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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File Number 1-10243
 BP PRUDHOE BAY ROYALTY TRUST
  DELAWARE
State or other jurisdiction 
of incorporation or organization)
    
    13-6943724
(I.R.S. Employer Identification No.)
 THE BANK OF NEW YORK, TRUSTEE 
101 BARCLAY STREET 
NEW YORK, NEW YORK
(Address of principal executive offices)
    
    10286
(Zip Code)
   Title of Each Class
    
    Name of Each Exchange on Which RegisteredUNITS OF BENEFICIAL INTEREST
    
    NEW YORK STOCK EXCHANGE
  þ o
 o þ
 þ o
 þ
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS
 PART I
    
    
    1ITEM 1. BUSINESS
    
    
    1INTRODUCTION
    
    
    1THE TRUST
    
    
    2THE ROYALTY INTEREST
    
    
    6THE UNITS
    
    
    12THE BP SUPPORT AGREEMENT
    
    
    13THE PRUDHOE BAY UNIT AND FIELD
    
    
    14INDEPENDENT OIL AND GAS CONSULTANTS REPORT
    
    
    20INDUSTRY CONDITIONS AND REGULATIONS
    
    
    25CERTAIN TAX CONSIDERATIONS
    
    
    25ITEM 1A. RISK FACTORS
    
    
    27ITEM 1B. UNRESOLVED STAFF COMMENTS
    
    
    30ITEM 2. PROPERTIES
    
    
    30ITEM 3. LEGAL PROCEEDINGS
    
    
    30ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
    
    
    31PART II
    
    
    31ITEM 5. MARKET FOR REGISTRANTS UNITS, RELATED UNITHOLDER MATTERS AND ISSUER PURCHASES OF UNITS
    
    
    31ITEM 6. SELECTED FINANCIAL DATA
    
    
    32ITEM 7. TRUSTEES DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    
    
    32ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    34ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
    
    
    35ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
    
    
    48ITEM 9A. CONTROLS AND PROCEDURES
    
    
    48ITEM 9B. OTHER INFORMATION
    
    
    50PART III
    
    
    50ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    
    
    50
 i




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ITEM 11. EXECUTIVE COMPENSATION
    
    
    51ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS
    
    
    51ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
    
    
    52ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    52ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
    
    
    52SIGNATURES
    
    
    54EX-31EX-32
  ii




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PART I
 
 ITEM 1. BUSINESS
 
 INTRODUCTION
  http://www.sec.gov
 remo.reale@bnymellon.com
  Forward-Looking Statements




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THE TRUST
 Trust Property
 *
  Employees
  Duties and Powers of the Trustee
   
 *
    
    The term barrel is a unit of measure of petroleum
liquids equal to 42 United States gallons corrected to 60 degrees Fahrenheit
temperature. 2




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Sales of Royalty Interest; Borrowings and Reserves
      3




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Irrevocability; Amendment of the Trust Agreement
   Termination of the Trust
   4




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Resignation or Removal of Trustee
  Voting Rights of Unit Holders
   5




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THE ROYALTY INTEREST
  Royalty Production
  Per Barrel Royalty
  WTI Price
  6




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Chargeable Costs
  Calendar
    
    Chargeable Costs

    Calendar
    
    Chargeable Costsyear
    
    per barrel

    year
    
    per barrel2008
    
    $13.00

    2015
    
    $17.002009
    
    13.25

    2016
    
    17.102010
    
    14.50

    2017
    
    17.202011
    
    16.60

    2018
    
    20.002012
    
    16.70

    2019
    
    23.752013
    
    16.80

    2020
    
    26.502014
    
    16.90
  Cost Adjustment Factor
  Production Taxes
    7




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Determination of Production Taxes
  (a)
    
    The production tax value per barrel of oil for each day is determined by
taking the WTI Price for that day and subtracting the product of the amount of
the Chargeable Costs then in effect multiplied by the applicable Cost
Adjustment Factor.
 8




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(b)
    
    The tax rate for the progressivity portion of the tax equals:
 2006 Tax
    
    2007 Tax(i) zero, if the simple
average of the daily
taxable values per barrel
under (a) above for a
calendar month is not
greater than $40 per
barrel; or
    
    (i) zero, if the simple average of
the daily taxable values per barrel
under (a) above for a calendar month
is not greater than $30 per barrel;(ii) 0.25% times the amount
by which the simple average
for each calendar month of
the daily production tax
values per barrel of oil
under (a) above, exceeds
$40 per barrel.
    
