**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM10-Q**

 

| **(Mark  One)**                                                                                                                                                  | ** ** | ** **                                                                                      | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------|------------|
| ý                                                                                                                                                           |       | **QUARTERLY  REPORT UNDER SECTION 13 OR 15 (d)  OF THE SECURITIES EXCHANGE ACT OF 1934**        | ** ** |
|                                                                                                                                                             |       |                                                                                            |       |
| **For the quarterly period ended June 30,  2005**                                                                                                                |
|                                                                                                                                                             |       |                                                                                            |
| **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 of registrant as specified in its charter)

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

 

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

**Institutional Trust Services**

**700 Lavaca, 2nd Floor**

**Austin, Texas**

(Address of principal executive offices)

 

**78701**

(Zip Code)

 

**(800) 852-1422**

(Registrant’s telephone number, including area code)

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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   o               No   ý

 

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(1)    TheRegistrant inadvertently did not file reports on Form 8-K for its 2004 secondand third quarter press releases announcing quarterly distributable income anddistribution amounts.

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).

Yes   ý               No   o

 

As of August 5, 2005, 5,900,000Units of Beneficial Interest in Eastern American Natural Gas Trust wereoutstanding.

 

 

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**PART I – FINANCIAL INFORMATION**

 

**ITEM1.   Financial Statements**

 

**EASTERNAMERICAN NATURAL GAS TRUST**

 

**STATEMENTSOF DISTRIBUTABLE INCOME**

*(Unaudited)*

 
| ** **                                                                  | ** ** | **Six Months Ended  June 30** | ** ** | **Three Months Ended  June 30** | ** ** |
|-----------------------------------------------------------------------------|------------|-------------------------------|------------|---------------------------------|------------|
| ** **                                                                  | ** ** | **2005**                      | ** ** | **2004**                        | ** ** | **2005** | ** ** | **2004** | ** ** |
|                                                                        |       |                          |       |                            |       |   |   |   |   |
| Royalty Income                                                              |       | $                             | 7,561,956  |                            | $          | 6,571,889 |   | $ | 3,913,559 |   | $ | 3,491,809 |   |
|                                                                        |       |                          |       |                            |       |   |   |   |   |
| Operating Expenses                                                          |       |                          |       |                            |       |   |   |   |   |
| Taxes on production and property                                            |       | 519,207                       |       | 451,654                         |       | 265,536 |   | 239,050 |   |
| Operating cost charges                                                      |       | 267,174                       |       | 260,670                         |       | 133,587 |   | 130,335 |   |
|                                                                        |       |                          |       |                            |       |   |   |   |   |
| Total Operating Expenses                                                    |       | 786,381                       |       | 712,324                         |       | 399,123 |   | 369,385 |   |
|                                                                        |       |                          |       |                            |       |   |   |   |   |
| Net Proceeds to the Trust                                                   |       | 6,775,575                     |       | 5,859,565                       |       | 3,514,436 |   | 3,122,424 |   |
|                                                                        |       |                          |       |                            |       |   |   |   |   |
| General and Administrative Expenses                                         |       | (611,912                      | )          | (409,735                        | )          | (308,439 | ) | (183,993 | ) |
|                                                                        |       |                          |       |                            |       |   |   |   |   |
| Interest Income                                                             |       | 500                           |       | 434                             |       | — |   | 212 |   |
|                                                                        |       |                          |       |                            |       |   |   |   |   |
| Cash Proceeds on Sale of Net Profits  Interests                             |       | 0                             |       | 80,205                          |       | 0 |   | 80,205 |   |
|                                                                        |       |                          |       |                            |       |   |   |   |   |
| Distributable Income                                                        |       | 6,164,163                     |       | 5,530,469                       |       | 3,205,997 |   | 3,018,848 |   |
|                                                                        |       |                          |       |                            |       |   |   |   |   |
| Cash Reserve                                                                |       | (185,000                      | )          | (100,000                        | )          | (185,000 | ) | (100,000 | ) |
|                                                                        |       |                          |       |                            |       |   |   |   |   |
| Distribution Amount                                                         |       | $                             | 5,979,163  |                            | $          | 5,430,469 |   | $ | 3,020,997 |   | $ | 2,918,848 |   |
|                                                                        |       |                          |       |                            |       |   |   |   |   |
| Distributable Income Per Unit (5,900,000 units  authorized and outstanding) |       | $                             | 1.0448     |                            | $          | 0.9374 |   | $ | 0.5434 |   | $ | 0.5117 |   |
|                                                                        |       |                          |       |                            |       |   |   |   |   |
| Distribution Amount Per Unit (5,900,000 units  authorized and outstanding)  |       | $                             | 1.0134     |                            | $          | 0.9204 |   | $ | 0.5120 |   | $ | 0.4947 |   |

