asubsidiary of Eastern American), which requires payment with respect to gasproduction for a calendar quarter to be made to the Trust on or before thetenth day of the third month following such quarter.

The Net Profits Interestsare assessed annually to determine whether their net capitalized cost isimpaired.  The Trust will determine if awritedown is necessary to its investment in the Net Profits Interests in gasproperties to the extent that total capitalized costs, less accumulatedamortization, exceed undiscounted future net revenues attributable to provedgas reserves of the Underlying Properties. The Trust will then provide a writedown to the extent that the netcapitalized costs exceed the discounted future net revenues attributable toproved gas reserves of the Underlying Properties.   Any such writedown would not reducedistributable income, although it would reduce Trust Corpus.

Amortization of the NetProfits Interests in Gas Properties is calculated on a units-of-productionbasis, whereby the Trust’s cost basis in the properties is divided by totalTrust proved reserves to derive an amortization rate per reserve unit.  Such amortization does not reducedistributable income, rather it is charged directly to Trust Corpus.

The financial statements of the Trust differ fromfinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America due to the following: (i)certain cash reserves may be established for contingencies which were notaccrued in the financial statements; (ii) amortization of the Net ProfitsInterests in gas properties is charged directly to Trust Corpus; and (iii) thesale of the Net Profits Interests is reflected in the Statements ofDistributable Income as cash proceeds to the Trust.

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NOTE 4. Income Taxes

The Trust is a grantortrust and is not required to pay federal or state income taxes.  Accordingly, no provision for federal orstate income taxes has been made.  Allincome is taxed to the Unitholders of the Trust.

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ITEM 2.  Management’s Discussion and Analysis ofFinancial Condition and Results of Operations

Cautionary Statement

This Form 10-Qincludes “forward-looking statements” within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the Securities ExchangeAct of 1934, as amended. All statements other than statements of historicalfact included in this Form 10-Q, including without limitation the statementsunder “Management’s Discussion and Analysis of Financial Condition and Resultsof Operations” are forward-looking statements. Although Eastern American hasadvised the Trustee that it believes that the expectations reflected in theforward-looking statements contained herein are reasonable, no assurance can begiven that such expectations will prove to have been correct. Important factorsthat could cause actual results to differ materially from expectations (“CautionaryStatements”) are disclosed in this Form 10-Q and in the Trust’s Annual Reporton Form 10-K for the year ended December 31, 2005, as amended, and include thefact that none of the Trust, the Trustee or Eastern American is able to predictfuture changes in gas prices, gas production levels, economic activity,legislation or regulation, or certain changes in expenses of the Trust. Allsubsequent written and oral forward-looking statements attributable to theTrust or persons acting on its behalf are expressly qualified in their entiretyby the Cautionary Statements.  The Trust,the Trustee and Eastern American disclaim any obligation to update any forwardlooking statements.

Further,forward-looking statements made herein regarding the Trust and its operation inthis Form 10-Q generally assume that the pending offer being made by EnsourceEnergy Income Fund LP as described below will not result in Ensource acquiringcontrol of the Trust.   Ensource hasstated that if it acquires control of the Trust, it intends to attempt to causethe Trust to engage in a merger that would result in significant changes to theTrust.

General

The Trust does notconduct any operations or activities. The Trust’s purpose is, in general, to hold the Net Profits Interests,to distribute the cash proceeds to Unitholders which the Trust receives inrespect of the Net Profits Interests (net of Trust expenses), and to performcertain administrative functions in respect of the Net Profits Interests andthe Depositary Units.  Accordingly, theTrust derives substantially all of its income and cash flows from the NetProfits Interests.  The Trust has nosource of liquidity or capital resources other than the cash flows from the NetProfits Interests.

The Net Profits Interestswere created pursuant to conveyances (the “Conveyances”) from Eastern Americanto the Trust.  In connection therewith,Eastern American assigned its rights under a gas purchase contract (the “GasPurchase Contract”), which obligates Eastern Marketing Corporation, asubsidiary of Eastern American, to purchase all of the natural gas producedfrom the Underlying Properties that is attributable to the Net ProfitsInterests.

