**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10-Q**

**(Mark One)**
| **x**      | **QUARTERLY  REPORT UNDER SECTION 13 OR 15 (d)**                                                                              |
|------------|-------------------------------------------------------------------------------------------------------------------------------|
| ** ** | **OFTHE  SECURITIES EXCHANGE ACT OF 1934**                                                                                    |
| ** ** | ** **                                                                                                                    |
| ** ** | **For the  quarterly period ended September 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 GAS TRUST**

(Exact name of registrant as specified in its charter)

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

 

**The Bank of New York Trust Company, N.A., Trustee**

**GlobalCorporate Trust**

**221 WestSixth Street**

**Austin,Texas**

(Address of principal executive offices)

**78701**

(Zip Code)

**(800)852-1422**

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports) and (2) has been subjectto such filing requirements for 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 definedin Exchange Act Rule 12b-2 of the Exchange 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 November 3, 2006, 5,900,000 Units of BeneficialInterest in Eastern American Natural Gas Trust were issued, outstanding andheld by non-affiliates of the registrant (the “Outstanding Units”).  Of the Outstanding Units, 19,900 Units ofBeneficial Interest (the “Withdrawn Units”) have been withdrawn from trading byvoluntary action of Holders and may not be traded unless such Holders complywith certain requirements provided in the related Trust Agreement.

 

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# **PART I – FINANCIAL INFORMATION**

## **ITEM 1.  Financial Statements**

**EASTERN AMERICAN NATURAL GAS TRUST**

**CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME**

*(Unaudited)*
| ** **                                                                  | ** ** | **Nine Months Ended** | ** ** | **Three Months Ended** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|
| ** **                                                                  | ** ** | **September 30**           | ** ** | **September 30**            | ** ** |
| ** **                                                                  | ** ** | **2006**                        | ** ** | **2005**                         | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                        |       |                            |       |                             |       |   |   |   |   |
| Royalty Income                                                              |       | $                               | 14,258,025 |                             | $          | 12,221,141 |   | $ | 4,299,589 |   | $ | 4,659,185 |   |
|                                                                        |       |                            |       |                             |       |   |   |   |   |
| Operating Expenses                                                          |       |                            |       |                             |       |   |   |   |   |
| Taxes on  production and property                                           |       | 1,045,984                       |       | 839,691                          |       | 315,894 |   | 320,484 |   |
| Operating cost  charges                                                     |       | 420,801                         |       | 400,761                          |       | 140,267 |   | 133,587 |   |
|                                                                        |       |                            |       |                             |       |   |   |   |   |
| Total Operating  Expenses                                                   |       | 1,466,785                       |       | 1,240,452                        |       | 456,161 |   | 454,071 |   |
|                                                                        |       |                            |       |                             |       |   |   |   |   |
| Net Proceeds to the  Trust                                                  |       | 12,791,240                      |       | 10,980,689                       |       | 3,843,428 |   | 4,205,114 |   |
|                                                                        |       |                            |       |                             |       |   |   |   |   |
| General and  Administrative Expenses                                        |       | (1,313,457                      | )          | (1,017,252                       | )          | (530,147 | ) | (405,340 | ) |
|                                                                        |       |                            |       |                             |       |   |   |   |   |
| Interest Income                                                             |       | —                          |       | 500                              |       | — |   | — |   |
|                                                                        |       |                            |       |                             |       |   |   |   |   |
| Distributable  Income                                                       |       | 11,477,783                      |       | 9,963,937                        |       | 3,313,281 |   | 3,799,774 |   |
|                                                                        |       |                            |       |                             |       |   |   |   |   |
| Cash Reserve Refunded  (Withheld)                                           |       | 500,000                         |       | (185,000                         | )          | 500,000 |   | — |   |
|                                                                        |       |                            |       |                             |       |   |   |   |   |
| Distribution  Amount                                                        |       | $                               | 11,977,783 |                             | $          | 9,778,937 |   | $ | 3,813,281 |   | $ | 3,799,774 |   |
|                                                                        |       |                            |       |                             |       |   |   |   |   |
| Distributable Income  Per Unit (5,900,000 units authorized and outstanding) |       | $                               | 1.9454     |                             | $          | 1.6888 |   | $ | 0.5616 |   | $ | 0.6440 |   |
|                                                                        |       |                            |       |                             |       |   |   |   |   |
| Distribution Amount Per  Unit (5,900,000 units authorized and outstanding)  |       | $                               | 2.0301     |                             | $          | 1.6574 |   | $ | 0.6463 |   | $ | 0.6440 |   |