 

**The accompanying notes are an integral part of these condensedfinancial statements.**

 

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**EASTERNAMERICAN NATURAL GAS TRUST**

 

**STATEMENTSOF ASSETS, LIABILITIES AND TRUST CORPUS**

 
| ** **                                                       | ** **   | **June 30, 2005** | ** **   | **December 31, 2004** | ** **   |
|------------------------------------------------------------------|--------------|-------------------|--------------|-----------------------|--------------|
| *** ***                                                     | *** *** | **(Unaudited)**   | *** *** | *** ***          | *** *** |
|                                                             |         |              |         |                  |         |
| Assets:                                                          |         |              |         |                  |         |
|                                                             |         |              |         |                  |         |
| Cash                                                             |         | $                 | 144,645      |                  | $            | 185,752 |   |
| Net Proceeds Receivable                                          |         | 3,514,436         |         | 3,989,827             |         |
| Net Profits Interests in Gas Properties                          |         | 93,162,180        |         | 93,162,180            |         |
| Accumulated Amortization                                         |         | (64,007,004       | )            | (62,337,672           | )            |
|                                                             |         |              |         |                  |         |
| Total Assets                                                     |         | $                 | 32,814,257   |                  | $            | 35,000,087 |   |
|                                                             |         |              |         |                  |         |
| Liabilities and Trust Corpus:                                    |         |              |         |                  |         |
|                                                             |         |              |         |                  |         |
| Trust General and Administrative                                 |         |              |         |                  |         |
| Expenses Payable                                                 |         | $                 | 138,084      |                  | $            | 220,596 |   |
| Distributions Payable                                            |         | 3,020,997         |         | 3,639,983             |         |
| Trust Corpus (5,900,000 Trust Units authorized  and outstanding) |         | 29,655,176        |         | 31,139,508            |         |
|                                                             |         |              |         |                  |         |
| Total Liabilities and Trust Corpus                               |         | $                 | 32,814,257   |                  | $            | 35,000,087 |   |
|                                                                  |              |                   |              |                       |              |  |  |  |

 

**The accompanying notes are an integral part of these condensedfinancial statements.**

 

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**EASTERNAMERICAN NATURAL GAS TRUST**

 

**STATEMENTSOF CHANGES IN TRUST CORPUS**

*(Unaudited)*

 
| ** **                                               | ** ** | **Six Months  Ended  June 30, 2005** | ** ** | **Six Months  Ended  June 30 2004** | ** ** |
|----------------------------------------------------------|------------|--------------------------------------|------------|-------------------------------------|------------|
|                                                     |       |                                 |       |                                |       |
| Trust Corpus, Beginning of Period                        |       | $                                    | 31,139,508 |                                | $          | 34,857,666 |   |
| Distributable Income                                     |       | 6,164,163                            |       | 5,530,469                           |       |
| Distributions Payable to Unitholders                     |       | (5,979,163                           | )          | (5,430,469                          | )          |
| Amortization of Net Profits Interests in Gas  Properties |       | (1,669,332                           | )          | (1,889,278                          | )          |
|                                                     |       |                                 |       |                                |       |
| Trust Corpus, End of Period                              |       | $                                    | 29,655,176 |                                | $          | 33,068,388 |   |

 

**The accompanying notes are an integral part of these condensedfinancial statements.**

 

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**EASTERN AMERICAN NATURAL GAS TRUST**

 

**NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS**

 

NOTE 1. Organization of theTrust

 

The EasternAmerican Natural Gas Trust (the “Trust”) was formed under the Delaware BusinessTrust Act 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.  Theappointment of JPMorgan Chase Bank, N.A., as successor trustee, becameeffective as of January 1, 2005.  EffectiveJanuary 1, 2005, the transfer agent for the Trust is Bondholder Communications.

 

The Trust wasformed to acquire and hold net profits interests (the “Net Profits Interests”)created from the working interests owned by Eastern American in 650 producinggas wells and 65 proved development well locations (the “Development Wells”) inWest Virginia and Pennsylvania (the “Underlying Properties”).

