**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**
| **ý** | ** ** | **QUARTERLY  REPORT UNDER SECTION 13 OR 15 (d)**        | ** ** |
|------------|------------|---------------------------------------------------------|------------|
| ** ** | ** ** | **OF THE  SECURITIES EXCHANGE ACT OF 1934**             | ** ** |
| ** ** | ** ** | ** **                                              | ** ** |
| ** ** | ** ** | **For the quarterly period ended March 31,  2006**      | ** ** |
| ** ** | ** ** | ** **                                              | ** ** |
| ** ** | ** ** | **OR**                                                  | ** ** |
| ** ** | ** ** | ** **                                              | ** ** |
| **o**      | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (d)** | ** ** |
| ** ** | ** ** | **OF THE  SECURITIES EXCHANGE ACT OF 1934**             | ** ** |

** **

**For thetransition period from                       to                    **

** **

**Commission File Number 1-11748**

 

**EASTERN AMERICAN NATURAL GAS TRUST**

(Exact name of registrant as specified in itscharter)

 

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

 

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

**Institutional Trust Services**

**700 Lavaca, 2nd Floor**

**Austin, Texas**

(Address of principal executive offices)

 

**78701**

(Zip Code)

 

**(800) 852-1422**

(Registrant’s telephone number, includingarea code)

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports) and (2) has been subject to such filingrequirements for the past 90 days. 
| Yes | ý | No o |
|-----|--------|------|

 

 Indicate by check mark whetherthe registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. (as defined in Exchange Act Rule 12b-2 of the ExchangeAct). 

 
| Large accelerated filer o |   | Accelerated filer ý |   | 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 ý |
|-----|---|-----------|

 

# **As of May 1, 2006, 5,900,000 Unitsof Beneficial Interest in Eastern American Natural Gas Trust were issued,outstanding and held by non-affiliates of the registrant (the “OutstandingUnits”). Of the Outstanding Units, 19,900 Units of Beneficial Interest (the “WithdrawnUnits”) have been withdrawn from trading by voluntary action of Holders and maynot be traded unless such Holders comply with certain requirements provided inthe related Trust Agreement.**

 

 

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# **PART I – FINANCIALINFORMATION**

# ** **

# **ITEM 1. FinancialStatements**

 

**EASTERN AMERICAN NATURAL GAS TRUST**

**CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME**

*(Unaudited)*

 
| ** **                                                                    | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                    | ** ** | **March 31,**               | ** ** |
| ** **                                                                    | ** ** | **2006**                         | ** ** | **2005** | ** ** |
|                                                                          |       |                             |       |   |   |
| Royalty Income                                                                |       | $                                | 5,363,086  |   | $ | 3,648,398 |   |
|                                                                          |       |                             |       |   |   |
| Operating Expenses:                                                           |       |                             |       |   |   |
| Taxes on production and property                                              |       | 390,983                          |       | 253,671 |   |
| Operating cost charges                                                        |       | 140,267                          |       | 133,587 |   |
|                                                                          |       |                             |       |   |   |
| Total Operating Expenses                                                      |       | 531,250                          |       | 387,258 |   |
|                                                                          |       |                             |       |   |   |
| Net Proceeds to the Trust                                                     |       | 4,831,836                        |       | 3,261,140 |   |
|                                                                          |       |                             |       |   |   |
| General and Administrative Expenses                                           |       | (447,220                         | )          | (303,473 | ) |
|                                                                          |       |                             |       |   |   |
| Interest Income                                                               |       | —                           |       | 500 |   |
|                                                                          |       |                             |       |   |   |
| Distributable Income                                                          |       | 4,384,616                        |       | 2,958,167 |   |
|                                                                          |       |                             |       |   |   |
| Quarterly Distribution Amount                                                 |       | $                                | 4,384,616  |   | $ | 2,958,167 |   |
|                                                                          |       |                             |       |   |   |
| Distributable Income Per Unit (5,900,000 units  authorized and outstanding)   |       | $                                | 0.7432     |   | $ | 0.5014 |   |
|                                                                          |       |                             |       |   |   |
| Quarterly Distribution Per Unit (5,900,000 units  authorized and outstanding) |       | $                                | 0.7432     |   | $ | 0.5014 |   |