 

**Theaccompanying notes are an integral part of these condensed financialstatements.**

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**EASTERN AMERICAN NATURAL GAS TRUST**

**CONDENSEDSTATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS**
| ** **                                                       | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                                       | ** ** | **(Unaudited)**                  | ** ** | ** **                      | ** ** |
|                                                             |       |                             |       |                            |       |
| Assets:                                                          |       |                             |       |                            |       |
|                                                             |       |                             |       |                            |       |
| Cash                                                             |       | $                                | 820,055    |                            | $          | 43,478 |   |
| Net Proceeds Receivable                                          |       | 3,843,428                        |       | 5,408,091                       |       |
| Net Profits Interests in Gas Properties                          |       | 93,162,180                       |       | 93,162,180                      |       |
| Accumulated Amortization                                         |       | (67,929,640                      | )          | (65,658,915                     | )          |
|                                                             |       |                             |       |                            |       |
| Total Assets                                                     |       | $                                | 29,896,023 |                            | $          | 32,954,834 |   |
|                                                             |       |                             |       |                            |       |
| Liabilities and  Trust Corpus:                                   |       |                             |       |                            |       |
|                                                             |       |                             |       |                            |       |
| Trust General and Administrative Expenses Payable                |       | $                                | 150,202    |                            | $          | 318,120 |   |
| Distributions Payable                                            |       | 3,813,281                        |       | 3,933,449                       |       |
| Trust Corpus (5,900,000 Trust Units authorized and  outstanding) |       | 25,932,540                       |       | 28,703,265                      |       |
|                                                             |       |                             |       |                            |       |
| Total  Liabilities and Trust Corpus                              |       | $                                | 29,896,023 |                            | $          | 32,954,834 |   |

 

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

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**EASTERNAMERICAN NATURAL GAS TRUST**

**CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS**

*(Unaudited)*
| ** **                                               | ** ** | **Nine Months**             | ** ** | **Nine Months**             | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                                               | ** ** | **Ended**                        | ** ** | **Ended**                        | ** ** |
| ** **                                               | ** ** | **September 30, 2006** | ** ** | **September 30, 2005** | ** ** |
|                                                     |       |                             |       |                             |       |
| Trust Corpus,  Beginning of Period                       |       | $                                | 28,703,265 |                             | $          | 31,139,508 |   |
| Distributable  Income                                    |       | 11,477,783                       |       | 9,963,937                        |       |
| Distributions  Payable to Unitholders                    |       | (11,977,783                      | )          | (9,778,937                       | )          |
| Amortization of  Net Profits Interests in Gas Properties |       | (2,270,725                       | )          | (2,524,092                       | )          |
|                                                     |       |                             |       |                             |       |
| Trust Corpus, End of  Period                             |       | $                                | 25,932,540 |                             | $          | 28,800,416 |   |

 

**The accompanying notes are an integral part of thesecondensed financial statements.**

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**EASTERN AMERICAN NATURAL GAS TRUST**