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The Conveyances and theGas Purchase Contract entitle the Trust to receive an amount of cash for eachcalendar quarter equal to the Net Proceeds for such quarter.  “Net Proceeds” for any calendar quartergenerally means an amount of cash equal to (a) 90% of a volume of gas equal to(i) the volume of gas produced during such quarter attributable to theUnderlying Properties less (ii) a volume of gas equal to “Chargeable Costs” forsuch quarter, multiplied by (b) the applicable price for such quarter under theGas Purchase Contract.  “Chargeable Costs”is that volume of gas which equates in value, determined by reference to therelevant sales price under the Gas Purchase Contract or the Conveyances, asapplicable, to the sum of the “Operating Cost Charge”, “Capital Costs” and “Taxes”.

The “Operating CostCharge” for 2006 is based on an annual rate of $561,068, and for 2005 was anannual rate of $534,348.  As provided inthe Conveyances, the Operating Cost Charge will fluctuate based on the lesserof (A) five percent (5%) or (B) a percentage, not less than zero percent (0%),equal to the percentage increase, if any, in the average weekly earnings ofCrude Petroleum and Gas Production Workers for the last calendar year, as shownby the index of average weekly earnings of Crude Petroleum and Gas ProductionWorkers, as published by the United States Department of Labor, Bureau of LaborStatistics, based on December-to-December comparison.

During 2003, theUnited States Department of Labor, Bureau of Labor Statistics converted all ofits industry-based statistics to a different reporting system that wasdeveloped in cooperation with the United States’ North American Free TradeAgreement Partners, Canada and Mexico, in an effort to standardize andmodernize reporting codes.  As a resultof this conversion, the Crude Petroleum and Gas Production Workers index is nolonger available for use in the annual calculation of overhead adjustmentcalled for in the various Council of Petroleum Accountants Societies, or COPAS,model forms after March 2003.

Research by COPAScovering a ten year period indicated that by blending the Oil and GasExtraction Index with the Professional and Technical Services Index, theresults approximate the data from the old Crude Petroleum and Natural GasWorkers Index.  Accordingly, COPAS hascalculated the percentage change in the simple average of the Oil andExtraction Index and the Professional and Technical Services Index, commencingin April 2004.  This “Overhead AdjustmentIndex” has been provided as a guidance to the industry as a replacement indexfor use in calculating the overhead adjustment. The adjustment for the effective time period is 5.0%.  Since the Conveyance Documents do notspecifically provide for a replacement index if the Crude Petroleum and GasProduction Workers Index was no longer published, Eastern American believes,and advised the Trustee, that the “Overhead Adjustment Index” as calculated byCOPAS is a reasonable index to utilize since the industry is generally adoptingthe same as a replacement.  EasternAmerican, with the concurrence of the Trustee, will utilize this “OverheadAdjustment Index” to adjust the “Operating Cost Charge” so long as such indexis published by COPAS.

The Operating Cost Chargewill be reduced for each well that is sold (free of the Net Profits Interests)or plugged and abandoned.  Capital Costsare defined as Eastern American’s working interest share of capital costs foroperations on the Underlying Properties having a useful life of at least threeyears, and excluding any capital costs incurred in drilling the DevelopmentWells.  Taxes 

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refer to ad valorem taxes, production and severancetaxes, and other taxes imposed on Eastern American’s or the Trust’s interestsin the Underlying Properties, or production therefrom.

Pursuant to the GasPurchase Contract, Eastern Marketing is obligated to purchase such gasproduction at a purchase price per Mcf equal to the Index Price.  The Index Price for any quarter is determinedsolely by reference to the Variable Price component.  The Variable Price for any quarter is equalto the Henry Hub Average Spot Price (as defined) per MMBtu plus $0.30 perMMBtu, multiplied by 110% to effect a fixed adjustment for Btu content.  The Henry Hub Average Spot Price is definedas the price per MMBtu determined for any calendar quarter equal to the priceobtained with respect to each of the three months in such quarter, in themanner specified below, and then taking the average of the prices determinedfor each of such three months.  The pricedetermined for any month of such quarter is equal to the average of (i) thefinal settlement price per MMBtu for Henry Hub Gas Futures Contracts (asdefined), as reported in *The Wall Street Journal*,for such contracts which expired in each of the five months prior to suchmonth; (ii) the final settlement price per MMBtu for Henry Hub Gas FuturesContracts, as reported in *The Wall Street Journal*,for such contracts which expire during such month; and (iii) the closingsettlement price per MMBtu of Henry Hub Gas Futures Contracts determined as ofthe contract settlement date for such month, as reported in *The Wall Street Journal*, for such contracts which expire ineach of the six months following such month. A Henry Hub Gas Futures Contract is defined as a gas futures contractfor gas to be delivered to the Henry Hub that is traded on the New YorkMercantile Exchange.