 

On March 15,1993, 5,900,000 Depositary Units were issued in a public offering at an initialpublic offering price of $20.50 per Depositary Unit.  Each Depositary Unit consists of beneficialownership of one unit of beneficial interest (“Trust Unit”) in the Trust and a$20 face amount beneficial ownership interest in a $1,000 face amount zerocoupon United States Treasury Obligation (“Treasury Obligation”) maturing onMay 15, 2013.  The financial statementsof the Trust to which these notes relate do not include information concerningthe Treasury Obligations, the beneficial interest in which is held for the Unitholdersby the Depositary.

 

The NetProfits Interests are passive in nature, and neither the Trustee nor theDelaware Trustee has management control or authority over, nor anyresponsibility relating to, the operation of the properties subject to the NetProfits Interests.  The Trust Agreementprovides, among other things, that the Trust shall not engage in any businessor 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 notcurrently due and payable; the Trustee is authorized to borrow funds requiredto pay liabilities of the Trust, provided that such borrowings are repaid infull prior to further distributions to Unitholders; and the Trustee will makequarterly cash distributions to Unitholders from funds of the Trust.

 

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After the Trust was formed, 59 of the 65 Development Wells were drilledand completed. The remaining six Development Wells were notdrilled. Clear title to two of the Development Wells could not be established,and they were excluded from the Trust in accordance with the conveyancetransferring them to the Trust. Eastern American asserted the remaining fourundrilled Development Wells, if drilled, would be too close to then existingwells on the property or an adjoining property, and thereafter settled itsdispute with the Trust about drilling those four Development Wells by agreeinginstead to pay the Trust annually for the annual volume of gas projected to beproduced from those Development Wells as if they had been drilled.

 

The NetProfits Interests initially consisted of a royalty interest (“Royalty NPI”) in322 wells and a term interest (“Term NPI”) in the remaining wells andlocations. As of June 30, 2005, the Trust held Net Profits Interests in 671wells, consisting of Royalty NPI in 317 wells and Term NPI in the remainingwells. The Term NPI expire by their terms on May 15, 2013, or such earlier timeas 41,683 MMcf of gas has been produced that is attributable to EasternAmerican’s net revenue interest in the properties burdened by the Term NPI. Asof December 31, 2004, based on the Independent Petroleum Engineer’s Report,20,706 MMcf of the maximum 41,683 MMcf has been produced.

 

Between May15, 2012 and May 15, 2013 (the “Liquidation Date”), the Trustee is required tosell all the Royalty NPI and liquidate the Trust. Under the Trust Agreement,Eastern American has the right of first refusal to purchase any of the RoyaltyNPI the Trustee is required to sell after the Liquidation Date. If it exercisesthis right, Eastern American must pay the appraised Fair Value (as defined inthe Trust Agreement) of the Royalty NPI, or the relevant third party offerprice if a third party has offered to purchase the Royalty NPI. Unitholders ofrecord on the relevant record dates will receive the net proceeds from sellingthe Royalty NPI in accordance with the Trust Agreement, and also will receivetheir respective share of the matured face amount of the Treasury Obligationsheld by the Depositary.

 

NOTE 2.  Basis of Presentation

 

Thepreparation of financial statements requires estimates and assumptions thataffect reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reportedamounts of revenue 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 financial statements, and should be read in conjunction withthe audited financial statements and notes thereto included in the Trust’sAnnual Report on Form 10-K for the year ended December 31, 2004, as amended.

 

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NOTE 3.  Trust Accounting Policies

 

The Trustserves as a pass-through entity, with items of depletion, interest income andexpense, and income 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 NetProfits Interests are assessed annually to determine whether their netcapitalized cost is impaired.  The Trustwill determine if a writedown is necessary to its investment in the Net ProfitsInterests in gas properties to the extent that total capitalized costs, lessaccumulated amortization, exceed undiscounted future net revenues attributableto proved gas reserves of the Underlying Properties.  The Trust will then provide a writedown tothe extent that the net capitalized costs exceed the discounted future netrevenues attributable to proved gas reserves of the Underlying Properties.   Any such writedown would not reducedistributable income, although it would reduce Trust Corpus.

 

Amortizationof the Net Profits Interests in Gas Properties is calculated on aunits-of-production basis, whereby the Trust’s cost basis in the properties isdivided by total Trust proved reserves to derive an amortization rate perreserve unit.  Such amortization does notreduce distributable income, rather it is charged directly to Trust Corpus.

 

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.

 

NOTE 4. Income Taxes

 

The Trust is agrantor trust and is not required to pay federal or state income taxes.  Accordingly, no provision for federal or stateincome taxes has been made.  All incomeis taxed to the Unitholders of the Trust.