    (ii) 0.4% times the amount by which
the simple average of the taxable
values per barrel under (a) above
for a calendar month exceeds $30 per
barrel if that average is not
greater than $92.50 per barrel; or(iii) the sum of 25% plus 0.1% times
the amount by which the simple
average of the taxable values per
barrel under (a) above for a
calendar month exceeds $92.50,
except that such sum may not exceed
50%.
 (c)
    
    The amount of Production Tax chargeable against the Royalty Interest equals
the taxable value per barrel under (a) above times the Royalty Production under
the Conveyance, times a rate equal to the sum of the progressivity rate
determined under (b) above plus the following percentage:
 2006 Tax
    
    2007 Tax22.5%
    
    25%
 Retroactivity of Tax
  9




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Use of Inflation Adjusted Chargeable Costs under Consensus Principles
   10




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Per Barrel Royalty Calculations
  Cost
    
    Adjusted
    
    
    
    
    
    Average PerAverage
    
    Chargeable
    
    Adjustment
    
    Chargeable
    
    Production
    
    BarrelWTI Price
    
    Costs
    
    Factor
    
    Costs
    
    Taxes(1)
    
    Royalty(2)Calendar 2003:4th Qtr 2002
    
    
    $28.25
    
    
    
    $11.25
    
    
    
    1.396
    
    
    
    $15.70
    
    
    
    $  3.33
    
    
    
    $  9.221st Qtr 2003
    
    
    34.08
    
    
    
    11.75
    
    
    
    1.410
    
    
    
    16.57
    
    
    
    4.19
    
    
    
    13.322nd Qtr 2003
    
    
    29.07
    
    
    
    11.75
    
    
    
    1.413
    
    
    
    16.60
    
    
    
    3.44
    
    
    
    9.033rd Qtr 2003
    
    
    30.30
    
    
    
    11.75
    
    
    
    1.421
    
    
    
    16.70
    
    
    
    3.62
    
    
    
    9.98Calendar 2004:4th Qtr 2003
    
    
    31.23
    
    
    
    11.75
    
    
    
    1.421
    
    
    
    16.69
    
    
    
    3.76
    
    
    
    10.781st Qtr 2004
    
    
    35.18
    
    
    
    12.00
    
    
    
    1.434
    
    
    
    17.20
    
    
    
    4.34
    
    
    
    13.642nd Qtr 2004
    
    
    38.31
    
    
    
    12.00
    
    
    
    1.456
    
    
    
    17.47
    
    
    
    4.79
    
    
    
    16.053rd Qtr 2004
    
    
    43.78
    
    
    
    12.00
    
    
    
    1.459
    
    
    
    17.51
    
    
    
    5.61
    
    
    
    20.66Calendar 2005:4th Qtr 2004
    
    
    48.35
    
    
    
    12.00
    
    
    
    1.471
    
    
    
    17.65
    
    
    
    6.29
    
    
    
    24.411st Qtr 2005
    
    
    49.70
    
    
    
    12.25
    
    
    
    1.477
    
    
    
    18.09
    
    
    
    6.49
    
    
    
    25.122nd Qtr 2005
    
    
    53.09
    
    
    
    12.25
    
    
    
    1.497
    
    
    
    18.34
    
    
    
    6.98
    
    
    
    27.773rd Qtr 2005
    
    
    63.03
    
    
    
    12.25
    
    
    
    1.512
    
    
    
    18.53
    
    
    
    8.46
    
    
    
    36.04Calendar 2006:4th Qtr 2005
    
    
    60.01
    
    
    
    12.25
    
    
    
    1.521
    
    
    
    18.63
    
    
    
    8.01
    
    
    
    33.371st Qtr 2006
    
    
    63.36
    
    
    
    12.50
    
    
    
    1.530
    
    
    
    19.13
    
    
    
    8.50
    
    
    
    35.732nd Qtr 2006
    
    
    70.53
    
    
    
    12.50
    
    
    
    1.559
    
    
    
    19.49
    
    
    
    9.56
    
    
    
    41.483rd Qtr 2006
    
    
    70.64
    
    
    
    12.50
    
    
    
    1.570
    
    
    
    19.63
    
    
    
    10.68
    
    
    
    40.34Calendar 2007:4th Qtr 2006
    
    
    60.17
    
    
    
    12.50
    
    
    
    1.552
    
    
    
    19.39
    
    
    
    9.31
    
    
    
    31.461st Qtr 2007
    
    
    58.17
    
    
    
    12.75
    
    
    
    1.567
    
    
    
    19.98
    
    
    
    8.66
    
    
    
    29.542nd Qtr 2007
    
    
    65.00
    
    
    
    12.75
    
    
    
    1.601
    
    
    
    20.42
    
    
    
    10.59
    
    
    
    34.003rd Qtr 2007
    
    
    75.29
    
    
    
    12.75
    
    
    
    1.601
    
    
    
    20.42
    
    
    
    14.45
    
    
    
    40.42
 
 (1)
    