**NOTES TOUNAUDITED CONDENSED FINANCIAL STATEMENTS**

NOTE 1. Organization of the Trust

The Eastern American Natural Gas Trust (the “Trust”) was formed underthe Delaware Business Trust Act pursuant to a Trust Agreement (the “TrustAgreement”) among Eastern American Energy Corporation (“Eastern American”), asgrantor, Bank of Montreal Trust Company, as trustee, and Wilmington TrustCompany, as Delaware Trustee (the “Delaware Trustee”).  Effective May 8, 2000, The Bank of New Yorkacquired the corporate trust business of the then current Trustee and served asTrustee through December 31, 2004.   OnNovember 20, 2004, the holders of a majority of the Trust Units voting at aspecial meeting approved the resignation of The Bank of New York, as trusteeand depository of the Trust, and the appointment of JPMorgan Chase Bank, N.A.,as successor trustee of the Trust, effective as of January 1, 2005.  See Note 5 for information regarding the currenttrustee, The Bank of New York Trust Company, N.A. (the “Trustee”).  Effective January 1, 2005, the transfer agentfor the Trust became Bondholder Communications.

The Trust was formed to acquire and hold net profits interests (the “NetProfits Interests”) created from the working interests owned by EasternAmerican in 650 producing gas wells and 65 proved development well locations(the “Development Wells”) in West Virginia and Pennsylvania (the “UnderlyingProperties”).

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 theUnitholders by the Depositary.

The Net ProfitsInterests are passive in nature, and neither the Trustee nor the DelawareTrustee has management control or authority over, nor any responsibilityrelating to, the operation of the properties subject to the Net ProfitsInterests.  The Trust Agreement provides,among other things, that the Trust shall not engage in any business orcommercial activity or acquire any asset other than the Net Profits Interestsinitially conveyed to the Trust; the Trustee may establish a reserve forpayment 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 theTrust was formed, 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 ProfitsInterests initially consisted of a royalty interest (“Royalty NPI”) in 322wells and a term interest (“Term NPI”) in the remaining wells and locations. Asof September 30, 2006, the Trust held Net Profits Interests in 671 wells,consisting of Royalty NPI in 317 wells and Term NPI in the remaining wells. TheTerm NPI expire by their terms on May 15, 2013, or such earlier time as 41,683MMcf of gas has been produced that is attributable to Eastern American’s netrevenue interest in the properties burdened by the Term NPI. As of December 31,2005, based on the Independent Petroleum Engineer’s Report, 21,814 MMcf of themaximum 41,683 MMcf has been produced.

Between May 15,2012 and May 15, 2013 (the “Liquidation Date”), the Trustee is required to sellall the Royalty 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 thisright, Eastern American must pay the appraised Fair Value (as defined in theTrust Agreement) of the Royalty NPI, or the relevant third party offer price ifa third 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.

NOTE 5. SubsequentEvent

Effective October2, 2006, The Bank of New York Trust Company, N. A. acquired the corporate trustbusiness of JPMorgan Chase Bank, N.A. Consequently, The Bank of New York Trust Company, N.A., currently servesas Trustee 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-Q includes “forward-looking statements” within the meaningof Section 27A of the Securities Act of 1933, as amended, and Section 21E ofthe Securities Exchange Act of 1934, as amended. All statements other thanstatements of historical fact included in this Form 10-Q, including withoutlimitation the statements under “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” are forward-looking statements.Although Eastern American has advised the Trustee that it believes that theexpectations reflected in the forward-looking statements contained herein arereasonable, no assurance can be given that such expectations will prove to havebeen correct. Important factors that could cause actual results to differmaterially from expectations (“Cautionary Statements”) are disclosed in thisForm 10-Q and in the Trust’s Annual Report on Form 10-K for the year endedDecember 31, 2005, as amended, and include the fact that none of theTrust, the Trustee or Eastern American is able to predict future changes in gasprices, gas production levels, economic activity, legislation or regulation, orcertain changes in expenses of the Trust. All subsequent written and oral forward-looking statementsattributable to the Trust or persons acting on its behalf are expresslyqualified in their entirety by the Cautionary Statements.  The Trust, the Trustee and EasternAmerican disclaim any obligation to update any forward looking statements.

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.

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.  “Chargeable Costs”is that volume of gas which 

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equates in value,determined by reference to the relevant sales price under the Gas PurchaseContract or the Conveyances, as applicable, to the sum of the “Operating CostCharge”, “Capital Costs” and “Taxes”.