 

 

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

 

**CautionaryStatement**

 

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 historicalfacts 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 its 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(“Cautionary Statements”) are disclosed in this Form 10-Q and in the Trust’sAnnual Report on Form 10-K for the year ended December 31, 2004, as amended,and include the fact that none of the Trust, the Trustee or Eastern American isable to predict future changes in gas prices, gas production levels, economicactivity, legislation or regulation, or certain changes in expenses of theTrust. All subsequent written and oral forward-looking statements attributableto the Trust or persons acting on its behalf are expressly qualified in theirentirety by the Cautionary Statements. The Trust, the Trustee and Eastern American disclaim any obligation toupdate any forward looking statements.

 

**General**

 

The Trust doesnot conduct 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 NetProfits Interests were created pursuant to conveyances (the “Conveyances”) fromEastern American to the Trust.  Inconnection therewith, Eastern American assigned its rights under a gas purchasecontract (the “Gas Purchase Contract”), which obligates Eastern MarketingCorporation, a subsidiary of Eastern American, to purchase all of the naturalgas produced from the Underlying Properties that is attributable to the NetProfits Interests.

 

The Conveyancesand the Gas Purchase Contract entitle the Trust to receive an amount of cashfor each calendar 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.  “ChargeableCosts” is that volume of gas which equates in value, determined by reference tothe relevant sales price under the Gas Purchase Contract or the Conveyances, asapplicable, to the sum of the “Operating Cost Charge”, “Capital Costs” and

 

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“Taxes”.

 

The “OperatingCost Charge” for 2005 is based on an annual rate of $535,224, and for 2004 wasan annual rate of $521,340.  As providedin the Conveyances, the Operating Cost Charge will fluctuate based on thelesser of (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 earningsof Crude Petroleum and Gas Production Workers for the last calendar year, asshown by the index of average weekly earnings of Crude Petroleum and GasProduction Workers, as published by the United States Department of Labor,Bureau of Labor Statistics, based on December-to-December comparison.

 

During 2003,the United States Department of Labor, Bureau of Labor Statistics converted allof its 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 (“COPAS”)model forms after March 2003.

 

Research by COPAScovering the past ten years 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 3.5%.  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 CostCharge will be reduced for each well that is sold (free of the Net ProfitsInterests) or plugged and abandoned. Capital Costs are defined as Eastern American’s working interest shareof capital costs for operations on the Underlying Properties having a usefullife of at least three years, and excluding any capital costs incurred indrilling the Development Wells.  Taxesrefer to ad valorem taxes, production and severance taxes, and other taxes imposedon Eastern American’s or the Trust’s interests in the Underlying Properties, orproduction therefrom.

 

Pursuant tothe Gas Purchase 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

 

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is defined as the price perMMBtu determined for any calendar quarter equal to the price obtained withrespect to each of the three months in such quarter, in the manner specifiedbelow, and then taking the average of the prices determined for each of suchthree months.  The price determined forany month of such quarter is equal to the average of (i) the final settlementprice per MMBtu for Henry Hub Gas Futures Contracts (as defined), as reportedin *The Wall Street Journal*, for suchcontracts which expired in each of the five months prior to such month; (ii)the final settlement price per MMBtu for Henry Hub Gas Futures Contracts, asreported in *The Wall Street Journal*, for suchcontracts which expire during such month; and (iii) the closing settlementprice per MMBtu of Henry Hub Gas Futures Contracts determined as of thecontract settlement date for such month, as reported in *The WallStreet Journal*, for such contracts which expire in each of the sixmonths following such month.  A Henry HubGas Futures Contract is defined as a gas futures contract for gas to bedelivered to the Henry Hub that is traded on the New York Mercantile Exchange.

 

Accordingly,the Index Price payable to the Trust for production may be higher or lowerbased on the fluctuations in natural gas futures prices during the relevantcalculation period.  The price payable tothe Trust will have a direct impact, positively or negatively, on the quarterlydistributions payable by the Trust to its unit holders.

 

Eastern Americanhad a disagreement with the Trust over Eastern American’s obligation to drillcertain Development 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, 2005, an additional volume of 4,123 Mcf was delivered to theTrust, as compared to 4,457 Mcf for the quarter ended June 30, 2004.  These additional volumes fulfill EasternAmerican’s obligation to provide volumes for Development Wells that had beenclosely offset by third parties.

