##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Dallas, TexasMarch 30, 2007
    /s/ KPMG LLP 1




---



##### 



TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
 2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    1,834,550
    
    
    $
    1,662,154Oil and natural gas royalties receivable
    
    
    831,022
    
    
    
    134,434Total current assets
    
    
    2,665,572
    
    
    
    1,796,588Oil, natural gas and other mineral properties
    
    
    2
    
    
    
    2$
    2,665,574
    
    
    $
    1,796,590Liabilities and Trust EquityCurrent liabilities:Accounts payable
    
    $
    25,558
    
    
    $
    8,699Federal income taxes payable
    
    
    9,351
    
    
    
    1,401Income distributable to unitholders
    
    
    720,922
    
    
    
    749,343Total current liabilities
    
    
    755,831
    
    
    
    759,443Trust equity:Corpus  authorized 1,386,525 units of beneficial interest,
issued 1,386,375 units at nominal value
    
    
    2
    
    
    
    2Undistributed income
    
    
    1,909,741
    
    
    
    1,037,145Total trust equity
    
    
    1,909,743
    
    
    
    1,037,147$
    2,665,574
    
    
    $
    1,796,590
  2




---



##### 



TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF INCOME AND UNDISTRIBUTED INCOME
THREE YEARS ENDED DECEMBER 31, 2006
 2006
    
    
    2005
    
    
    2004Income:Oil and natural gas royalties
    
    $
    2,025,412
    
    
    $
    2,362,759
    
    
    $
    1,375,651Interest and other
    
    
    41,998
    
    
    
    36,954
    
    
    
    11,916Total income
    
    
    2,067,410
    
    
    
    2,399,713
    
    
    
    1,387,567Expenses:General and administrative
    
    
    135,980
    
    
    
    140,675
    
    
    
    118,087Income before federal income taxes
    
    
    1,931,430
    
    
    
    2,259,038
    
    
    
    1,269,480Federal income taxes of subsidiary
    
    
    19,027
    
    
    
    17,553
    
    
    
    5,200Net income
    
    
    1,912,403
    
    
    
    2,241,485
    
    
    
    1,264,280Undistributed income at beginning of year
    
    
    1,037,145
    
    
    
    1,459,069
    
    
    
    1,148,6332,949,548
    
    
    
    3,700,554
    
    
    
    2,412,913Distributions to unitholders
    
    
    1,039,807
    
    
    
    2,663,409
    
    
    
    953,845Undistributed income at end of year
    
    $
    1,909,741
    
    
    $
    1,037,145
    
    
    $
    1,459,068Net income per unit
    
    $
    1.38
    
    
    $
    1.62
    
    
    $
    0.91Distributions per unit
    
    $
    0.75
    
    
    $
    1.92
    
    
    $
    0.69Weighted average units outstanding
    
    
    1,386,375
    
    
    
    1,386,375
    
    
    
    1,386,375
  3




---



##### 



TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 2006
 2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    1,912,403
    
    
    $
    2,241,485
    
    
    $
    1,264,280Adjustments to reconcile net income to net cash
provided by operating activities:Amortization of premium
    
    
    
    
    
    
    
    
    
    
    12,760Loss on sale of U.S. Treasury and agency bonds
    
    
    
    
    
    
    
    
    
    
    761Change in assets and liabilities:Oil and natural gas royalties receivable
    
    
    (696,588
    )
    
    
    261,581
    
    
    
    (230,250
    )Interest receivable
    
    
    
    
    
    
    1,403
    
    
    
    4,261Accounts payable
    
    
    16,859
    
    
    
    (9,285
    )
    
    
    12,852Federal income tax payable
    
    
    7,950
    
    
    
    (2,159
    )
    
    
    2,858Net cash provided by operating activities
    
    
    1,240,624
    
    
    
    2,493,025
    
    
    
    1,067,522Cash flows used in investing activities:Investment in U.S. Treasury and agency bonds
    
    
    
    
    
    
    
    
    
    
    (201,034
    )Proceeds from sale of U.S. agency bonds
    
    
    
    
    
    
    200,000
    
    
    
    699,549Net cash provided by (used in) investing activities
    
    
    
    
    
    
    200,000
    
    
    
    498,515Cash flows used in financing activities  cash
distributions to unitholders
    
    
    (1,068,228
    )
    
    
    (2,237,675
    )
    
    
    (965,195
    )Net increase (decrease) in cash and cash
equivalents
    
    
    172,396
    
    
    
    455,350
    
    
    
    600,842Cash and cash equivalents at beginning of year
    
    
    1,662,154
    
    
    
    1,206,804
    
    
    
    605,962Cash and cash equivalents at end of year
    
    
    1,834,550
    
    
    
    1,662,154
    
    
    $
    1,206,804
  4




---



##### 



TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
 (a)
    
    General
      (b)
    
    Unitholder Voting Matters
  (c)
    
    Principles of Consolidation
  5




---



##### 



(d)
    
    Oil, Natural Gas and Other Mineral Properties
   (e)
    
    Federal Income Taxes
  (f)
    
    Credit Risk Concentration and Cash Equivalents
   (g)
    
    Statements of Cash Flows
  (h)
    
    Use of Estimates
  (i)
    
    Net Income per Unit
  6




---



##### 



TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
 (j)
    
    Significant Royalty Sources
  2006
    
    2005
    
    2004Devon Energy Production Company
    
    
    59
    %
    
    
    90
    %
    
    
    80
    %W & T Offshore
    
    
    13
    %
    
    
    6
    %
    
    
    12
    %NOEX Energy Inc.
    
    
    26
    %
    
    
    
    
    
    
    Others
    
    
    2
    %
    
    
    4
    %
    
    
    8
    %100
    %
    
    
    100
    %
    
    
    100
    %
 (2)
    
    UNDISTRIBUTED INCOME
  (3)
    
    SUPPLEMENTAL INFORMATION RELATING TO OIL AND NATURAL GAS RESERVES (UNAUDITED)
  (4)
    
    SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
  Oil and Natural Gas
    
    
    Net
    
    
    Net IncomeRoyalties
    
    
    Income
    
    
    Per UnitQuarter ended:March 31, 2006
    
    $
    138,299
    
    
    $
    110,576
    
    
    $
    0.08June 30, 2006
    
    
    206,577
    
    
    
    181,247
    
    
    
    0.13September 30, 2006
    
    
    599,446
    
    
    
    570,301
    
    
    
    0.41December 31, 2006
    
    
    1,081,090
    
    
    
    1,050.279
    
    
    
    0.76$
    2,025,412
    
    
    $
    1,912,403
    
    
    $
    1.38Quarter ended:March 31, 2005
    
    $
    578,241
    
    
    $
    540,408
    
    
    $
    0.39June 30, 2005
    
    
    785,750
    
    
    
    750,893
    
    
    
    0.54September 30, 2005
    
    
    809,535
    
    
    
    779,819
    
    
    
    0.56December 31, 2005
    
    
    189,233
    
    
    
    170,365
    
    
    
    0.13$
    2,362,759
    
    
    $
    2,241,485
    
    
    $
    1.62
 7