The “OperatingCost Charge” for 2006 is based on an annual rate of $561,068, and for 2005 wasan annual rate of $534,348.  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, 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 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 taxesimposed on Eastern American’s or the Trust’s interests in the UnderlyingProperties, 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 

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is equal to the Henry Hub Average Spot Price (asdefined) per MMBtu plus $0.30 per MMBtu, multiplied by 110% to effect a fixedadjustment for Btu content.  The HenryHub Average Spot Price is defined as the price per MMBtu determined for anycalendar quarter equal to the price obtained with respect to each of the threemonths in such quarter, in the manner specified below, and then taking theaverage of the prices determined for each of such three months.  The price determined for any month of suchquarter is equal to the average of (i) the final settlement price per MMBtu forHenry Hub Gas Futures Contracts (as defined), as reported in *The Wall Street Journal*, for such contracts which expired ineach of the five months prior to such month; (ii) the final settlement priceper MMBtu for Henry Hub Gas Futures Contracts, as reported in *The Wall Street Journal*, for such contracts which expireduring such month; and (iii) the closing settlement price per MMBtu of HenryHub Gas Futures Contracts determined as of the contract settlement date forsuch month, as reported in *The Wall Street Journal*,for such contracts which expire in each of the six months following suchmonth.  A Henry Hub Gas Futures Contractis defined as a gas futures contract for gas to be delivered to the Henry Hubthat is traded on the New York Mercantile 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 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 September 30, 2006, an additional volume of 3,813 Mcf was delivered tothe Trust, as compared to 4,123 Mcf for the quarter ended September 30,2005.  These additional volumes fulfillEastern American’s obligation to provide volumes for Development Wells that hadbeen closely offset by third parties.

Eastern American has fulfilled its obligation with respect to thedrilling of the Development Wells. Since the inception of the Trust, Easternhas drilled a total of 59 Development Wells, which are online andproducing.  (See the Trust’s AnnualReport on Form 10-K for the fiscal year ended December 31, 2005, as amended,for a more complete description of the Development Wells.)

Also, during 2004, alandowner contacted Eastern American to inquire about the sale of certain wellslocated on the landowner’s property, including the Wurst #2 well, which is awell 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 

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assign this well.The Wurst #2 well had no value and no cash distribution was made to the Trust.

Over the remaininglife of the Trust, additional wells may be disposed of for similar or otherreasons.

As previouslypublicly announced, Ensource Energy Income Fund LP, a recently formed Delawarelimited partnership not affiliated with the Trust (“Ensource”), has terminatedits revised unsolicited offer to acquire control of the Trust.  The Trust incurred approximately $361,808 ofexpenses relating to the Ensource offer in the three month period endedSeptember 30, 2006.

The administrativecosts the 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:*

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 reducedistributable income, rather it is charged directly to Trust Corpus.  Revisions to estimated futureunits-of-production are treated on a prospective basis beginning on the datesignificant revisions are 

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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 and operatingconditions, and such estimates are subject to change as additional informationbecomes 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 September 30, 2006.  At September 30, 2006, the Trust had generaland administrative expenses payable of $150,202 and distributions payable of$3,813,281.