 

EasternAmerican has fulfilled its obligation with respect to the drilling of theDevelopment Wells. Since the inception of the Trust, Eastern has drilled atotal of 59 Development Wells, which are online and producing.  (See the Trust’s Annual Report on Form 10-Kfor the fiscal year ended December 31, 2004, as amended, for a more completedescription of the Development Wells.)

 

 During 2004, an oil and gas company contactedEastern American and inquired as to whether it would sell certain assetssituated in Centre County, Pennsylvania including the Horne #1, Horne #2 andHorne #15 wells (“the Horne Underlying Properties”), which are wells in whichthe Trust owns a Net Profits Interests. Eastern American reviewed the Trust Agreement and certified to theTrustee that:  (i) the gross purchaseprice to be received by Eastern American for the sale of the Horne UnderlyingProperties in a single transaction or a series of related transactions is lessthan $500,000; (ii) the Assignee of the Horne Underlying Properties is not anAffiliate of Eastern American; (iii) the aggregate sale proceeds of $80,205 tobe received by the Trust from Eastern American (the Trust’s Horne SaleProceeds) represents the fair value to the Trust for Net Profits Interests tobe released by the Trustee in connection with Eastern American’s sale of theHorne Underlying Properties; and (iv) the Trust’s Horne Sale Proceeds plus theaggregate sale proceeds received by the Trust pursuant to

 

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Section 3.02(b)(ii) of theTrust Agreement with respect to all other Net Profits Interests previouslyreleased by the Trustee pursuant to Section 3.02(b) during the most recentlycompleted twelve calendar months did not exceed $500,000.  Eastern American advised the oil and gascompany that it could sell these wells. The effective date of the sale was May 1, 2004.  The Trust’s share of the proceeds of $80,205was included in the Distributable Income of the Trust during the quarter endedJune 30, 2004.

 

Also, during2004, a landowner contacted Eastern American to inquire about the sale ofcertain wells located on the landowner’s property, including the Wurst #2 well,which is a well in which the Trust owns a Net Profits Interest.  Eastern certified to the Trust that: (i) theAssignee of the Wurst #2 was not an Affiliate of Eastern and; (ii) theaggregate sale proceeds to be received from all other sales of wells in whichthe Trust owns a Net Profits Interest and previously released by the Trustduring the preceeding twelve (12) calendar months did not exceed $500,000.  The Wurst #2 well was found to be uneconomicto operate and was subject to plugging and abandonment by Eastern American ifnot assigned to the landowner.  EasternAmerican advised the landowner that it could assign this well. The Wurst #2well had no value and no cash distribution was made to the Trust.

 

Over theremaining life of the Trust, additional wells may be disposed of for similar orother reasons.

 

During Julyand early August 2005 the Trust incurred substantially increased fees forprofessional services relating to the potential exchange offer described belowunder “Other Information”.  Theseexpenses, and any related expenses, will decrease distributions to the Unitholders.  The aggregate amount of theincreased expenses during July and early August was approximately $150,000, andfuture additional expenses may be substantially greater.

 

**CriticalAccounting Policies**

 

The following is a summary ofthe critical accounting policies followed by the Trust.

 

*Basis ofAccounting:*

 

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 ProfitsInterests in Gas Properties:*

 

The NetProfits Interests in gas properties are periodically assessed to determinewhether their net capitalized cost is impaired. The Trust will determine if a writedown is necessary to its investmentin the Net Profits Interests in gas properties to the extent that totalcapitalized costs, less

 

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accumulated amortization,exceed undiscounted future net revenues attributable to proved gas reserves ofthe Underlying Properties.  The Trustwill then provide a writedown to the extent that the net capitalized costsexceed the discounted future net revenues attributable to proved gas reservesof the Underlying Properties.  Any suchwritedown would not reduce distributable income, although it would reduce TrustCorpus.

 

Amortizationof the Net Profits Interests in gas properties is calculated on aunits-of-production basis, whereby the Trust’s cost basis in the properties isdivided by total Trust proved reserves to derive an amortization rate perreserve unit.  Such amortization does notreduce distributable income, rather it is charged directly to TrustCorpus.  Revisions to estimated futureunits-of-production are treated on a prospective basis beginning on the datesignificant revisions are known.

 

The NetProfits Interest impairment test and the determination of amortization ratesare 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.

 

**Liquidityand Capital Resources**

 

The Trust hasno source of liquidity or capital resources other than the distributionsreceived from 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, 2005.  At June 30, 2005, the Trust had accountspayable of $138,084 and distributions payable of $3,020,998.