 

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

 

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**EASTERN AMERICAN NATURAL GAS TRUST**

 

**CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUSTCORPUS**

 
| ** **                                                       | ** ** | **March 31, 2006** | ** ** | **December 31, 2005** | ** ** |
|------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                                                       | ** ** | **(Unaudited)**              | ** ** | ** **                      | ** ** |
|                                                             |       |                         |       |                            |       |
| Assets:                                                          |       |                         |       |                            |       |
|                                                             |       |                         |       |                            |       |
| Cash                                                             |       | $                            | 892,220    |                            | $          | 43,478 |   |
| Net Proceeds Receivable                                          |       | 4,831,836                    |       | 5,408,091                       |       |
| Net Profits Interests in Gas Properties                          |       | 93,162,180                   |       | 93,162,180                      |       |
| Accumulated Amortization                                         |       | (66,402,232                  | )          | (65,658,915                     | )          |
|                                                             |       |                         |       |                            |       |
| Total Assets                                                     |       | $                            | 32,484,004 |                            | $          | 32,954,834 |   |
|                                                             |       |                         |       |                            |       |
| Liabilities and Trust Corpus:                                    |       |                         |       |                            |       |
|                                                             |       |                         |       |                            |       |
| Trust General and Administrative Expenses  Payable               |       | $                            | 139,440    |                            | $          | 318,120 |   |
| Distributions Payable                                            |       | 4,384,616                    |       | 3,933,449                       |       |
| Trust Corpus (5,900,000 Trust Units authorized  and outstanding) |       | 27,959,948                   |       | 28,703,265                      |       |
|                                                             |       |                         |       |                            |       |
| Total Liabilities and Trust Corpus                               |       | $                            | 32,484,004 |                            | $          | 32,954,834 |   |

 

**The accompanying notes are an integral part of these condensed financialstatements.**

 

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**EASTERN AMERICAN NATURAL GAS TRUST**

** **

**CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS**

*(Unaudited)*

 
| ** **                                               | ** ** | **Three Months**        | ** ** | **Three Months**        | ** ** |
|----------------------------------------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                               | ** ** | **Ended**                    | ** ** | **Ended**                    | ** ** |
| ** **                                               | ** ** | **March 31, 2006** | ** ** | **March 31, 2005** | ** ** |
|                                                     |       |                         |       |                         |       |
| Trust Corpus, Beginning of Period                        |       | $                            | 28,703,265 |                         | $          | 34,857,666 |   |
| Distributable Income                                     |       | 4,384,616                    |       | 2,511,621                    |       |
| Distributions Payable to Unitholders                     |       | (4,384,616                   | )          | (2,511,621                   | )          |
| Amortization of Net Profits Interests in Gas  Properties |       | (743,317                     | )          | (938,423                     | )          |
|                                                     |       |                         |       |                         |       |
| Trust Corpus, End of Period                              |       | $                            | 27,959,948 |                         | $          | 33,919,243 |   |

 

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

 

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**EASTERN AMERICAN NATURAL GAS TRUST**

** **

**NOTES TO UNAUDITED CONDENSED FINANCIALSTATEMENTS**

 

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 York acquired the corporate trust business of the then currentTrustee and served as Trustee through December 31, 2004. On November 20, 2004,the holders of a majority of the Trust Units voting at a special meetingapproved the resignation of The Bank of New York, as trustee and depository ofthe Trust, and the appointment of JPMorgan Chase Bank, N.A. as successortrustee (“Trustee”) of the Trust. The appointment of JPMorgan Chase Bank, N.A.,as successor trustee, became effective as of January 1, 2005. Effective January1, 2005, the transfer agent for the Trust is 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 publicoffering at an initial public offering price of $20.50 per Depositary Unit. EachDepositary Unit consists of beneficial ownership of one unit of beneficialinterest (“Trust Unit”) in the Trust and a $20 face amount beneficial ownershipinterest in a $1,000 face amount zero coupon United States Treasury Obligation(“Treasury Obligation”) maturing on May 15, 2013. The financial statements ofthe Trust to which these notes relate do not include information concerning theTreasury Obligations, the beneficial interest in which is held for theUnitholders by the Depositary.

