**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, 2004**                                                                                                                                                                              |
|                                                                                                                                                                                                                           |
| **OR**                                                                                                                                                                                                                         |
|                                                                                                                                                                                                                           |
| **o**                                                                                                                                                                                                                          | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15 (d)  OF THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                           |
| **For the transition period from                   to                 ** |

 

**Commission File Number 1-11748**

 

**EASTERN AMERICAN NATURAL GAS TRUST**

(Exact name of registrant as specified in its charter)

 

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

 

**TheBank of New YorkCare of BNY Midwest Trust Company2 North Lasalle StreetChicago, Illinois 60602**

(Address of principal executive offices)

(Zip Code)

 

**(312) 827-8500**

(Registrant’s telephone number, including area code)

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports)and (2) has been subject to such filing requirements for the past 90 days.

Yes  o              No  ý(1)

 

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

Yes  ý              No  o

 

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(1)  The Registrant inadvertently did not file reports on Form 8-K forits 2003 quarterly press release announcing quarterly distributable income anddistribution amounts.  As of May 4,2004, 5,900,000 Units of Beneficial Interest in Eastern American Natural GasTrust were outstanding.

 

 

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# **PART I – FINANCIALINFORMATION**

# ** **

## **ITEM 1.   Financial Statements**

 

**EASTERN AMERICAN NATURAL GAS TRUST**

**CONDENSED STATEMENTS OF DISTRIBUTABLE INCOME**

*(Unaudited)*

 
|                                                                          |   | **Three Months Ended  March 31** | ** ** |
|-------------------------------------------------------------------------------|--------|----------------------------------|------------|
|                                                                          |   | **2004**                         |       | **2003** |   |
|                                                                          |   |                             |       |   |   |
| Royalty Income                                                                |   | $                                | 3,080,080  |   | $ | 2,998,805 |   |
|                                                                          |   |                             |       |   |   |
| Operating Expenses:                                                           |   |                             |       |   |   |
| Taxes on production and property                                              |   | 212,604                          |       | 204,813 |   |
| Operating cost charges                                                        |   | 130,335                          |       | 127,611 |   |
|                                                                          |   |                             |       |   |   |
| Total Operating Expenses                                                      |   | 342,939                          |       | 332,424 |   |
|                                                                          |   |                             |       |   |   |
| Net Proceeds to the Trust                                                     |   | 2,737,141                        |       | 2,666,381 |   |
|                                                                          |   |                             |       |   |   |
| General and Administrative Expenses                                           |   | (225,742                         | )          | (303,758 | ) |
|                                                                          |   |                             |       |   |   |
| Interest Income                                                               |   | 222                              |       | 244 |   |
|                                                                          |   |                             |       |   |   |
| Cash Proceeds on Sale of Net Profits  Interests                               |   | 0                                |       | 0 |   |
|                                                                          |   |                             |       |   |   |
| Distributable Income                                                          |   | 2,511,621                        |       | 2,362,867 |   |
|                                                                          |   |                             |       |   |   |
| Cash Reserve                                                                  |   | 0                                |       | (100,000 | ) |
|                                                                          |   |                             |       |   |   |
| Quarterly Distribution Amount                                                 |   | $                                | 2,511,621  |   | $ | 2,262,867 |   |
|                                                                          |   |                             |       |   |   |
| Distributable Income Per Unit (5,900,000  units authorized and outstanding)   |   | $                                | 0.4257     |   | $ | 0.4005 |   |
|                                                                          |   |                             |       |   |   |
| Quarterly Distribution Per Unit (5,900,000  units authorized and outstanding) |   | $                                | 0.4257     |   | $ | 0.3835 |   |

 

**The accompanyingnotes are an integral part of these financial statements.**

 

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**EASTERN AMERICAN NATURAL GAS TRUST**

 