 

Comparison ofResults of Operations for Three Months Ended June 30, 2005 and Three MonthsEnded June 30, 2004

 

The Trust’sdistributable income was $3,205,997 for the three months ended June 30, 2005 ascompared to $3,018,848 for the three months ended June 30, 2004.  This increase was due to an increase inRoyalty Income for the three months ended June 30, 2005 to $3,913,559 ascompared to the three months ended June 30, 2004 of $3,491,809.  The increase in Royalty Income was due to anincrease in the price payable to the Trust under the Gas Purchase Contract asdiscussed below ($7.939 per Mcf for the three months ended June 30, 2005;$6.774 per Mcf for the three months ended June 30, 2004).  This increase was offset by a decrease inproduction of gas attributable to the Net Profits Interests for the threemonths ended June 30, 2005 (493 Mmcf) as compared to the three months endedJune 30, 2004 (515 Mmcf).  The decline inproduction is primarily attributable to natural production declines and thesale of wells.  Taxes on production andproperty were $265,536 for the three months ended June 30, 2005 as compared to$239,050 for the three months ended June

 

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30, 2004. The increase in taxesis due directly to the increase in Royalty Income as discussed above.  Trust general and administrative expenseswere $308,439 for the three months ended June 30, 2005 as compared to $183,993for the three months ended June 30, 2004. This increase in general and administrative expense was primarilyrelated to an increase in professional service fees of $109,383, primarily dueto costs associated with the implementation of Sarbanes-Oxley Act of 2002(“Sarbanes-Oxley”).  During the threemonths ended June 30, 2005, the Trustee added $185,000 to the reserve ascompared to $100,000 for the three months ended June 30, 2004.  The Trustee established this reserve amountto facilitate the payment of vendor invoices on a timely basis.  The distributable income includes no CashProceeds on Sale of Net Profits Interests for the three months ended June 30,2005, while $80,205 was recognized in the corresponding three months of theprior year.

 

The pricepayable to the Trust for gas production attributable to the Net ProfitsInterests was $7.939 per Mcf for the three months ended June 30, 2005 and$6.774 per Mcf for the three months ended June 30, 2004.  The price per Mcf was higher for the threemonths ended June 30, 2005 than for the corresponding three month period endedJune 30, 2004 due to an increase in the average spot market price for gasdelivered at the Henry Hub near Henry, Louisiana ($6.917 per Dth for the threemonths ended June 30, 2005; $5.858 per Dth for the three months ended June 30,2004).

 

Comparison ofResults of Operations for Six Months Ended June 30, 2005 and Six Months EndedJune 30, 2004

 

The Trust’sdistributable income was $6,164,163 for the six months ended June 30, 2005 ascompared to $5,530,469 for the six months ended June 30, 2004.   This increase was due to an increase inRoyalty Income for the six months ended June 30, 2005 to $7,561,956 as comparedto $6,571,889 for the six months ended June 30, 2004.  The increase in Royalty Income was due to anincrease in the average price payable to the Trust under the Gas Purchase Contractas discussed below ($7.697 per Mcf for the six months ended June 30, 2005;$6.414 per Mcf for the six months ended June 30, 2004).  This increase was offset by a decrease inproduction of gas attributable to the Net Profits Interests for the six monthsended June 30, 2005 (983 Mmcf) as compared to the six months ended June 30,2004 (1,023 Mmcf).  The decline inproduction is primarily attributable to natural production declines and thesale of wells.  Taxes on production andproperty were $519,207 for the six months ended June 30, 2005 as compared to$451,654 for the six months ended June 30, 2004.  The increase in taxes is due directly to theincrease in Royalty Income as discussed above. Trust general and administrative expenses were $611,912 for the sixmonths ended June 30, 2005 as compared to $409,735 for the six months endedJune 30, 2004.  This increase in generaland administrative expense was primarily related to professional service feesof $152,729, primarily due to costs associated with the implementation ofSarbanes-Oxley Act of 2002.  During thesix months ended June 30, 2005, the Trustee added $185,000 to the reserve ascompared to $100,000 for the six months ended June 30, 2004.  The Trustee established this reserve amountto facilitate the payment of vendor invoices on a timely basis.  The distributable income includes no CashProceeds on Sale of Net Profits Interests for the six months ended June 30,2005, while $80,205 was recognized in the corresponding six months of the prioryear.  Amortization of Net ProfitsInterests in Gas Properties was $1,669,332 for the six months ended June 30,2005 as compared to $1,889,278 for the six months ended June 30, 2004.  This decrease was primarily due to thedecrease in production volumes.