Accordingly, the IndexPrice payable to the Trust for production may be higher or lower based on thefluctuations in natural gas futures prices during the relevant calculationperiod.  The price payable to the Trustwill have a direct impact, positively or negatively, on the quarterlydistributions payable by the Trust to its unit holders.

Eastern American had adisagreement with the Trust over Eastern American’s obligation to drill certainDevelopment Wells that were closely offset by third parties.  The Trust agreed that in lieu of drillingthese closely offset Development Wells, Eastern American could provide theTrust, on an annual basis commencing on April 1, 1997, and over the remaininglife of the Trust, a volume of gas which is equal to the projected volumes ofthe wells as if they had been drilled. These volumes have been estimated by Ryder Scott Company, independentpetroleum engineers.  During the quarterended June 30, 2006, an additional volume of 3,813 Mcf was delivered to theTrust, as compared to 4,123 Mcf for the quarter ended June 30, 2005.  These additional volumes fulfill EasternAmerican’s obligation to provide volumes for Development Wells that had beenclosely offset by third parties.

Eastern Americanhas fulfilled its obligation with respect to the drilling of the DevelopmentWells. Since the inception of the Trust, Eastern has drilled a total of 59Development Wells, which are online and producing.  (See the Trust’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2005, as amended, for a more completedescription of the Development Wells.)

Also, during 2004,a landowner contacted Eastern American to inquire about the sale of certainwells located on the landowner’s property, including the Wurst #2 well, whichis a well in which the Trust owns a Net Profits Interest.  Eastern certified to the Trust that: (i) theAssignee of the Wurst #2

 

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was not an Affiliate ofEastern and; (ii) the aggregate sale proceeds to be received from all othersales of wells in which the Trust owns a Net Profits Interest and previouslyreleased by the Trust during the preceeding twelve (12) calendar months did notexceed $500,000.  The Wurst #2 well wasfound to be uneconomic to operate and was subject to plugging and abandonmentby Eastern American if not assigned to the landowner.  Eastern American advised the landowner thatit could assign this well. The Wurst #2 well had no value and no cashdistribution was made to the Trust.

Over the remaining lifeof the Trust, additional wells may be disposed of for similar or other reasons.

As previouslypublicly announced, Ensource Energy Income Fund LP, a recently formed Delawarelimited partnership not affiliated with the Trust (“Ensource”), has commenced arevised unsolicited offer pursuant to which Ensource is attempting to acquirecontrol of, and ultimately the entire interest in, the Trust.  The Trust will file an amendment to itsSchedule 14D-9, as amended to date (the “Schedule 14D-9”) with the Securitiesand Exchange Commission, and will mail copies of the Schedule 14D-9 toUnitholders of record.

During the lasttwo quarters of 2005, the Trust incurred substantially increased fees forprofessional services relating to the Ensource offer mentioned above.  These expenses, and any other expenses, willdecrease distributions to the Unitholders. Expenses relating to the Ensource offer incurred by the Trust during2005 total approximately $725,798, including $418,639 for fees and expenses theTrust paid to a financial advisory firm in connection with its analysis of theEnsource offer.  In addition, the Trusthas incurred and is likely to continue to incur additional increased legal andother expenses relating to the Ensource offer. The Trust incurred approximately $299,315 of expenses relating to theEnsource offer in the six-month period ended June 30, 2006, future additionalexpenses could be substantial.

The administrative coststhe Trust incurs in the future will fluctuate depending primarily on theexpenses the Trust incurs for professional services, particularly legal,accounting and engineering services.