    Production Taxes for the third quarter of 2006 and subsequent quarters reflect the effect of
the 2006 Alaska oil and gas production tax and the application of the Consensus Principles
described above. The 2007 Tax commenced affecting the royalty payment with respect to the
fourth quarter of 2007 which the Trust received in January 2008.(2)
    
    Average per barrel royalty is calculated on the basis of the following preliminary estimates
of average daily net production of oil and condensate from the BP Working Interests: 62,087
barrels in the third 11




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quarter of 2006, 87,221 barrels in the fourth quarter of 2006, 86,917 barrels in the
second quarter of 2007 and 81,259 barrels in the third quarter of 2007; average per barrel
royalty for all other periods is calculated on the basis of 90,000 barrels of average daily net
production. See THE PRUDHOE BAY UNIT AND FIELD  Collection and Transportation of Prudhoe Bay
Oil and Note 8 of Notes to Financial Statements in Part II,
Item 8 below for additional information.(3)
    
    Dollar amounts in the table have been rounded to two decimal places for presentation and do
not reflect the precision of the actual calculations. 
 THE UNITS
 Units
  Distributions of Income
   Reports to Unit Holders
  12




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Limited Liability of Unit Holders
  Possible Divestiture of Units
   Issuance of Additional Units
  
 THE BP SUPPORT AGREEMENT
   13




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THE PRUDHOE BAY UNIT AND FIELD
 Prudhoe Bay Unit Operation and Ownership
     Oil rim
    
    
    Gas capBP Alaska
    
    
    26.36
    %(a)
    
    
    26.36
    %(b)Exxon Mobil
    
    
    36.40
    
    
    
    36.40ConocoPhillips
    
    
    36.08
    
    
    
    36.08ChevronTexaco
    
    
    1.16
    
    
    
    1.16Total
    
    
    100.00
    %
    
    
    100.00
    %
 
 (a)
    
    The Trusts share of oil production is computed based on BP Alaskas ownership interest
in the oil rim participating area of 50.68% as of February 28, 1989. Subsequent decreases
in BP 14




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Alaskas participation in oil rim ownership do not affect calculation of Royalty Production
from the BP Working Interests and have not decreased the Trusts Royalty Interest.(b)
    
    The Trusts share of condensate production is computed based on BP Alaskas ownership
interest in the gas cap participating area of 13.84% as of February 28, 1989. Subsequent
increases in BP Alaskas gas cap ownership do not affect calculation of Royalty Production
from the BP Working Interests and have not increased the Trusts Royalty Interest.   The Prudhoe Bay Field
  Field Geology
   15




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Oil Characteristics
   Historical Production
   Oil
    
    CondensateCalendar
    
    
    
    
    
    Net to BP Working
    
    
    
    
    
    Net to BP Workingyear
    
    Total field
    
    Interests
    
    Total field
    
    Interests(thousand barrels per day)2003
    
    
    273.2
    
    
    
    121.2
    
    
    
    113.8
    
    
    
    13.82004
    
    
    243.4
    
    
    
    107.9
    
    
    
    109.0
    
    
    
    13.22005
    
    
    228.9
    
    
    
    101.5
    
    
    
    96.4
    
    
    
    11.72006(a)
    
    
    173.9
    
    
    
    77.1
    
    
    
    76.7
    
    
    
    9.32007(b)
    
    
    181.6
    
    
    
    80.5
    
    
    
    80.4
    
    
    
    9.7
 
 (a)
    

    2006 production figures reported in the Trusts Annual Report on Form 10-K for the year ended December 31, 2006 have been revised to reflect actual production for the year.(b)
    

    2007 production figures are estimated by BP Alaska based on the best available data.
 16




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Collection and Transportation of Prudhoe Bay Oil
   
  Reservoir Management
   
 
    
    An electronic device including magnetic flux leakage
and ultrasonic thickness testing systems that is propelled through a pipeline
to inspect the pipeline wall. 17




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Reserve Estimates
      18




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Net Proved ReservesBP Working
    
    
    
    
    
    WTI PriceDecember 31
    
    Interests (a)
    
    Trust (b)
    
    per barrel(million barrels)2003
    
    
    858.7
    
    
    
    77.9
    
    
    $
    32.552004
    
    
    941.4
    
    
    
    77.4
    
    
    
    43.462005
    
    
    1,043.0
    
    
    
    85.3
    
    
    
    61.042006
    
    
    912.1
    
    
    
    81.1
    
    
    
    61.062007
    
    
    915.1
    
    
    
    97.8
    
    
    
    96.01
 
 (a)
    
    Includes proved undeveloped reserves of 139.9 million barrels at December 31, 2003,
115.4 million barrels at December 31, 2004, 96.0 million barrels at December 31, 2005, 84.2
million barrels at December 31, 2006 and 68.7 million barrels at December 31, 2007.(b)
    