 

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The averageprice payable to the Trust for gas production attributable to the Net ProfitsInterests was $7.697 per Mcf for the six months ended June 30, 2005 and $6.414per Mcf for the six months ended June 30, 2004. The price per Mcf was higher for the six months ended June 30, 2005 thanfor the corresponding six month period ended June 30, 2004 due to an increasein the average spot market price for gas delivered at the Henry Hub near Henry,Louisiana ($6.697 per Dth for the six months ended June 30, 2005; $5.531 perDth for the six months ended June 30, 2004).

 

**Off-BalanceSheet Arrangements**

 

The Trust does not have any off-balance sheet arrangements that have orare reasonably likely to have a current or future effect on the Trust’sfinancial condition, changes in financial condition, revenue or expenses,results of operations, liquidity, capital expenditures or capital resourcesthat is material to investors.

 

**OtherInformation**

 

For thecalendar quarter ended June 30, 2005, the high and low closing prices of theTreasury Obligations (which have $1,000 face principal amount), as quoted inthe over-the-counter market for United States Treasury obligations were $735.45and $695.21 respectively.  On June 30, 2005,the closing price of the Treasury Obligations, as quoted on such market, was$735.37.

 

**The Trust provides Unitholders with the option to separatethe related Treasury Obligation from the Trust Units.  Upon exercising this option, the Trusteetransfers such Trust Units from the name of the Depositary to the name of thewithdrawing Unitholder.  As of June 30,2005, this option was exercised on 19,900 Trust Units.  (See theTrust’s 10-K for the fiscal year ended December 31, 2004 for a more completedescription of the Withdrawal of Trust Units and Restriction on Transfer.)**

 

On November 20, 2004, the holders of a majority of the Trust Unitsvoting at a special meeting approved the resignation of The Bank of New York astrustee and depository of the Trust and the appointment of JPMorgan Chase Bank,N.A. as successor trustee of the Trust. The appointment of JPMorgan Chase Bank, N.A. as successor trustee becameeffective as of January 1, 2005. Effective January 1, 2005, the transfer agent for the Trust isBondholder Communications.

 

The Trustee isaware that Ensource Energy Income Fund LP, a recently formed Delaware limitedpartnership not affiliated with the Trust (“Ensource”), has filed aRegistration Statement on Form S-4 with the Securities and Exchange Commission.  The filing describes a proposed transactionpursuant to which Ensource would attempt to acquire control of, and ultimatelythe entire interest in, the Trust.

 

The Trusteecannot predict whether Ensource will proceed with the proposed transaction or,if it does proceed, whether Ensource will be able to acquire a majority of theoutstanding Trust units or, if it does acquire a majority of the outstandingunits, whether it will proceed with or be

 

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able to consummate thesecond-step merger described in the Form S-4.

 

If Ensourceproceeds with the proposed transaction on the terms described in the Form S-4,the Trust will be required by rules of the SEC to make a recommendation whetherUnitholders should accept or reject the exchange offer or to state that theTrust is remaining neutral with respect to the exchange offer.  The Trust has retained a financial advisor toassist the Trust with an evaluation of any such exchange offer.  The Trust has also received a letter from theoperator of the underlying properties and original sponsor of the Trust,Eastern American, stating that Eastern American’s initial review of the FormS-4 leads Eastern American to believe that the Ensource proposal substantiallychanges the original structure and business risk exposure of the Trust andexposes the Unitholders to the vagaries of the oil and gas business, and assuch, may not be in the best interest of the Unitholders.  In the letter, Eastern American made a numberof specific comments regarding the proposed exchange offer and noted that ithas yet to form an opinion as to which, if any, of the underlying documents mayor may not continue in effect subsequent to the proposed exchange. If Ensourceproceeds with the proposed exchange offer, Unitholders will receive furtherinformation regarding the exchange offer and any recommendation the Trust maymake.

 

ITEM 3.  Quantitative and Qualitative Disclosuresabout Market Risk

 

The Trust doesnot engage in any operations, and does not utilize market risk sensitiveinstruments, either for trading purposes or for other than tradingpurposes.  As described elsewhere herein,the Depositary Units consist of beneficial ownership of one unit of beneficialinterest in the Trust and a $20 face amount beneficial ownership interest in a$1,000 face amount zero coupon Treasury Obligation maturing on May 15,2013.  High and low price information forthe Treasury Obligations is included under Part II Item 5.  As described elsewhere herein, gas productionattributable to the Net Profits Interest is sold to a wholly owned subsidiaryof Eastern American pursuant to the Gas Purchase Contract described herein, andthe Trust’s quarterly distributions are highly dependent on the price payableto the Trust for gas production attributable to the Net Profits Interest.  Natural gas prices can fluctuate widely inresponse to many factors, all of which are out of the control of the Trust, theTrustee and Eastern American.