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

The Trust’sdistributable income was $3,313,281 for the three months ended September 30,2006 as compared to $3,799,774 for the three months ended September 30,2005.  This decrease was due to adecrease in Royalty Income for the three months ended September 30, 2006 to$4,299,589 as compared to the three months ended September 30, 2005 to$4,659,185.  The decrease in RoyaltyIncome was due to a decrease in the price payable to the Trust under the GasPurchase Contract as discussed below ($9.024 per Mcf for the three months endedSeptember 30, 2006 as compared to $9.268 per Mcf for the three months endedSeptember 30, 2005).  This decrease wasalso due to a decrease in production of gas attributable to the Net ProfitsInterests for the three months ended September 30, 2006 (476 Mmcf) as comparedto the three months ended September 30, 2005 (504 Mmcf).  The decline in production is primarilyattributable to natural production declines. Taxes on production and property were $315,894 for the three monthsended September 30, 2006 as compared to $320,484 for the three months endedSeptember 30, 2005. The decrease in taxes is due directly to the decrease inRoyalty Income as discussed above.  Trustgeneral and administrative expenses were $530,147 for the three months endedSeptember 30, 2006 as compared to $405,340 for the three months ended September30, 2005.  This increase in general andadministrative expense was primarily related to professional service fees of$124,807, which were incurred mostly as a direct result of the Ensourceoffer.  During the three months endedSeptember 30, 2006, the Trustee released $500,000 from the cash reserve ascompared to no activity during the three months ended September 30, 2005.  The Trustee established this reserve amountto facilitate the payment of vendor invoices on a timely basis.  This release of the reserve is due to theexpiration of the Ensource offer.  

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Amortization of NetProfits Interests in Gas Properties was $758,699 for the three months endedSeptember 30, 2006 as compared to $854,760 for the three months ended September30, 2005.  This decrease was due to thedecrease in the amortization rate and production volumes.

The price payable to the Trust for gas productionattributable to the Net Profits Interests was $9.024 per Mcf for the threemonths ended September 30, 2006 and $9.268 per Mcf for the three months endedSeptember 30, 2005.  The price per Mcf waslower for the three months ended September 30, 2006 than for the correspondingthree month period ended September 30, 2005 due to a decrease in the averagespot market price for gas delivered at the Henry Hub near Henry, Louisiana($7.904 per Dth for the three months ended September 30, 2006 as compared to$8.125 per Dth for the three months ended September 30, 2005).

Comparison of Results ofOperations for Nine Months Ended September 30, 2006 and Nine Months EndedSeptember 30, 2005

The Trust’sdistributable income was $11,477,783 for the nine months ended September 30,2006 as compared to $9,963,937 for the nine months ended September 30,2005.   This increase was due to anincrease in Royalty Income for the nine months ended September 30, 2006 to$14,258,025 as compared to $12,221,141 for the nine months ended September 30,2005.  The increase in Royalty Income wasdue to an increase in the average price payable to the Trust under the GasPurchase Contract as discussed below ($10.019 per Mcf for the nine months endedSeptember 30, 2006; $8.221 per Mcf for the nine months ended September 30,2005).  This increase was offset by adecrease in production of gas attributable to the Net Profits Interests for thenine months ended September 30, 2006 (1,425 Mmcf) as compared to the ninemonths ended September 30, 2005 (1,487 Mmcf). The decline in production is primarily attributable to naturalproduction declines.  Taxes on productionand property were $1,045,984 for the nine months ended September 30, 2006 ascompared to $839,691 for the nine months ended September 30, 2005.  The increase in taxes is due directly to theincrease in Royalty Income as discussed above. Trust general and administrative expenses were $1,313,457 for the ninemonths ended September 30, 2006 as compared to $1,017,252 for the nine monthsended September 30, 2005.  This increasein general and administrative expense of $296,205 was primarily related toprofessional service fees, which were incurred mostly as a direct result of theEnsource offer.  During the nine monthsended September 30, 2006, the Trustee released $500,000 from the cash reserveas compared to $185,000 added during the nine months ended September 30,2005.  The Trustee established thisreserve amount to facilitate the payment of vendor invoices on a timely basis.  This release of the reserve is due to theexpiration of the Ensource offer. Amortization of Net Profits Interests in Gas Properties was $2,270,725for the nine months ended September 30, 2006 as compared to $2,524,092 for thenine months ended September 30, 2005. This decrease was due to the decrease in the amortization rate andproduction volumes.

The average price payable to the Trust for gasproduction attributable to the Net Profits Interests was $10.019 per Mcf forthe nine months ended September 30, 2006 and $8.221 per Mcf for the nine monthsended September 30, 2005.  The price perMcf was higher for the nine months ended September 30, 2006 than for thecorresponding nine month period ended September 30, 2005 due to 

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an increase in theaverage spot market price for gas delivered at the Henry Hub near Henry,Louisiana ($8.808 per Dth for the nine months ended September 30, 2006; $7.173per Dth for the nine months ended September 30, 2005).