    Includes proved undeveloped reserves of 11.0 million barrels at December 31, 2003, 9.1
million barrels at December 31, 2004, 12.3 million barrels at December 31, 2005, 12.1
million barrels at December 31, 2006 and 10.9 million barrels at December 31, 2007.    19




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INDEPENDENT OIL AND GAS CONSULTANTS REPORT
 Miller and Lents, Ltd.
 international oil and gas consultants  founded 1948
  
 Re:
    
    Estimates of Proved Reserves,Future Production Rates, andFuture Net Revenues for theBP Prudhoe Bay Royalty TrustAs of December 31, 2007
     20




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Miller and Lents, Ltd.
 The Bank of New York 
Trustee, BP Prudhoe Bay Royalty Trust
    
    February 11, 2008
    1.
    
    A large body of basic data and detailed analyses are available and were used in
making the estimates. In our judgment, the quantity and quality of currently available
data on reservoir boundaries, original fluid contacts, and reservoir rock and fluid
properties are sufficient to indicate that any future revisions to the estimates of
total original in-place volumes should be minor. Furthermore, the data and analyses on
recovery factors and future production rates are sufficient to support the Proved
Reserves estimates.2.
    
    The methods and procedures employed to accumulate and evaluate the necessary
information and to estimate, document, and reconcile reserves, annual production rate
forecasts, and future net revenues are effective and are in accordance with generally
accepted geological and engineering practice in the petroleum industry.3.
    
    Based on our limited independent tests of the computations of reserves,
production flowstreams, and future net revenues, such computations were performed in
accordance with the methods and procedures described to us.4.
    
    The estimated net remaining Proved Reserves attributable to the BP Prudhoe Bay
Royalty Trust as of December 31, 2007, of 97.80 million barrels of oil and condensate
are, in the aggregate, reasonable. Of the 97.80 million barrels of total Proved
Reserves, 86.87 million barrels are Proved Developed Reserves, and 10.93 million
barrels are Proved Undeveloped Reserves.5.
    
    Utilizing the specified procedures outlined in Financial Accounting Standards
Board Statement of Financial Accounting Standards No. 69, BP Exploration (Alaska) Inc.
calculated that as of December 31, 2007 production of the Proved Reserves will result
in Estimated Future Net Revenues of $3,209.3 million and Present Value of Estimated
Future Net Revenues of $1,599.8 million to the BP Prudhoe Bay Royalty Trust. These
estimates are reasonable.6.
    
    BP Exploration (Alaska) Inc. has undertaken a program of field-wide
infrastructure renewal, pipeline replacement, and well mechanical improvements. As a
consequence of these activities and their required downtime, BP Exploration (Alaska)
Inc.s net production of oil and condensate from Proved Reserves was less than 90,000
barrels per
 21




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Miller and Lents, Ltd.
 The Bank of New York 
Trustee, BP Prudhoe Bay Royalty Trust
    
    February 11, 2008
 day on an annual average basis in 2007. BP Exploration (Alaska) Inc. expects that
its net production of oil and condensate from Proved Reserves will be less than 90,000
barrels per day on an annual average basis in all future years. The BP Exploration
(Alaska) Inc. projection of its net production of oil and condensate under its forecast
of downtime and operating efficiency is reasonable.7.
    
    Production attributable to the BP Prudhoe Bay Royalty Trust will decline with
the BP Exploration (Alaska) Inc. production. However, the Per Barrel Royalty will not
have a positive value if the West Texas Intermediate Price is less than the sum of the
per barrel Chargeable Costs and per barrel Production Taxes, appropriately adjusted in
accordance with the Overriding Royalty Conveyance. Under such circumstances, average
daily production attributable to the BP Prudhoe Bay Royalty Trust will have no value
and therefore will not contribute to the reserves regardless of BP Exploration (Alaska)
Inc.s net production level.8.
    
    Based on the West Texas Intermediate Price of $96.01 per barrel on December 31,
2007, current Production Taxes, and the Chargeable Costs adjusted as prescribed by the
Overriding Royalty Conveyance, the projection that royalty payments will continue
through the year 2031 is reasonable. BP Exploration (Alaska) Inc. expects continued
economic production at a declining rate through the year 2075; however, for the
economic conditions and production forecast as of December 31, 2007 the Per Barrel
Royalty will be zero following the year 2031. Therefore, no reserves are currently
attributed to the BP Prudhoe Bay Royalty Trust after that date.9.
    