**CONDENSED STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS**

 
|                                                             |   | **March 31,  2004** |       | **December  31, 2003** |   |
|------------------------------------------------------------------|--------|---------------------|------------|------------------------|--------|
|                                                             |   | ***(Unaudited)***   |       |                   |   |
|                                                             |   |                |       |                   |   |
| Assets:                                                          |   |                |       |                   |   |
|                                                             |   |                |       |                   |   |
| Cash                                                             |   | $                   | 115,753    |                   | $      | 115,205 |   |
| Net Proceeds Receivable                                          |   | 2,737,141           |       | 2,678,769              |   |
| Net Profits Interests in Gas Properties                          |   | 93,162,180          |       | 93,162,180             |   |
| Accumulated Amortization                                         |   | (59,457,937         | )          | (58,519,514            | )      |
|                                                             |   |                |       |                   |   |
| Total Assets                                                     |   | $                   | 36,557,137 |                   | $      | 37,436,640 |   |
|                                                             |   |                |       |                   |   |
| Liabilities and Trust Corpus:                                    |   |                |       |                   |   |
|                                                             |   |                |       |                   |   |
| Trust General and Administrative Expenses  Payable               |   | $                   | 126,273    |                   | $      | 161,772 |   |
| Distributions Payable                                            |   | 2,511,621           |       | 2,417,202              |   |
| Trust Corpus (5,900,000 Trust Units  authorized and outstanding) |   | 33,919,243          |       | 34,857,666             |   |
|                                                             |   |                |       |                   |   |
| Total Liabilities and Trust Corpus                               |   | $                   | 36,557,137 |                   | $      | 37,436,640 |   |

 

**The accompanyingnotes are an integral part of these financial statements.**

 

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** **

**EASTERN AMERICAN NATURAL GAS TRUST**

 

**CONDENSED STATEMENTS OF CHANGES IN TRUST CORPUS**

*(Unaudited)*

 
|                                                    |   | **Three  Months  Ended  March 31, 2004** |       | **Three  Months  Ended  March 31, 2003** |   |
|---------------------------------------------------------|--------|------------------------------------------|------------|------------------------------------------|--------|
|                                                    |   |                                     |       |                                     |   |
| Trust Corpus, Beginning of Period                       |   | $                                        | 34,857,666 |                                     | $      | 38,695,799 |   |
| Distributable Income                                    |   | 2,511,621                                |       | 2,362,867                                |   |
| Distributions Payable to Unitholders                    |   | (2,511,621                               | )          | (2,262,867                               | )      |
| Amortization of Net Profits Interests in Gas Properties |   | (938,423                                 | )          | (986,234                                 | )      |
|                                                    |   |                                     |       |                                     |   |
| Trust Corpus, End of Period                             |   | $                                        | 33,919,243 |                                     | $      | 37,809,565 |   |

 

**The accompanyingnotes are an integral part of these financial statements.**

 

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**EASTERN AMERICANNATURAL GAS TRUST**

 

**NOTES TO UNAUDITED****CONDENSED****FINANCIALSTATEMENTS**

 

NOTE 1. Organization of theTrust

 

The EasternAmerican Natural Gas Trust (the “Trust”) was formed under the Delaware BusinessTrust Act pursuant to a Trust Agreement (the “Trust Agreement”) among EasternAmerican Energy Corporation (“Eastern American”), as grantor, Bank of MontrealTrust Company, as Trustee (“Trustee”), and Wilmington Trust Company, asDelaware Trustee (the “Delaware Trustee”). Effective May 8, 2000, The Bank of New York acquired the corporate trustbusiness of the then current Trustee and consequently is currently serving asTrustee.

 

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

 

On March 15,1993, 5,900,000 Depositary Units were issued in a public offering at an initialpublic offering price of $20.50 per Depositary Unit.  Each Depositary Unit consists of beneficial ownership of one unitof beneficial interest (“Trust Unit”) in the Trust and a $20 face amountbeneficial ownership interest in a $1,000 face amount zero coupon United StatesTreasury Obligation (“Treasury Obligation”) maturing on May 15, 2013.  The financial statements of the Trust towhich these notes relate do not incorporate information concerning the TreasuryObligations, the beneficial interest in which is held for the Unitholders bythe Depositary.

 

The NetProfits Interests are passive in nature, and neither the Trustee nor theDelaware Trustee has management control or authority over, nor anyresponsibility relating to, the operation of the properties subject to the NetProfits Interests.  The Trust Agreementprovides, among other things, that the Trust shall not engage in any businessor commercial activity or acquire any asset other than the Net ProfitsInterests initially conveyed to the Trust; the Trustee may establish a reservefor payment of any liability that is contingent, uncertain in amount or is notcurrently due and payable; the Trustee is authorized to borrow funds requiredto pay liabilities of the Trust, provided that such borrowings are repaid infull prior to further distributions to Unitholders; and the Trustee will makequarterly cash distributions to Unitholders from funds of the Trust.