 

ITEM 4.  Controls and Procedures

 

*Evaluation of Disclosure Controls and Procedures. *The Trustee maintainsdisclosure controls and procedures designed to provide reasonable assurancethat information required to be disclosed by the Trust in the reports that itfiles or submits under the Securities Exchange Act of 1934, as amended, isrecorded, processed, summarized and reported within the time periods specifiedin the SEC’s rules and regulations. Disclosure controls and procedures include controls and proceduresdesigned to provide reasonable assurance that information required to be disclosedby the Trust is accumulated and communicated by several parties, includingwithout limitation, the working interest owner, Eastern American, and theindependent reserve engineer to JPMorgan Chase Bank, N.A., as Trustee of theTrust, 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

 

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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 of June 30,2005, the Trustee carried out an evaluation of the Trustee’s disclosurecontrols and procedures, as defined under Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act.  MikeUlrich, a Vice President of JPMorgan Chase Bank, N.A., has concluded that thecontrols and procedures are effective at the reasonable assurance level, whilenoting certain limitations on disclosure controls and procedures as set forthbelow.

 

Due to thecontractual arrangements of (i) the Trust Agreement, and (ii) the rights of theTrustee under the Conveyances regarding information furnished by EasternAmerican, there are certain potential weaknesses that may limit theeffectiveness of disclosure controls and procedures established by the Trusteeor its employees and their ability to verify the accuracy of certain financialinformation.  The contractual limitationscreating potential weaknesses in disclosure controls and procedures may bedeemed to include:

 

•                  Eastern Americanand its consolidated subsidiaries manage (i) historical operating data,including production volumes, marketing of products, operating and capitalexpenditures, environmental and other liabilities, the effects of regulatorychanges and the number of producing wells and acreage; (ii) plans for futureoperating and capital expenditures; and (iii) geological data relating toreserves.  While the Trustee requestsmaterial information for use in periodic reports as part of its disclosurecontrols and procedures, the Trustee does not manage this information, andrelies to the extent considered reasonable on Eastern American to provideaccurate and timely information when requested for use in the Trust’s reports.

•                  Under the termsof the Trust Agreement, the Trustee is entitled to, and in fact does, rely uponin good faith the independent reserve engineer, as an expert with respect tothe annual reserve report, which includes projected production, operatingexpenses and capital expenses.  Otherthan reviewing the financial and other information provided to the Trust byEastern American on a quarterly basis, the Trustee makes no independent ordirect verification of this financial or other information. While the Trusteehas no reason to believe its reliance upon this expert is unreasonable, this relianceon an expert and restricted access to information may be viewed as a weakness.

 

The Trusteedoes not intend to expand its responsibilities beyond those permitted orrequired by the Trust Agreement and those required under applicable law.

 

**Changes in Internal Control Over FinancialReporting**

 

There has beenno change in the Trustee’s internal control over financial reporting during thethree months ended June 30, 2005 that has materially affected, or is reasonablylikely to materially affect, the Trustee’s internal control over financialreporting.  The Trustee notes forpurposes of clarification that it has no authority over, and makes no statementconcerning, the internal control

 

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over financial reporting ofEastern American.

 

### **PART II – OTHERINFORMATION**

 

ITEM 1.     Legal Proceedings.

 

None.

 

ITEM 2.    Unregistered Sales of Equity Securities andUse of Proceeds.

 

None.

 

ITEM 3.     Defaults Upon Senior Securities.

 

None.

 

ITEM 4.    Submission of Matters to a Vote of SecurityHolders.

 

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 |

 

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| 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 and ExchangeCommission.  All references are to theregistrant’s Registration Statement on Form S-1, Registration No. 33-56336,except for Exhibit 3.1, which is incorporated by reference to the Registrant’sAnnual report on Form 10-K for the year ended December 31, 1994.

 

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### **SIGNATURES**

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly 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, 2005

 

TheRegistrant, Eastern American Natural Gas Trust, has no principal executiveofficer, principal financial officer, board of directors or persons performingsimilar functions.  Accordingly noadditional signatures are available and none have been provided.

 

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