    Even if expected reservoir performance does not change, the estimated reserves,
economic life, and future revenues attributable to the BP Prudhoe Bay Royalty Trust may
change significantly in the future. This may result from changes in the West Texas
Intermediate Price or from changes in other prescribed variables utilized in
calculations defined by the Overriding Royalty Conveyance.
    22




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Miller and Lents, Ltd.
 The Bank of New York 
Trustee, BP Prudhoe Bay Royalty Trust
    
    February 11, 2008
      23




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Miller and Lents, Ltd.
 The Bank of New York 
Trustee, BP Prudhoe Bay Royalty Trust
    
    February 11, 2008
  Very truly yours,
MILLER AND LENTS, LTD.By:
    /s/ William P. Koza, P.E.
    [Seal]William P. Koza, P.E.Vice President  24




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INDUSTRY CONDITIONS AND REGULATIONS
    
 CERTAIN TAX CONSIDERATIONS
   Federal Income Tax
 Classification of the Trust
  General Features of Grantor Trust Taxation
  25




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Taxation of Unit Holders
    Depletion Deductions
   Taxation of Foreign Unit Holders
  26




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Sale of Units
  Backup Withholding
  State Income Taxes
  
 ITEM 1A. RISK FACTORS
  
    
    Royalty Production from the Prudhoe Bay field is projected to decline and will
eventually cease.
  27




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
    
    Construction of a proposed gas pipeline from the North Slope of Alaska to the Midwestern
United States could accelerate the decline in Royalty Production from the Prudhoe Bay
field.
    
    
    Royalty Production from the Prudhoe Bay field may be adversely affected by the recent
change in the Alaska Production Tax Statutes.
  28




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
    
    Royalty payments by BP Alaska to the Trust are unpredictable, because they depend on Cushing, Oklahoma WTI spot prices, which have been volatile in recent years, and on the volume of production from the BP Working Interests, which may vary from quarter to quarter in the future.
 http://tonto.eia.doe.gov/dnav/pet/hist/rwtcM.htm
   
    
    Prudhoe Bay field oil production could be shut in partially or entirely from time to
time as a result of damage to or failures of field pipelines or equipment.
   29




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
    
    Oil production from the Prudhoe Bay Unit could be interrupted by damage to the
Trans-Alaska Pipeline System from natural disasters, accidents, or deliberate attacks.
  
    
    Production from the BP Working Interests may be interrupted or discontinued by BP
Alaska.
  
    
    There are potential conflicts of interest between BP Alaska and the Trust that could
affect the royalties paid to Unit holders.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2. PROPERTIES
  
 ITEM 3. LEGAL PROCEEDINGS
  30




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ITEM 4.
    
    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS UNITS, RELATED UNITHOLDER MATTERS AND ISSUER PURCHASES OF UNITS
  DistributionsHigh
    
    Low
    
    Per Unit2006:First Quarter
    
    $
    72.99
    
    
    $
    64.26
    
    
    $
    2.114Second Quarter
    
    
    80.00
    
    
    
    67.05
    
    
    
    2.208Third Quarter
    
    
    91.50
    
    
    
    66.34
    
    
    
    2.595Fourth Quarter
    
    
    77.49
    
    
    
    69.75
    
    
    
    1.6752007:First Quarter
    
    
    76.98
    
    
    
    54.80
    
    
    
    1.544Second Quarter
    
    
    72.50
    
    
    
    63.50
    
    
    
    1.545Third Quarter
    
    
    79.40
    
    
    
    64.50
    
    
    
    1.728Fourth Quarter
    
    
    80.20
    
    
    
    69.20
    
    
    
    2.282
   31




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ITEM 6.
    
    SELECTED FINANCIAL DATA
  Year ended December 312007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(in thousands, except per Unit amounts)Royalty revenues
    
    $
    177,318
    
    
    
    184,864
    
    
    
    152,978
    
    
    
    82,682
    
    
    
    55,986Interest income
    
    $
    81
    
    
    
    75
    
    
    
    37
    
    
    
    11
    
    
    
    10Trust administration expenses
    
    $
    1,687
    
    
    
    1,057
    
    
    
    1,097
    
    
    
    976
    
    
    
    1,168Cash earnings
    
    $
    175,712
    
    
    
    183,882
    
    
    
    151,918
    
    
    
    81,717
    
    
    
    54,828Cash distributions
    
    $
    175,713
    
    
    
    183,883
    
    
    
    151,908
    
    
    
    81,702
    
    
    
    54,867Cash distributions per unit
    
    $
    8.211
    
    
    
    8.593
    
    
    
    7.098
    
    
    
    3.818
    
    
    
    2.564
 December 312007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(dollar amounts in thousands)Trust corpus
    
    $
    6,592
    
    
    
    8,853
    
    
    
    10,876
    
    
    
    12,881
    
    
    
    14,730Total assets
    
    $
    7,035
    
    
    
    9,044
    
    
    
    11,054
    
    
    
    13,052
    
    
    
    15,046Units outstanding
    
    
    21,400,000
    
    
    
    21,400,000
    
    
    
    21,400,000
    
    
    
    21,400,000
    
    
    
    21,400,000
 
 ITEM 7.
    