 

After theTrust was formed, 59 of the 65 Development Wells were drilled and completed.The remaining 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.

 

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The NetProfits Interests initially consisted of a royalty interest (“Royalty NPI”) in322 wells and a term interest (“Term NPI”) in the remaining wells andlocations. As of March 31, 2004, the Trust held Net Profits Interests in 677wells, 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, 2003, based on the Independent Petroleum Engineer’s Report,19,548 MMcf of the maximum 41,683 MMcf has been produced.

 

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

 

NOTE 2.  Basis of Presentation

 

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 all adjustments which are, inthe opinion of the Trustee, necessary for a fair presentation of the resultsfor the interim periods presented.  Theaccompanying financial statements are unaudited interim financial statements,and should be read in conjunction with the audited financial statements andnotes thereto included in the Trust’s Annual Report on Form 10-K, as amended,for the year ended December 31, 2003.

 

NOTE 3.  Trust Accounting Policies

 

The Trustserves as a pass-through entity, with items of depletion, interest income andexpense, and income tax attributes being based upon the status and elections ofUnitholders.  Thus, the Statements ofDistributable Income show Distributable Income, defined as Trust incomeavailable for distribution to Unitholders subject to Trustees Cash Reservesdescribed in Part I, Item 2 before application of those Unitholders’ additionalexpenses, if any, for depletion, interest expense, and income taxes.  The Trust uses the accrual basis to recognizerevenue, with Royalty Income recognized as 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

 

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to gas production for acalendar quarter to be made to the Trust on or before the tenth day of thethird month following such quarter.

 

The NetProfits Interests are assessed annually to determine whether their netcapitalized cost is impaired.  The Trustwill determine if a writedown is necessary to its investment in the Net ProfitsInterests in gas properties to the extent that total capitalized costs, lessaccumulated amortization, exceed undiscounted future net revenues attributableto proved gas reserves of the Underlying Properties.  The Trust will then provide a writedown to the extent that thenet capitalized costs exceed the discounted future net revenues attributable toproved gas reserves of the Underlying Properties.  Any such writedown would not reduce distributable income,although it would reduce Trust Corpus.

 

Amortizationof the Net Profits Interests in Gas Properties is calculated on aunits-of-production basis, whereby the Trust’s cost basis in the properties isdivided by total Trust proved reserves to derive an amortization rate per reserveunit.  Such amortization does not reducedistributable income, rather it is charged directly to Trust Corpus.

 

NOTE 4. Income Taxes

 

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

 

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

 

Cautionary Statement

 

The Trust, theTrustee and Eastern American, its officers or its agents on behalf of the Trustmay, from time to time, make forward-looking statements (other than statementsof historical fact).  When used herein,the words “anticipates,” “expects,” “believes,” “intends” or “projects” andsimilar expressions are intended to identify forward-looking statements.  To the extent that any forward-lookingstatements are made, neither the Trust, the Trustee or Eastern American is ableto predict future changes in gas prices, gas production levels, economicactivity, legislation and regulation, and certain changes in expenses of theTrust.  In addition, the Trust’s futureresults of operations and other forward looking statements contained in this itemand elsewhere in this report involve a number of risks and uncertainties.  As a result of variations in such factors,actual results may differ materially from any forward-looking statements.  Some of these factors are describedbelow.  The Trust, the Trustee andEastern American disclaim any obligations to update forward looking statementsand all such forward-looking statements in this document are expresslyqualified in their entirety by the cautionary statements in this paragraph andby the statements in the Annual Report on Form 10-K.

 

General

 

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

 

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

 

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

 

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The “OperatingCost Charge” for 2004 is based on an annual rate of $521,340, and for 2003 wasan annual rate of $510,444.  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.  The Crude Petroleum and Gas ProductionWorkers Index for 2004 increased by 2.3%. The Operating Cost Charge was not increased as Development Wells werecompleted but is reduced for each well that is sold (free of the Net ProfitsInterests) or plugged and abandoned. “Capital Costs” means Eastern American’s working interest share ofcapital costs for operations on the Underlying Properties, but only for itemshaving a useful life of at least three years, and not including any capitalcosts incurred in drilling the Development Wells.  “Taxes” means ad valorem taxes, production and severance taxes,and other taxes imposed on the Trust’s interest in the Underlying Properties,or production therefrom.