 

The Net Profits Interests are passive in nature, and neither theTrustee nor the Delaware Trustee has management control or authority over, norany responsibility relating to, the operation of the properties subject to theNet Profits Interests. The Trust Agreement provides, among other things, thatthe Trust shall not engage in any business or commercial activity or acquireany asset other than the Net Profits Interests initially conveyed to the Trust;the Trustee may establish a reserve for payment of any liability that is contingent,uncertain in amount or is not currently due and payable; the Trustee isauthorized to borrow funds required to pay liabilities of the Trust, providedthat such borrowings are repaid in full prior to further distributions toUnitholders; and the Trustee will make quarterly cash distributions toUnitholders from funds of the Trust.

 

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### **After the Trust was formed, 59 of the 65 DevelopmentWells were drilled and completed.**The remaining six Development Wells were not drilled. Clear title totwo of the Development Wells could not be established, and they were excludedfrom the Trust in accordance with the conveyance transferring them to theTrust. Eastern American asserted the remaining four undrilled DevelopmentWells, if drilled, would be too close to then existing wells on the property oran adjoining property, and thereafter settled its dispute with the Trust aboutdrilling those four Development Wells by agreeing instead to pay the Trustannually for the annual volume of gas projected to be produced from thoseDevelopment Wells as if they had been drilled. 

 

The Net Profits Interests initially consisted of a royalty interest (“RoyaltyNPI”) in 322 wells and a term interest (“Term NPI”) in the remaining wells andlocations. As of March 31, 2006, 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, 2005, based on the Independent Petroleum Engineer’s Report,21,814 MMcf of the maximum 41,683 MMcf has been produced. 

 

Between May 15, 2012 and May 15, 2013 (the “Liquidation Date”), theTrustee is required to sell all the Royalty NPI and liquidate the Trust. Underthe Trust Agreement, Eastern American has the right of first refusal topurchase any of the Royalty NPI the Trustee is required to sell after theLiquidation Date. If it exercises this right, Eastern American must pay theappraised Fair Value (as defined in the Trust Agreement) of the Royalty NPI, orthe relevant third party offer price if a third party has offered to purchasethe Royalty NPI. Unitholders of record on the relevant record dates willreceive the net proceeds from selling the Royalty NPI in accordance with theTrust Agreement, and also will receive their respective share of the maturedface amount of the Treasury Obligations held by the Depositary. 

 

NOTE 2. Basis of Presentation

 

The preparation of financial statements requires estimates andassumptions that affect reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during thereporting period. Without limiting the foregoing statement, the informationfurnished is based upon certain estimates of production for the periodspresented and is therefore subject to adjustment in future periods to reflectactual production for the periods presented. The information furnished reflectsall adjustments which are, in the opinion of the Trustee, necessary for a fairpresentation of the results for the interim periods presented. The accompanyingfinancial statements are unaudited interim financial statements, and should beread in conjunction with the audited financial statements and notes theretoincluded in the Trust’s Annual Report on Form 10-K for the year ended December31, 2005, as amended. The year-end condensed balance sheet data was derivedfrom audited financial 

 

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statements, but does not include all disclosures required by accountingprinciples generally accepted in the United States of America for completefinancial statements.