 

**Critical Accounting Policies**

The following is asummary of the critical accounting policies followed by the Trust.

*Basis ofAccounting:*

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The financialstatements of the Trust differ from financial statements prepared in accordancewith accounting principles generally accepted in the United States of Americadue to the following: (i) certain cash reserves may be established forcontingencies which were not accrued in the financial statements; (ii)amortization of the Net Profits Interests in gas properties is charged directlyto Trust Corpus; and (iii) the sale of the Net Profits Interests is reflectedin the Statements of Distributable Income as cash proceeds to the Trust.

*Net Profits Interests in Gas Properties:*

The Net Profits Interests in gas properties areperiodically assessed to determine whether their net capitalized cost isimpaired.  The Trust will determine if awritedown is necessary to its investment in the Net Profits Interests in gasproperties to the extent that total capitalized costs, less accumulatedamortization, exceed undiscounted future net revenues attributable to provedgas reserves of the Underlying Properties. The Trust will then provide a writedown to the extent that the netcapitalized costs exceed the discounted future net revenues attributable toproved gas reserves of the Underlying Properties.  Any such writedown would not reducedistributable income, although it would reduce Trust Corpus.

Amortization of the Net Profits Interests in gasproperties is calculated on a units-of-production basis, whereby the Trust’scost basis in the properties is divided by total Trust proved reserves toderive an amortization rate per reserve unit. Such amortization does not reduce distributable income, rather it ischarged directly to Trust Corpus. Revisions to estimated future units-of-production are treated on aprospective basis beginning on the date significant revisions are known.

TheNet Profits Interest impairment test and the determination of amortizationrates are dependent on estimates of proved gas reserves attributable to theTrust.  Numerous uncertainties areinherent in estimating reserve volumes and values, including economic andoperating conditions, and such estimates are subject to change as additionalinformation becomes available.

**Liquidity and Capital Resources**

The Trust has nosource of liquidity or capital resources other than the distributions receivedfrom the Net Profits Interests.

In accordance withthe provisions of the Conveyances, generally all revenues received by theTrust, net of Trust administrative and operating expenses and the amount ofestablished reserves, are distributed currently to the Unitholders.

The Trust did nothave any contractual obligations as of June 30, 2006.  At June 30, 2006, the Trust had general andadministrative expenses payable of $182,198 and distributions payable of$3,779,886.

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Comparison of Results ofOperations for Three Months Ended June 30, 2006 and Three Months Ended June 30,2005

The Trust’s distributableincome was $3,779,886 for the three months ended June 30, 2006 as compared to$3,205,997 for the three months ended June 30, 2005.  This increase was due to an increase inRoyalty Income for the three months ended June 30, 2006 of $4,595,350 ascompared to the three months ended June 30, 2005 of $3,913,559.  The increase in Royalty Income was due to anincrease in the price payable to the Trust under the Gas Purchase Contract asdiscussed below ($9.468 per Mcf for the three months ended June 30, 2006 ascompared to $7.939 per Mcf for the three months ended June 30, 2005).  This increase was offset by a decrease inproduction of gas attributable to the Net Profits Interests for the three monthsended June 30, 2006 (482 Mmcf) as compared to the three months ended June 30,2005 (493 Mmcf).  The decline inproduction is primarily attributable to natural production declines.  Taxes on production and property were$339,107 for the three months ended June 30, 2006 as compared to $265,536 forthe three months ended June 30, 2005. The increase in taxes is due directly tothe increase in Royalty Income as discussed above.  Trust general and administrative expenseswere $336,090 for the three months ended June 30, 2006 as compared to $308,439for the three months ended June 30, 2005. This increase in general and administrative expense was primarilyrelated to professional service fees of $27,651.  Amortization of Net Profits Interests in GasProperties was $768,709 for the three months ended June 30, 2006 as compared to$836,624 for the three months ended June 30, 2005.  This decrease was primarily due to thedecrease in the amortization rate and production volumes.