 

Pursuant tothe Gas Purchase Contract, Eastern Marketing is obligated to purchase such gasproduction at a purchase price per Mcf equal to the Index Price.  The Index Price for any quarter isdetermined solely by reference to the Variable Price component.  The Variable Price for any quarter is equalto the Henry Hub Average Spot Price (as defined) per MMBtu plus $0.30 perMMBtu, multiplied by 110% to effect a fixed adjustment for Btu content.  The Henry Hub Average Spot Price is definedas the price per MMBtu determined for any calendar quarter equal to the priceobtained with respect to each of the three months in such quarter, in themanner specified below, and then taking the average of the prices determinedfor each of such three months.  Theprice determined for any month of such quarter is equal to the average of (i)the final settlement price per MMBtu for Henry Hub Gas Futures Contracts (asdefined), as reported in *The Wall Street Journal*, for suchcontracts which expired in each of the five months prior to such month, (ii)the final settlement price per MMBtu for Henry Hub Gas Futures Contracts, asreported in *TheWall Street Journal*, for such contracts which expire during suchmonth and (iii) the closing settlement price per MMBtu of Henry Hub Gas FuturesContracts determined as of the contract settlement date for such month, asreported in *TheWall Street Journal*, for such contracts which expire in each of thesix months following such month.  AHenry Hub Gas Futures Contract is defined as a gas futures contract for gas tobe delivered to the Henry Hub that is traded on the New York MercantileExchange.

 

Accordingly,the Index Price payable to the Trust for production may be higher or lowerbased on the fluctuations in natural gas futures prices during the relevantcalculation period.  The price payableto the Trust will have a direct impact, positively or negatively, on thequarterly distributions 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 that 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

 

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engineers. During the quarter ended March 31, 2004, an additional volume of 4,822Mcf was delivered to the Trust, as compared to 5,260 Mcf for the quarter endedMarch 31, 2003.  These additionalvolumes fulfill Eastern American’s obligation to provide volumes forDevelopment Wells that had been 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, Eastern hasdrilled a total of 59 Development Wells, which are online and producing.  (See the Trust’s Form 10-K, as amended, forthe fiscal year ended December 31, 2003 for a more complete description of theDevelopment Wells.)

 

During thequarter ended March 31, 2003, a Coal Lessee contacted Eastern American andinquired as to whether it would sell the U.S. Steel Well # 26, which is a wellin which the Trust owns a Net Profits Interests.  The Coal Lessee stated that the well would materially interferewith the Coal Lessee’s proposed mining operations.  Eastern American reviewed the Trust Agreement and production fromthis well to determine if it could cause the Trust to sell its Net ProfitsInterest in the well.  Upon review, itwas discovered that the Net Profits Interests associated with the U.S. Steel#26 well accounted for less than 0.25% of the total production from theUnderlying Properties for the prior twelve (12) month period.  Eastern American advised the Coal Lesseethat it could sell this well.  Eastern Americanreceived $11,437 for the sale of the U.S Steel Well #26.  The effective date of the sale was March 1,2003.  However, the transaction did notclose until April 17, 2003.  Therefore,the Trust’s share of the proceeds of $10,293 was included in the DistributableIncome of the Trust during the quarter ending June 30, 2003.

 

Over the remaining life of the Trust, additional wells may need to bedisposed of for similar reasons.

 

**Critical Accounting Policies**

** **

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

 

*Basis of Accounting:*

 

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 reflected inthe Statements of Distributable Income as cash proceeds to the Trust.

 

*Net Profits Interests in Gas Properties:*

 

The NetProfits Interests in gas properties are periodically assessed to determinewhether their net capitalized cost is impaired.  The Trust will determine if a writedown is necessary to itsinvestment in the Net Profits Interests in gas properties to the extent thattotal capitalized costs, less accumulated amortization, exceed undiscountedfuture net revenues attributable to proved

 

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gas reserves of the UnderlyingProperties.  The Trust will then providea writedown to the extent that the net capitalized costs exceed the discountedfuture net revenues attributable to proved gas reserves of the UnderlyingProperties.  Any such writedown wouldnot reduce distributable income, although it would reduce Trust Corpus.