 

NOTE 3. Trust Accounting Policies

 

The Trust serves as a pass-through entity, with items of depletion,interest income and expense, and income tax attributes being based upon thestatus and elections of Unitholders. Thus, the Statements of DistributableIncome show Distributable Income, defined as Trust income available fordistribution to Unitholders subject to Trustees Cash Reserves described in PartI, Item 2 before application of those Unitholders’ additional expenses, if any,for depletion, interest expense, and income taxes. The Trust uses the accrualbasis to recognize revenue, with Royalty Income recognized as gas reserves areextracted from properties and sold. Expenses are also presented on an accrualbasis. Actual cash receipts will vary from the accrual of revenues due to,among other reasons, the payment provisions of the gas purchase contractbetween the Trust and Eastern Marketing Corporation (a subsidiary of EasternAmerican), which requires payment with respect to gas production for a calendarquarter to be made to the Trust on or before the tenth day of the third monthfollowing such quarter.

 

The Net Profits Interests are assessed annually to determine whethertheir net capitalized cost is impaired. The Trust will determine if a writedownis necessary to its investment in the Net Profits Interests in gas propertiesto the extent that total capitalized costs, less accumulated amortization,exceed undiscounted future net revenues attributable to proved gas reserves ofthe Underlying Properties. The Trust will then provide a writedown to theextent that the net capitalized costs exceed the discounted future net revenuesattributable to proved gas reserves of the Underlying Properties. Any suchwritedown would not reduce distributable income, although it would reduce TrustCorpus.

 

Amortization of the Net Profits Interests in Gas Properties iscalculated on a units-of-production basis, whereby the Trust’s cost basis inthe properties is divided by total Trust proved reserves to derive anamortization 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 from financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America due to the following: (i) certain cash reserves may beestablished for contingencies which were not accrued in the financialstatements; (ii) amortization of the Net Profits Interests in gas properties ischarged directly to Trust Corpus; and (iii) the sale of the Net ProfitsInterests is reflected in the Statements of Distributable Income as cashproceeds to the Trust.

 

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NOTE 4. Income Taxes

 

The Trust is a grantor trust and is not required to pay federal orstate income taxes. Accordingly, no provision for federal or state income taxeshas been made. All income is taxed to the Unitholders of the Trust.

 

NOTE 5. Subsequent Events

 

On April 8, 2006, JP Morgan Chase and Bank of New York announced anagreement pursuant to which Bank of New York would acquire JPMorgan Chase’scorporate trust business. The transaction has been approved by both companies’boards of directors. Subject to regulatory approvals, the transaction isexpected to close in the late third quarter or fourth quarter of 2006. Thetransaction is not expected to have any material effect on the Trust.

 

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ITEM 2. Management’s Discussion and Analysis of Financial Condition andResults 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 the Trust, theTrustee or Eastern American is able to predict future changes in gas prices,gas production levels, economic activity, legislation or regulation, or certainchanges in expenses of the Trust. All subsequent written and oralforward-looking statements attributable to the Trust or persons acting on itsbehalf are expressly qualified in their entirety by the Cautionary Statements. TheTrust, the Trustee and Eastern American disclaim any obligation to update anyforward looking statements.

 

Further, forward-looking statements made herein regarding the Trust andits operation in this Form 10-Q generally assume that the pending exchangeoffer being made by Ensource Energy Income Fund LP as described below will notresult in Ensource acquiring control of the Trust. Ensource has stated that ifit acquires control of the Trust, it intends to attempt to cause the Trust toengage in a merger that would result in significant changes to the Trust.

 

General

 

The Trust does not conduct any operations or activities. The Trust’spurpose is, in general, to hold the Net Profits Interests, to distribute thecash proceeds to Unitholders which the Trust receives in respect of the NetProfits Interests (net of Trust expenses), and to perform certainadministrative functions in respect of the Net Profits Interests and theDepositary Units. Accordingly, the Trust derives substantially all of itsincome and cash flows from the Net Profits Interests. The Trust has no sourceof liquidity or capital resources other than the cash flows from the NetProfits Interests.

 

The Net Profits Interests were created pursuant to conveyances (the “Conveyances”)from Eastern American to the Trust. In connection therewith, Eastern Americanassigned its rights under a gas purchase contract (the “Gas Purchase Contract”),which obligates Eastern Marketing Corporation, a subsidiary of EasternAmerican, to purchase all of the natural gas produced from the UnderlyingProperties that is attributable to the Net Profits Interests.