**Off-Balance Sheet Arrangements**

The Trust does nothave any off-balance sheet arrangements that have or are reasonably likely tohave a current 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 September 30, 2006, 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 $744.01and $703.32, respectively.  On September30, 2006, the closing price of the Treasury Obligations, as quoted on suchmarket, was $740.53.

**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 September30, 2006, this option was exercised on 19,900 Trust Units.  (See the Trust’s 10-K, as amended, for theyear ended December 31, 2005 for a more complete description of the Withdrawalof Trust Units and Restriction on Transfer.)**

ITEM 3.  Quantitative and Qualitative Disclosuresabout Market Risk

The Trust does notengage 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

*Evaluationof Disclosure Controls and Procedures. * The Trustee maintains disclosure controls andprocedures designed to ensure that information required to be disclosed by theTrust 

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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 proceduresinclude controls and procedures designed to ensure that information required tobe disclosed by the Trust is accumulated and communicated by several parties,including without limitation, the working interest owner, Eastern AmericanEnergy Corporation (“Eastern American”), and the independent reserve engineerto the Trustee and its employees who participate in the preparation of theTrust’s periodic reports as appropriate to allow timely decisions regardingrequired disclosure.  In addition, the Trustee is required by the TrustAgreement to engage and has engaged an independent registered public accountingfirm to review the quarterly financial statements of the Trust and audit theannual financial statements of the Trust, which includes financial dataprovided by Eastern American.

As of September 30,2006, the Trustee carried out an evaluation of the Trustee’s disclosurecontrols and procedures.  Mike Ulrich, asTrust Officer of the Trustee, has concluded that the disclosure controls andprocedures are effective.

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 limitations creatingpotential weaknesses in disclosure controls and procedures may be deemed toinclude the following:

·       EasternAmerican and its consolidated subsidiaries manage information relating to theTrust, including (i) historical operating data, including production volumes,marketing of products, operating and capital expenditures, environmental andother liabilities, the effects of regulatory changes and the number ofproducing wells and acreage, (ii) plans for future operating and capitalexpenditures and (iii) geological data relating to reserves; and

·       TheTrustee necessarily relies upon the independent reserve engineer, as an expertwith respect to the annual reserve report, which includes projected production,operating expenses and capital expenses.

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 must 

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reflect the fact thatthere are resource constraints, and the benefits of controls must be consideredrelative to costs.  Because of theinherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud, ifany, 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 – OTHERINFORMATION**

ITEM 1.      Legal Proceedings.

None.

ITEM  1A.  Risk Factors.

There have been nomaterial changes in the risk factors disclosed under Part I, Item 1A ofthe Trust’s Annual Report on Form 10-K, as amended, for the year endedDecember 31, 2005.

ITEM 2.      Unregistered Sales of Equity Securitiesand Use of Proceeds.

None.

ITEM 3.      Defaults Upon Senior Securities.

None.

ITEM 4.      Submission of Matters to a Vote ofSecurity Holders.

None.

ITEM 5.      Other Information.

None.

ITEM 6.      Exhibits.

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####  

| Exhibit   Number | ** ** | **Description**                        |
|------------------|------------|----------------------------------------|
|             |       |                                   |
| 31.              |       | Rule 13a-14(a)/15d-14(a) Certification |
| 32.              |       | Section 1350 Certification             |

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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:  The Bank of New York Trust Company, N.A., |
|   | Trustee                                             |
|   |                                                |
|   |                                                | /s/  Mike  Ulrich |   |
|   | Name:  Mike Ulrich                             |
|   | Title:                                              | Vice President |
|   |                                                | The Bank of New  York Trust Company, |
|   |                                                | N.A. Trustee |
|        |                                                     |  |  |  |

 

Date:  November8, 2006

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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