    TRUSTEES DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Liquidity and Capital Resources
   32




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##### Table of Contents



Results of Operations
      33




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##### Table of Contents



2007 compared to 2006
  2006 compared to 2005
  
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  34




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##### Table of Contents



ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 BP PRUDHOE BAY ROYALTY TRUST
 Index To Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    36Statements of Assets, Liabilities and Trust Corpus as of December 31, 2007 and 2006
    
    37Statements of Cash Earnings and Distributions for the years ended
December 31, 2007, 2006 and 2005
    
    38Statements of Changes in Trust Corpus for the years ended
December 31 2007, 2006 and 2005
    
    39Notes to Financial Statements
    
    40
 35




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     Internal Control  Integrated Framework
 KPMG LLP 
 36




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##### Table of Contents



BP Prudhoe Bay Royalty Trust
 Statement of Assets, Liabilities and Trust Corpus
(Prepared on a modified basis of cash receipts and disbursements)
 (In thousands, except unit data)
 December 31,
    
    
    December 31,2007
    
    
    2006AssetsRoyalty interest, net (Notes 1, 2 and 3)
    
    $
    6,026
    
    
    $
    8,034Cash and cash equivalents (Note 2)
    
    
    1,009
    
    
    
    1,010Total assets
    
    $
    7,035
    
    
    $
    9,044Liabilities and Trust CorpusAccrued expenses
    
    $
    443
    
    
    $
    191Trust corpus (40,000,000 units of
beneficial interest authorized,
21,400,000 units issued and
outstanding)
    
    
    6,592
    
    
    
    8,853Total liabilities and trust corpus
    
    $
    7,035
    
    
    $
    9,044
  37




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##### Table of Contents



BP Prudhoe Bay Royalty Trust
 
 Statements of Cash Earnings and Distributions
(Prepared on a modified basis of cash receipts and disbursements)
 (In thousands, except unit data)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Royalty revenues
    
    $
    177,318
    
    
    $
    184,864
    
    
    $
    152,978Interest income
    
    
    81
    
    
    
    75
    
    
    
    37Less: Trust administrative expenses
    
    
    (1,687
    )
    
    
    (1,057
    )
    
    
    (1,097
    )Cash earnings
    
    $
    175,712
    
    
    $
    183,882
    
    
    $
    151,918Cash distributions
    
    $
    175,713
    
    
    $
    183,883
    
    
    $
    151,908Cash distributions per unit
    
    $
    8.211
    
    
    $
    8.593
    
    
    $
    7.098Units outstanding
    
    
    21,400,000
    
    
    
    21,400,000
    
    
    
    21,400,000
  38




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##### Table of Contents



BP Prudhoe Bay Royalty Trust
 Statements of Changes in Trust Corpus
(Prepared on a modified basis of cash receipts and disbursements)
 (In thousands)
 Year Ended December 31,2007
    
    
    2006
    
    
    2005Trust corpus at beginning of year
    
    $
    8,853
    
    
    $
    10,876
    
    
    $
    12,881Cash earnings
    
    
    175,712
    
    
    
    183,882
    
    
    
    151,918Increase in accrued expenses
    
    
    (252
    )
    
    
    (13
    )
    
    
    (7
    )Cash distributions
    
    
    (175,713
    )
    
    
    (183,883
    )
    
    
    (151,908
    )Amortization of royalty interest
    
    
    (2,008
    )
    
    
    (2,009
    )
    
    
    (2,008
    )Trust corpus at end of year
    
    $
    6,592
    
    
    $
    8,853
    
    
    $
    10,876
  39




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##### Table of Contents



BP Prudhoe Bay Royalty Trust
Notes to Financial Statements
(Prepared on a modified basis of cash receipts and disbursements)
December 31, 2007
 (1)
    