 

The Conveyancesand the Gas Purchase Contract entitle the Trust to receive an amount of cash 

 

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for each calendar quarter equal to the Net Proceedsfor such quarter. “Net Proceeds” for any calendar quarter generally means anamount of cash equal to (a) 90% of a volume of gas equal to (i) the volume ofgas produced during such quarter attributable to the Underlying Properties less(ii) a volume of gas equal to “Chargeable Costs” for such quarter, multipliedby (b) the applicable price for such quarter under the Gas 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 “Taxes”.

 

The “OperatingCost Charge” for 2006 is based on an annual rate of $561,068, and for 2005 wasan annual rate of $535,224. As provided in the Conveyances, the Operating CostCharge will fluctuate based on the lesser of (A) five percent (5%) or (B) apercentage, not less than zero percent (0%), equal to the percentage increase,if any, in the average weekly earnings of Crude Petroleum and Gas ProductionWorkers for the last calendar year, as shown by the index of average weeklyearnings of Crude Petroleum and Gas Production Workers, as published by theUnited States Department of Labor, Bureau of Labor Statistics, based onDecember-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 result of this conversion, the Crude Petroleumand Gas Production Workers index is no longer available for use in the annualcalculation of overhead adjustment called for in the various Council ofPetroleum 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 has calculated the percentage change in thesimple average of the Oil and Extraction Index and the Professional andTechnical Services Index, commencing in 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 theeffective 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. Eastern American, with the concurrence of theTrustee, will utilize this “Overhead Adjustment Index” to adjust the “OperatingCost Charge” so long as such index is 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 EasternAmerican’s working interest share of capital costs for operations on theUnderlying Properties having a useful life of at least three years, andexcluding any capital costs incurred in drilling the Development Wells. Taxesrefer to ad valorem taxes, production and severance taxes, and other taxesimposed on Eastern 

 

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American’s or the Trust’s interests in the UnderlyingProperties, or production therefrom.

 

Pursuant to the Gas Purchase Contract, Eastern Marketing is obligatedto purchase such gas production at a purchase price per Mcf equal to the IndexPrice. The Index Price for any quarter is determined solely by reference to theVariable Price component. The Variable Price for any quarter is equal to theHenry Hub Average Spot Price (as defined) per MMBtu plus $0.30 per MMBtu,multiplied by 110% to effect a fixed adjustment for Btu content. The Henry HubAverage 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 pricedetermined for any month of such quarter is equal to the average of (i) thefinal settlement price per MMBtu for Henry Hub Gas Futures Contracts (asdefined), as reported in *The Wall Street Journal*,for such contracts which expired in each of the five months prior to suchmonth; (ii) the final settlement price per MMBtu for Henry Hub Gas FuturesContracts, as reported in *The Wall Street Journal*,for such contracts which expire during such month; and (iii) the closingsettlement price per MMBtu of Henry Hub Gas Futures Contracts determined as ofthe contract settlement date for such month, as reported in *The Wall Street Journal*, for such contracts which expire ineach of the six months following such month. A Henry Hub Gas Futures 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 Index Price payable to the Trust for production may behigher or lower based on the fluctuations in natural gas futures prices duringthe relevant calculation period. The price payable to the Trust will have adirect impact, positively or negatively, on the quarterly distributions payableby 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 Trustagreed that in lieu of drilling these closely offset Development Wells, EasternAmerican could provide the Trust, on an annual basis commencing on April 1, 1997,and over the remaining life of the Trust, a volume of gas which is equal to theprojected volumes of the wells as if they had been drilled. These volumes havebeen estimated by Ryder Scott Company, independent petroleum engineers. Duringthe quarter ended March 31, 2006, an additional volume of 4,457 Mcf wasdelivered to the Trust, as compared to 4,822 Mcf for the quarter ended March31, 2005. These additional volumes fulfill Eastern American’s obligation toprovide volumes for Development Wells that had been closely offset by thirdparties.