The price payable to theTrust for gas production attributable to the Net Profits Interests was $9.468per Mcf for the three months ended June 30, 2006 and $7.939 per Mcf for thethree months ended June 30, 2005.  Theprice per Mcf was higher for the three months ended June 30, 2006 than for thecorresponding three month period ended June 30, 2005 due to an increase in theaverage spot market price for gas delivered at the Henry Hub near Henry,Louisiana ($8.3070 per Dth for the three months ended June 30, 2006 as comparedto $6.9170 per Dth for the three months ended June 30, 2005).

Comparison of Results ofOperations for Six Months Ended June 30, 2006 and Six Months Ended June 30,2005

The Trust’s distributableincome was $8,164,502 for the six months ended June 30, 2006 as compared to$6,164,163 for the six months ended June 30, 2005.   This increase was due to an increase inRoyalty Income for the six months ended June 30, 2006 to $9,958,436 as comparedto $7,561,956 for the six months ended June 30, 2005.  The increase in Royalty Income was due to anincrease in the average price payable to the Trust under the Gas PurchaseContract as discussed below ($10.516 per Mcf for the six months ended June 30,2006; $7.697 per Mcf for the six months ended June 30, 2005).  This increase was offset by a decrease inproduction of gas attributable to the Net Profits Interests for the six monthsended June 30, 2006 (949 Mmcf) as compared to the six months ended June 30,2005 (983 Mmcf).  The decline inproduction is primarily attributable to natural production declines.  Taxes on production and property were$730,090 for the six months ended June 30, 2006 as compared to $519,207 for thesix months ended June 30, 2005.  Theincrease 

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in taxes is duedirectly to the increase in Royalty Income as discussed above.  Trust general and administrative expenseswere $783,310 for the six months ended June 30, 2006 as compared to $611,912for the six months ended June 30, 2005. This increase in general and administrative expense was primarilyrelated to professional service fees of $171,398, which were incurred mostly asa direct result of the Ensource offer. During the six months ended June 30, 2006, the Trustee did not add tothe reserve as compared to $185,000 added during the six months ended June 30,2005.  The Trustee established thisreserve amount to facilitate the payment of vendor invoices on a timelybasis.  Amortization of Net ProfitsInterests in Gas Properties was $1,512,026 for the six months ended June 30,2006 as compared to $1,669,332 for the six months ended June 30, 2005.  This decrease was primarily due to thedecrease in the amortization rate and production volumes.

The average price payableto the Trust for gas production attributable to the Net Profits Interests was$10.516 per Mcf for the six months ended June 30, 2006 and $7.697 per Mcf forthe six months ended June 30, 2005.  Theprice per Mcf was higher for the six months ended June 30, 2006 than for thecorresponding six month period ended June 30, 2005 due to an increase in theaverage spot market price for gas delivered at the Henry Hub near Henry,Louisiana ($9.260 per Dth for the six months ended June 30, 2006; $6.697 perDth for the six months ended June 30, 2005).

**Off-Balance Sheet Arrangements**

The Trust does not haveany off-balance sheet arrangements that have or are reasonably likely to have acurrent or future effect on the Trust’s financial condition, changes infinancial condition, revenue or expenses, results of operations, liquidity,capital expenditures or capital resources that is material to investors.

 

**Other Information**

For the calendarquarter ended June 30, 2006, the high and low closing prices of the TreasuryObligations (which have $1,000 face principal amount), as quoted in theover-the-counter market for United States Treasury obligations were $712.95 and$698.78 respectively.  On  June 30, 2006, the closing price of theTreasury Obligations, as quoted on such market, was $706.34.

**TheTrust provides Unitholders with the option to separate the related TreasuryObligation from the Trust Units.  Uponexercising this option, the Trustee transfers such Trust Units from the name ofthe Depositary to the name of the withdrawing Unitholder.  As of June 30, 2006, this option wasexercised on 19,900 Trust Units.  (Seethe Trust’s 10-K, as amended, for the fiscal year ended December 31, 2005 for amore complete description of the Withdrawal of Trust Units and Restriction onTransfer.)**

ITEM 3.  Quantitative and Qualitative Disclosuresabout Market Risk

The Trust does not engagein any operations, and does not utilize market risk sensitive instruments,either for trading purposes or for other than trading purposes.  As described elsewhere herein, the DepositaryUnits consist of beneficial ownership of one unit of beneficial interest in the