    Formation of the Trust and OrganizationBP Prudhoe Bay Royalty Trust (the Trust), a grantor trust, was created as a Delaware statutory
trust pursuant to a Trust Agreement dated February 28, 1989 among the Standard Oil Company
(Standard Oil), BP Exploration (Alaska) Inc. (BP Alaska), The Bank of New York (The
Trustee) and BNYM (Delaware) (successor to The Bank of New York (Delaware)), as co-trustee.
Standard Oil and BP Alaska are indirect wholly owned subsidiaries of the BP p.l.c. (BP).On February 28, 1989, Standard Oil conveyed an overriding royalty interest (the Royalty
Interest) to the Trust. The Trust was formed for the sole purpose of owning and administering
the Royalty Interest. The Royalty Interest represents the right to receive, effective February
28, 1989, a per barrel royalty (the Per Barrel Royalty) of 16.4246% on the lesser of (a) the
first 90,000 barrels of the average actual daily net production of oil and condensate per
quarter or (b) the average actual daily net production of oil and condensate per quarter from BP
Alaskas working interest as of February 28, 1989 in the Prudhoe Bay Field (the Field),
located on the North Slope of Alaska. Trust Unit holders will remain subject at all times to the
risk that production will be interrupted or discontinued or fall, on average, below 90,000
barrels per day in any quarter. BP has guaranteed the performance of BP Alaska of its payment
obligations with respect to the Royalty Interest.Effective January 1, 2000, BP Alaska and all other Prudhoe Bay working interest owners
cross-assigned interests in the Prudhoe Bay Field pursuant to the Prudhoe Bay Unit Alignment
Agreement. BP Alaska retained all rights, obligations, and liabilities associated with the
Trust.The trustees of the Trust are The Bank of New York, a New
York banking corporation, and BNYM (Delaware), a Delaware banking corporation. BNYM (Delaware) serves as
co-trustee in order to satisfy certain requirements of the Delaware Statutory Trust Act. The
Bank of New York alone is able to exercise the rights and powers granted to the Trustee in the
Trust Agreement.The Per Barrel Royalty in effect for any day is equal to the price of West Texas Intermediate
crude oil (the WTI Price) for that day less scheduled Chargeable Costs (adjusted in certain
situations for inflation) and Production Taxes (based on statutory rates then in existence).The Trust is passive, with the Trustee having only such powers as are necessary for the
collection and distribution of revenues, the payment of Trust liabilities, and the protection of
the Royalty Interest. The Trustee, subject to certain conditions, is obligated to establish cash
reserves and borrow funds to pay liabilities of the Trust when they become due. The Trustee may
sell Trust properties only (a) as authorized by a vote of the Trust unit holders, (b) when
necessary to provide for the payment of specific liabilities of the Trust then due (subject to
certain conditions) or (c) upon termination of the Trust. Each Trust Unit issued and outstanding
represents an equal undivided share of beneficial interest in the Trust. Royalty payments are
received by the Trust and distributed to Trust Unit holders, net of Trust expenses, in the month
succeeding the end of each calendar quarter. The Trust will terminate upon the first to occur of
the following events:
 a.
    
    On or prior to December 31, 2010: upon a vote of Trust unit holders of not less than
70% of the outstanding Trust Units.b.
    
    After December 31, 2010: (i) upon a vote of Trust unit holders of not less than 60% of
the outstanding Trust Units, or (ii) at such time the net revenues from the Royalty
Interest for two
 40




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##### Table of Contents



BP Prudhoe Bay Royalty Trust
Notes to Financial Statements
(Prepared on a modified basis of cash receipts and disbursements)
December 31, 2007
 successive years commencing after 2010 are less than $1,000,000 per year
(unless the net revenues during such period are materially and adversely affected by
certain events).
  (2)
    
    Basis of AccountingThe financial statements of the Trust are prepared on a modified cash basis and reflect the
Trusts assets, liabilities, corpus, earnings, and distributions, as follows:
 a.
    
    Revenues are recorded when received (generally within 15 days of the end of the
preceding quarter) and distributions to Trust unit holders are recorded when paid.b.
    
    Trust expenses (which include accounting, engineering, legal, and other professional
fees, trustees fees, and out-of-pocket expenses) are recorded on an accrual basis.c.
    
    Cash reserves may be established by the Trustee for certain contingencies that would
not be recorded under generally accepted accounting principles.d.
    
    Amortization of the Royalty Interest is calculated based on the units of production
method. Such amortization is charged directly to the Trust corpus, and does not affect cash
earnings. The daily rate for amortization per net equivalent barrel of oil for the years
ended December 31, 2007, 2006 and 2005 was $0.38, $0.41 and $0.37, respectively. The Trust
evaluates impairment of the Royalty Interest by comparing the undiscounted cash flows
expected to be realized from the Royalty Interest to the carrying value, pursuant to
Statement of Financial Accounting Standards No. 144 Accounting for the Impairment or
Disposal of Long-Lived Assets(SFAS 144). If the expected future undiscounted cash flows
are less than the carrying value, the Trust recognizes an impairment loss for the
difference between the carrying value and the estimated fair value of the Royalty Interest.
    41




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##### Table of Contents



BP Prudhoe Bay Royalty Trust
Notes to Financial Statements
(Prepared on a modified basis of cash receipts and disbursements)
December 31, 2007
 (3)
    
    Royalty Interest
  December 31,2007
    
    
    2006Royalty Interest (at inception)
    
    $
    535,000
    
    
    $
    535,000Less: Accumulated amortization
    
    
    (355,456
    )
    
    
    (353,448
    )Impairment write-down
    
    
    (173,518
    )
    