 

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 and producing. (Seethe Trust’s Annual Report 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, a landowner contacted Eastern American to inquireabout the sale of certain wells located on the landowner’s property, includingthe Wurst #2 well, which is a well in which the Trust owns a Net ProfitsInterest. Eastern certified to the Trust that: (i) the Assignee of the Wurst #2

 

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was not an Affiliate of Easternand; (ii) the aggregate sale proceeds to be received from all other sales ofwells in which the Trust owns a Net Profits Interest and previously released bythe Trust during the preceeding twelve (12) calendar months did not exceed$500,000. The Wurst #2 well was found to be uneconomic to operate and wassubject to plugging and abandonment by Eastern American if not assigned to thelandowner. Eastern American advised the landowner that it could assign thiswell. The Wurst #2 well had no value and no cash distribution was made to theTrust.

 

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

 

As previously publicly announced, Ensource Energy Income Fund LP, arecently formed Delaware limited partnership not affiliated with the Trust (“Ensource”),has commenced an unsolicited exchange offer pursuant to which Ensource isattempting to acquire control of, and ultimately the entire interest in, theTrust. The Trust has filed a Schedule 14D-9, including Amendment No. 1 thereto(the “Schedule 14D-9”) with the Securities and Exchange Commission, and hasmailed copies of the Schedule 14D-9 to Unitholders of record. In the Schedule14D-9, the Trust recommends that Unitholders reject the Ensource offer. Thereasons for the Trust’s recommendation, as well as a copy of the opinion of anindependent financial advisor retained by the Trust in connection with theEnsource offer and other important information, are set forth in the Schedule14D-9. Unitholders should review the Schedule 14D-9 carefully before making any decision to tender their units to Ensource.Copies of the Schedule 14D-9 may be obtained by contacting MacKenzie Partners,Inc. toll-free at 1-800-332-2885 or over the Internet from the SEC’s web siteat http://www.sec.gov.

 

During the last two quarters of 2005, the Trust incurred substantiallyincreased fees for professional services relating to the Ensource exchangeoffer mentioned above. These expenses, and any other expenses, will decreasedistributions to the Unitholders. Expenses relating to the Ensource exchangeoffer incurred by the Trust during 2005 total approximately $725,798, including$418,639 for fees and expenses the Trust paid to a financial advisory firm inconnection with its analysis of the Ensource exchange offer. In addition, theTrust has incurred and is likely to continue to incur additional increasedlegal and other expenses relating to the Ensource exchange offer. The Trustincurred approximately $146,352 of expenses relating to the Ensource exchangeoffer in the three-month period ended March 31, 2006, and  future additional expenses could besubstantial.

 

The administrative costs the Trust incurs in the future will fluctuatedepending primarily on the expenses the Trust incurs for professional services,particularly legal, accounting and engineering services. If Ensource makes asubstantially different offer to acquire control of the Trust, the Trust couldincur substantial additional fees for additional financial advisory servicesand other professional and administrative expenses.

 

**Critical AccountingPolicies**

** **

The following is a summary of the critical accounting policies followedby the Trust.

 

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*Basis of Accounting:*

 

The financial statements of the Trust differ from financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America due to the following: (i) certain cash reserves may beestablished for contingencies which were not accrued in the financialstatements; (ii) amortization of the Net Profits Interests in gas properties ischarged directly to Trust Corpus; and (iii) the sale of the Net ProfitsInterests is reflected in the Statements of Distributable Income as cashproceeds to the Trust.

 

*Net Profits Interests in Gas Properties:*

 

The Net Profits Interests in gas properties are periodically assessedto determine whether their net capitalized cost is impaired. The Trust willdetermine 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 thenprovide a writedown to the extent that the net capitalized costs exceed thediscounted future net revenues attributable to proved gas reserves of theUnderlying Properties. Any such writedown would not reduce distributableincome, although it would reduce Trust Corpus.