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Trust and a $20face amount beneficial ownership interest in a $1,000 face amount zero couponTreasury Obligation maturing on May 15, 2013. High and low price information for the Treasury Obligations is includedunder Part II Item 5.  As describedelsewhere herein, gas production attributable to the Net Profits Interest issold to a wholly owned subsidiary of Eastern American pursuant to the GasPurchase Contract described herein, and the Trust’s quarterly distributions arehighly dependent on the price payable to the Trust for gas productionattributable to the Net Profits Interest. Natural gas prices can fluctuate widely in response to many factors, allof which are out of the control of the Trust, the Trustee and Eastern American.

ITEM 4.  Controls and Procedures

*Evaluationof Disclosure Controls and Procedures. * The Trustee maintains disclosure controls andprocedures designed to ensure that information required to be disclosed by theTrust in the reports that it files or submits under the Securities Exchange Actof 1934, as amended, is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and regulations.  Disclosurecontrols and procedures include controls and procedures designed to ensure thatinformation required to be disclosed by the Trust is accumulated andcommunicated by several parties, including without limitation, the workinginterest owner, Eastern American Energy Corporation (“Eastern American”), andthe independent reserve engineer to JPMorgan Chase Bank, N.A., as Trustee ofthe Trust, and its employees who participate in the preparation of the Trust’speriodic reports as appropriate to allow timely decisions regarding requireddisclosure.  In addition, the Trustee is required by the Trust Agreementto engage and has engaged an independent registered public accounting firm toreview the quarterly financial statements of the Trust and audit the annualfinancial statements of the Trust, which includes financial data provided byEastern American.

As ofJune 30, 2006, the Trustee carried out an evaluation of the Trustee’sdisclosure controls and procedures.  MikeUlrich, as Trust Officer of the Trustee, has concluded that the disclosurecontrols and procedures are effective.

Due to the contractualarrangements of (i) the Trust Agreement and (ii) the rights of the Trusteeunder the Conveyances regarding information furnished by Eastern American,there are certain potential weaknesses that may limit the effectiveness ofdisclosure controls and procedures established by the Trustee or its employeesand their ability to verify the accuracy of certain financial information.  The contractual limitations creatingpotential weaknesses in disclosure controls and procedures may be deemed toinclude:

• Eastern American and its consolidated subsidiariesmanage information relating to the Trust, including (i) historical operatingdata, including production volumes, marketing of products, operating andcapital expenditures, environmental and other liabilities, the effects ofregulatory changes and the number of producing wells and acreage, (ii) plansfor future operating and capital expenditures and (iii) geological datarelating to reserves; and

• The independent reserve engineer, as an expert withrespect to the annual reserve report, 

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which includes projected production, operating expenses and capitalexpenses.

Other thanreviewing the financial and other information provided to the Trust by EasternAmerican and the independent reserve engineer, the Trustee made no independentor direct verification of this financial or other information.

The Trustee doesnot intend to expand its responsibilities beyond those permitted or required bythe Trust Agreement and those required under applicable law.

The Trustee doesnot expect that the Trustee’s disclosure controls and procedures or the Trustee’sinternal control over financial reporting will prevent all errors or allfraud.  Further, the design of disclosurecontrols and procedures and internal control over financial reporting mustreflect the fact that there are resource constraints, and the benefits ofcontrols must be considered relative to costs. Because of the inherent limitations in all control systems, no evaluationof controls can provide absolute assurance that all control issues andinstances of fraud, if any, have been detected.

**Changesin Internal Control Over Financial Reporting**

Inconnection with the evaluation by the Trustee of changes in internal controlover financial reporting of the Trust that occurred during the Trust’s lastfiscal quarter, no change in the Trust’s internal control over financialreporting was identified that has materially affected, or is reasonably likelyto materially affect, the Trust’s internal control over financial reporting.