 

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

 

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

 

**Liquidity and Capital Resources**

** **

The Trust hasno source of liquidity or capital resources other than the distributionsreceived from the Net Profits Interests.

 

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

 

The Trust did nothave any contractual obligations as of March 31, 2004.  At March 31, 2004, the Trust had accountspayable of $126,273 and distributions payable of $2,511,621.

 

Comparison ofResults of Operations for Three Months Ended March 31, 2004 and Three MonthsEnded March 31, 2003

 

The Trust’s distributable income was $2,511,621 for the three monthsended March 31, 2004 as compared to $2,362,867 for the three months ended March31, 2003.  This increase was due to anincrease in Royalty Income for the three months ended March 31, 2004($3,080,080) as compared to the three months ended March 31, 2003($2,998,805).  The increase in RoyaltyIncome was due to an increase in the price payable to the Trust under the GasPurchase Contract as discussed below ($6.056 per Mcf for the three months endedMarch 31, 2004; $5.695 per Mcf for the three months ended March 31, 2003).  This increase was offset by a decrease inproduction of gas attributable to the Net Profits Interests for the threemonths ended March 31, 2004 (508 Mmcf) as compared to the three months endedMarch 31, 2003 (526 Mmcf).  The declinein production is primarily attributable to natural production declines.  Taxes on production and property were$212,604 for the three months ended March 31, 2004 as compared to $204,813 forthe three months ended March 31, 2003. The increase in taxes is due directly tothe increase in Royalty Income as discussed above.  Trust general and administrative expenses were $225,742 for thethree months ended March 31, 2004 as compared to $303,758 for the three

 

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months ended March 31, 2003. This decrease in general and administrative expense was due primarily toa reduction in legal fees of $53,000 and a $28,000 decrease due to tax andaudit services performed.

 

The pricepayable to the Trust for gas production attributable to the Net ProfitsInterests was $6.056 per Mcf for the three months ended March 31, 2004 and$5.695 per Mcf for the three months ended March 31, 2003.  The price per Mcf was higher for the threemonths ended March 31, 2004 than for the corresponding three month period endedMarch 31, 2003 due to an increase in the average spot market price for gasdelivered at the Henry Hub near Henry, Louisiana ($5.205 per Dth for the threemonths ended March 31, 2004; $4.877 per Dth for the three months ended March31, 2003).

 

**Off-Balance Sheet Arrangements**

** **

The Trust doesnot have any off-balance sheet arrangements that have or are reasonably likelyto have a current or future effect on the Trust’s financial condition, changesin financial condition, revenue or expenses, results of operations, liquidity,capital expenditures or capital resources that is material to investors.

 

ITEM 3.  Quantitative and Qualitative Disclosuresabout 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 describedelsewhere herein, the Depositary Units consist of beneficial ownership of oneunit of beneficial interest in the Trust and a $20 face amount beneficialownership interest in a $1,000 face amount zero coupon Treasury Obligationmaturing on May 15, 2013.  High and lowprice information for the Treasury Obligations is included under Part II Item5.  As described elsewhere herein, gasproduction attributable to the Net Profits Interest is sold to a wholly ownedsubsidiary of Eastern American pursuant to the Gas Purchase Contract describedherein.

 

ITEM 4.  Controls and Procedures

 

*Evaluation ofDisclosure Controls and Procedures. *TheTrustee maintains disclosure controls and procedures designed to ensure thatinformation required to be disclosed by the Trust in the reports that it filesor submits under the Exchange Act of 1934, as amended, is recorded, processed,summarized and reported within the time periods specified in the SEC’s rulesand regulations.  Disclosure controlsand procedures include controls and procedures designed to provide reasonableassurance that information required to be disclosed by the Trust is accumulatedand communicated by several parties, including without limitation, the workinginterest owner, Eastern American Energy Corporation (“Eastern American”), andthe independent reserve engineer to The Bank of

 

New York, as Trustee of theTrust, and its employees who participate in the preparation of the Trust’speriodic reports as appropriate to allow timely decisions regarding requireddisclosure.

 

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As of March31, 2004, the Trustee carried out an evaluation of the Trustee’s disclosurecontrols and procedures.  Patrick Tadie,a Vice President of the Trustee, has concluded that the controls and proceduresare effective at the reasonable assurance level, while noting certainlimitations on disclosure controls and procedures as set forth below.