 

Amortization of the Net Profits Interests in gas properties iscalculated on a units-of-production basis, whereby the Trust’s cost basis inthe properties is divided by total Trust proved reserves to derive anamortization rate per reserve unit. Such amortization does not reducedistributable income, rather it is charged directly to Trust Corpus. Revisionsto estimated future units-of-production are treated on a prospective basisbeginning on the date significant revisions are known.

 

The Net Profits Interest impairment test and the determination ofamortization rates are dependent on estimates of proved gas reservesattributable to the Trust. Numerous uncertainties are inherent in estimatingreserve volumes and values, including economic and operating conditions, andsuch estimates are subject to change as additional information becomesavailable.

 

**Liquidity and CapitalResources**

** **

The Trust has no source of liquidity or capital resources other thanthe distributions received 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 March 31, 2006. At March 31, 2006, theTrust had accounts payable of $139,440 and distributions payable of $4,384,616.

 

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Comparison ofResults of Operations for Three Months Ended March 31, 2006 and Three MonthsEnded March 31, 2005

 

The Trust’s distributable income was $4,384,616 for the three monthsended March 31, 2006 as compared to $2,958,167 for the three months ended March31, 2005. This increase was due to an increase in Royalty Income for the threemonths ended March 31, 2006 of $5,363,086 as compared to the three months endedMarch 31, 2005 of $3,648,398. The increase in Royalty Income was due to anincrease in the price payable to the Trust under the Gas Purchase Contract asdiscussed below ($11.565 per Mcf for the three months ended March 31, 2006 ascompared to $7.455 per Mcf for the three months ended March 31, 2005). Thisincrease was offset by a decrease in production of gas attributable to the NetProfits Interests for the three months ended March 31, 2006 (467 Mmcf) ascompared to the three months ended March 31, 2005 (491 Mmcf). The decline inproduction is primarily attributable to natural production declines. Taxes onproduction and property were $390,983 for the three months ended March 31, 2006as compared to $253,671 for the three months ended March 31, 2005. The increasein taxes is due directly to the increase in Royalty Income as discussed above. Trustgeneral and administrative expenses were $447,220 for the three months endedMarch 31, 2006 as compared to $303,473 for the three months ended March 31,2005. This increase in general and administrative expense was primarily relatedto professional service fees of $143,747, most of which were incurred as adirect result of the Ensource exchange offer.

 

The price payable to the Trust for gas production attributable to theNet Profits Interests was $11.565 per Mcf for the three months ended March 31,2006 and $7.455 per Mcf for the three months ended March 31, 2005. The priceper Mcf was higher for the three months ended March 31, 2006 than for thecorresponding three month period ended March 31, 2005 due to an increase in theaverage spot market price for gas delivered at the Henry Hub near Henry,Louisiana ($10.213 per Dth for the three months ended March 31, 2006 ascompared to $6.477 per Dth for the three months ended March 31, 2005). 

 

**Off-Balance SheetArrangements**

** **

The Trust does not have any off-balance sheetarrangements that have or are reasonably likely to have a current or futureeffect on the Trust’s financial condition, changes in financial condition,revenue or expenses, results of operations, liquidity, capital expenditures orcapital resources that is material to investors.

 

**OtherInformation**

** **

For the calendar quarter ended March 31, 2006, the high and low closingprices of the Treasury Obligations (which have $1,000 face principal amount),as quoted in the over-the-counter market for United States Treasury obligationswere $728.21 and $707.24 respectively. On March 31, 2006, the closing price ofthe Treasury Obligations, as quoted on such market, was $708.20.