### **PART II — OTHER INFORMATION**

| ITEM 1.                                                                                                                                                                                                     |   | Legal Proceedings.                                            |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|
|                                                                                                                                                                                                        |   |                                                          |
|                                                                                                                                                                                                        |   | None.                                                         |
|                                                                                                                                                                                                        |   |                                                          |
| ITEM 1A.                                                                                                                                                                                                    |   | Risk Factors.                                                 |
|                                                                                                                                                                                                        |   |                                                          |
| There have been no  material changes in the risk factors disclosed under Part I, Item 1A of  the Trust’s Annual Report on Form 10-K, as amended, for the year ended  December 31, 2005. |
|                                                                                                                                                                                                        |   |                                                          |
| ITEM 2.                                                                                                                                                                                                     |   | Unregistered Sales of Equity Securities and Use of  Proceeds. |
|                                                                                                                                                                                                        |   |                                                          |
|                                                                                                                                                                                                        |   | None.                                                         |
|                                                                                                                                                                                                        |   |                                                          |
| ITEM 3.                                                                                                                                                                                                     |   | Defaults Upon Senior Securities.                              |
|                                                                                                                                                                                                        |   |                                                          |
|                                                                                                                                                                                                        |   | None.                                                         |

 

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| ITEM 4. |   | Submission of Matters to a Vote of Security Holders. |
|---------|--------|------------------------------------------------------|
|    |   |                                                 |
|    |   | None.                                                |
|    |   |                                                 |
| ITEM 5. |   | Other Information.                                   |
|    |   |                                                 |
|    |   | None.                                                |
|    |   |                                                 |
| ITEM 6. |   | Exhibits.                                            |

 
| Exhibit    | ** ** | ** **                                                                                                                                       |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number** |       | **Description**                                                                                                                                  |
| ** ** |       | ** **                                                                                                                                       |
| 3.1*       |       | Second Amended and Restated Trust Agreement of  Eastern American Natural Gas Trust                                                               |
|       |       |                                                                                                                                             |
| 4.1*       |       | Specimen Depositary Receipt                                                                                                                      |
|       |       |                                                                                                                                             |
| 4.2*       |       | Form of NPI Royalty Deposit Agreement                                                                                                            |
|       |       |                                                                                                                                             |
| 10.1*      |       | Form of Conveyance                                                                                                                               |
|       |       |                                                                                                                                             |
| 10.2*      |       | Form of Term NPI Conveyance                                                                                                                      |
|       |       |                                                                                                                                             |
| 10.3*      |       | Form of Gas Purchase Contact between Eastern  American Energy Corporation, Eastern Marketing Corporation and Eastern  American Natural Gas Trust |
|       |       |                                                                                                                                             |
| 10.5*      |       | Form of Conveyance of Production Payment/Assignment  of Production from Eastern American Natural Gas Trust to Eastern Marketing  Corporation     |
|       |       |                                                                                                                                             |
| 10.6*      |       | Form of Assignment and Standby Performance Agreement                                                                                             |
|       |       |                                                                                                                                             |
| 31.        |       | Rule 13a-14(a)/15d-14(a) Certification                                                                                                           |
|       |       |                                                                                                                                             |
| 32.        |       | Section 1350 Certification                                                                                                                       |

 

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*    Incorporated by reference to the indicatedexhibits to filings previously made by the registrant with the Securities andExchange Commission.  All references areto the registrant’s Registration 

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Statement on FormS-1, Registration No. 33-56336, except for Exhibit 3.1, which is incorporatedby reference to the Registrant’s Annual report on Form 10-K for the year endedDecember 31, 1994.

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### **SIGNATURES**

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned, thereuntoduly authorized.
|   | EASTERN  AMERICAN NATURAL GAS TRUST    |
|--------|----------------------------------------|
|   |                                   |
|   | By: JPMorgan Chase Bank, N.A., Trustee |
|   |                                   |
|   | /s/ Mike Ulrich                        |
|   | Name:                                  | Mike Ulrich |
|   | Title:                                 | Vice President |
|   |                                   | JPMorgan Chase Bank, N.A. |

 

 

Date:  August 8, 2006

The Registrant, Eastern American Natural Gas Trust,has no principal executive officer, principal financial officer, board ofdirectors or persons performing similar functions.  Accordingly no additional signatures areavailable and none have been provided.

 

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