 

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 contractuallimitations creating potential weaknesses in disclosure controls and proceduresmay be deemed to include:

 

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

 

•                  Under the termsof the Trust Agreement, the Trustee is entitled to, and in fact does rely, uponcertain experts in good faith, including (i) the independent reserve engineerwith respect to the annual reserve report, which includes projected production,operating expenses and capital expenses, and (ii) the independent auditors theTrustee has contracted with respect to the annual audit and quarterly reviewsof financial data provided by Eastern American.  Other than contracting independent auditors and reviewing thefinancial and other information provided to the Trust by Eastern American on aquarterly basis, the Trustee makes no independent or direct verification ofthis financial or other information. While the Trustee has no reason to believeits reliance upon experts is unreasonable, this reliance on experts andrestricted access to information may be viewed as a weakness.

 

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

 

**Changes in Internal Controls**

 

To theknowledge of the Trustee, there have been no significant changes in the Trust’sinternal controls that could significantly affect the Trust’s internal controlssubsequent to the date the Trustee completed its evaluation.  The Trustee notes for purposes of clarificationthat it has no authority over, and makes no statement concerning, the internalcontrols of Eastern American.

 

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### **PART II – OTHERINFORMATION**

### ** **

ITEM 1.     Legal Proceedings.

 

None.

 

ITEM 2.     Changes in Securities, Use ofProceeds and Purchases of Equity Securities.

 

None.

 

ITEM 3.     Defaults Upon SeniorSecurities.

 

None.

 

ITEM 4.     Submission of Matters to aVote of Security Holders.

 

None.

 

ITEM 5.     Other Information.

 

For the calendar quarter ended March 31, 2004, 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 $702.80 and $651.00 respectively. On March 31, 2004 the closing price of the Treasury Obligations, asquoted on such market, was $694.30.

 

**The Trust provides Unitholders with the option to separatethe related Treasury Obligation from the Trust Units.  Upon exercising this option, the Trustee transfers such Trust Unitsfrom the name of the Depositary to the name of the withdrawing Unitholder.  As of March 31, 2004, this option wasexercised on 119,900 Trust Units.  (Seethe Trust’s 10-K for the fiscal year ended December 31, 2003 for a morecomplete description of the Withdrawal of Trust Units and Restriction onTransfer.)**

** **

The Bank of New York has given notice of its intention to resign as Trusteeand Depositary for the Eastern American Natural Gas Trust in accordance with(1) the Second Amended and Restated Trust Agreement of Eastern American NaturalGas Trust pursuant to which the Eastern American Natural Gas Trust was formed(the “Trust Agreement”) and (2) the Depositary Agreement (the “DepositaryAgreement”) under which Trust Units and Treasury Obligations (as defined in theTrust Agreement) are held for Trust Unitholders. In accordance with the TrustAgreement and the Depositary Agreement, such resignations will not take effectuntil Trust Unitholders have approved a successor Trustee and Depositary.  Recommendations for a successor Trustee andDepositary will be made to the Trust Unitholders and voted upon at a meeting ofthe Trust Unitholders that will be scheduled in accordance with the TrustAgreement and the Depositary Agreement.

 

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ITEM 6.     Exhibits and Reports on Form8-K.

(a) 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                                                                                                                      |

 

(b)           Reports on Form 8-K

 

On March 8,2004, the Trust filed a report on Form 8-K giving notice of Results ofOperation and Financial Conditions.

 

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*       Incorporated by referenceto the indicated exhibits to filings previously made by the registrant with theSecurities and Exchange Commission.  Allreferences are to the registrant’s Registration Statement on Form S-1,Registration No. 33-56336, except for Exhibit 3.1, which is incorporated byreference to the Registrant’s Annual report on Form 10-K for the year endedDecember 31, 1994.

 

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### **SIGNATURES**

### ** **

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

 
|                | EASTERN  AMERICAN NATURAL GAS TRUST                                                     |
|---------------------|-----------------------------------------------------------------------------------------|
|                |                                                                                    |
|                | By: The Bank  of New York, Trustee                                                      |
|                |                                                                                    |
|                | /s/ Patrick Tadie                                                                       |   |
|                | Name: Patrick  Tadie                                                               |
|                | Title:  Vice  President                                                       |
|                |            The  Bank of New York |
|                |                                                                                    |
|                |                                                                                    |
| Date: May  14, 2004 |                                                                                    |

 

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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