 

**The Trust provides Unitholders with the option to separatethe related Treasury Obligation from**

 

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**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 March 31, 2006, this option was exercised on19,900 Trust Units. (See the Trust’s 10-K, as amended, for the fiscal yearended December 31, 2005 for a more complete description of the Withdrawal ofTrust Units and Restriction on Transfer.)**

** **

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

 

The Trust does not engage in any operations, and does not utilizemarket risk sensitive instruments, either for trading purposes or for otherthan trading purposes. As described elsewhere herein, the Depositary Units consistof beneficial ownership of one unit of beneficial interest in the Trust and a$20 face amount beneficial ownership interest in a $1,000 face amount zerocoupon Treasury Obligation maturing on May 15, 2013. High and low priceinformation for the Treasury Obligations is included under Part II Item 5. Asdescribed elsewhere herein, gas production attributable to the Net ProfitsInterest is sold to a wholly owned subsidiary of Eastern American pursuant tothe Gas Purchase Contract described herein, and the Trust’s quarterlydistributions are highly dependent on the price payable to the Trust for gasproduction attributable to the Net Profits Interest. Natural gas prices canfluctuate widely in response to many factors, all of which are out of thecontrol of the Trust, the Trustee and Eastern American.

 

ITEM 4. Controlsand Procedures

 

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

 

As of March 31, 2006, the Trustee carried out an evaluation of theTrustee’s disclosure controls and procedures. Mike Ulrich, as Trust Officer ofthe Trustee, has concluded that the disclosure controls and procedures areeffective.

 

Due to the contractual arrangements of (i) the Trust Agreement and (ii)the rights of the Trustee under the Conveyances regarding information furnishedby Eastern American, there are certain potential weaknesses that may limit theeffectiveness of disclosure controls and 

 

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procedures established by theTrustee or its employees and their ability to verify the accuracy of certainfinancial information. The contractual limitations creating potentialweaknesses in disclosure controls and procedures may be deemed to include:

 

•Eastern American and its consolidated subsidiaries manage information relatingto the Trust, including (i) historical operating data, including productionvolumes, marketing of products, operating and capital expenditures,environmental and other liabilities, the effects of regulatory changes and thenumber of producing wells and acreage, (ii) plans for future operating andcapital expenditures and (iii) geological data relating to reserves; and 

•The independent reserve engineer, as an expert with respect to the annualreserve report, which includes projected production, operating expenses andcapital expenses. 

 

Other than reviewing the financial and other information provided tothe Trust by Eastern American and the independent reserve engineer, the Trusteemade no independent or direct verification of this financial or otherinformation.

 

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

 

The Trusteedoes not expect that the Trustee’s disclosure controls and procedures or theTrustee’s internal control over financial reporting will prevent all errors andall fraud.  Further, the design ofdisclosure controls and procedures and internal control over financialreporting must reflect the fact that there are resource constraints, and thebenefits of controls must be considered relative to their costs.  Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, have been detected.

 

**Changes in Internal Control Over FinancialReporting**

 

In connection with the evaluation by the Trustee of changes in internalcontrol over financial reporting of the Trust that occurred during the Trust’slast fiscal 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.

 

### **PARTII – OTHER INFORMATION**

### ** **

ITEM 1.          LegalProceedings.

 

None.

 

ITEM 1A.      Risk Factors.

 

There havebeen no material changes in the risk factors disclosed under Part I, Item1A of the Trust’s Annual Report on Form 10-K, as amended, for the yearended December 31, 2005.

 

ITEM 2.          UnregisteredSales of Equity Securities and Use of Proceeds.

 

None.

 

ITEM 3.          DefaultsUpon Senior Securities.

 

None.

 

ITEM 4.          Submissionof Matters to a Vote of Security Holders.

 

None.

 

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ITEM 5.          OtherInformation.

 

None.

 

ITEM 6.          Exhibits.

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

 

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*      Incorporated by referenceto the indicated exhibits to filings previously made by the registrant with theSecurities and Exchange Commission. All references are to the registrant’sRegistration Statement on Form S-1, Registration No. 33-56336, except forExhibit 3.1, which is incorporated by reference to the Registrant’s Annualreport on Form 10-K for the year ended December 31, 1994.

 

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### **SIGNATURES**

### ** **

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized.

 
|   | 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:  May 4, 2006

 

The Registrant, Eastern American Natural Gas Trust, has no principalexecutive officer, principal financial officer, board of directors or personsperforming similar functions. Accordingly no additional signatures areavailable and none have been provided.

 

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