    
    (173,518
    )Balance, end of period
    
    $
    6,026
    
    
    $
    8,034
 (4)
    
    Income TaxesThe Trust files its federal tax return as a grantor trust subject to the provisions of subpart E
of Part I of Subchapter J of the Internal Revenue Code of 1986, as amended, rather than as an
association taxable as a corporation. The Trust unit holders are treated as the owners of Trust
income and corpus, and the entire taxable income of the Trust will be reported by the Trust unit
holders on their respective tax returns.If the Trust were determined to be an association taxable as a corporation, it would be treated
as an entity taxable as a corporation on the taxable income from the Royalty Interest, the Trust
unit holders would be treated as shareholders, and distributions to Trust unit holders would not
be deductible in computing the Trusts tax liability as an association.
 (5)
    
    Alaska Oil and Gas Production TaxThe Alaska oil and gas production tax statutes were amended by a bill (the 2006 Tax) which
became effective on August 20, 2006. The 2006 Tax replaced an oil production tax levied at the
flat rate of 15% of the gross value at the point of production (the wellhead or field value)
of taxable oil produced from a producers leases or properties in the State of Alaska. Under the
2006 Tax, producers were taxed on the production tax value of taxable oil (gross value at the
point of production for the calendar year less the producers direct costs of exploring for,
developing, or producing oil or gas deposits located within the producers leases or properties
in Alaska for the year) at a rate equal to the sum of 22.5% plus a
progressivity rate determined by the average monthly production tax value of the oil produced.
The progressivity portion of the 2006 Tax was equal to 0.25% times the amount by which the
simple average for each calendar month of the daily production tax values per barrel of the oil
produced during the month exceeded $40 per barrel.On December 20, 2007, a bill (the 2007 Tax) took effect which further amended the Alaska oil
and gas production tax statutes in certain respects. The 2007 Tax changes the basic tax rate
from 22.5% to 25% and increases the progressivity rate. If the producers average monthly
production tax value per barrel is greater than $30 but not more than $92.50, the new
progressivity tax rate is 0.4% times the amount by which the average monthly production tax
value exceeds $30 per barrel. If the producers average monthly production tax value per barrel
is greater than $92.50, the progressivity tax rate is the sum of 25% and the product of 0.1% multiplied by the difference between the
average monthly production tax value per barrel and $92.50, except that the sum may not exceed
50%.
 42




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##### Table of Contents



BP Prudhoe Bay Royalty Trust
Notes to Financial Statements
(Prepared on a modified basis of cash receipts and disbursements)
December 31, 2007
 The Trustee and BP Alaska entered into a letter agreement in October 2006 and an amendment
thereto in January 2008 (the Letter Agreement) to resolve issues associated with the 2006 Tax
and the 2007 Tax. The Letter Agreement modified the calculation of Production Taxes in the daily
Per Barrel Royalty calculation effective as of August 20, 2006, in the case of the 2006 Tax, and
effective December 20, 2007, in the case of the 2007 Tax. It also provides that the
retroactivity provisions of the respective tax bills are not applicable to the Per Barrel
Royalty calculation for periods prior to the effective dates of the 2006 Tax and the 2007 Tax.
 (6)
    
    Partial Shutdown of Prudhoe Bay Oil FieldOn August 7, 2006, BP announced that BP Alaska had commenced a shutdown of the Prudhoe Bay Field
as a result of the discovery of unexpectedly severe corrosion and a small spill from an oil
transit line in the Prudhoe Bay Field. BP subsequently determined to shut down only the Eastern
Operating Area of the field and continue production from the Western Operating Area. Clearance
from the U.S. Department of Transportation to restart production in the Eastern Operating Area
was received in September 2006.(7)
    
    Litigation ContingencyIn November 2006, a complaint was filed in the United States District Court for the District of
Alaska, purportedly as a class action on behalf of the public holders of units in the Trust,
against BP, the Trust, BP Alaska, Standard Oil and other unnamed defendants. In April 2007 the
plaintiff voluntarily dismissed the Trust as a defendant in the action and in September 2007,
the District Court dismissed all of the plaintiffs claims against BP, BP Alaska and Standard
Oil without prejudice. Other lawsuits are pending against BP, Standard Oil and BP Alaska in the
United States District Court for the Western District of Washington
and in the United States District Court for the Southern District of
New York. Although the
Trust is not a defendant in these cases, the Trust will incur legal and other expenses in
amounts which may be significant as a result of demands for production of documents made by the
plaintiffs on the Trustee and its agents and representatives.(8)
    
    Royalty Revenue AdjustmentsCertain of the royalty payments received by the Trust in 2007 were adjusted by BP Alaska to
compensate for underpayments or overpayments of the royalties due with respect to the quarters
ended prior to the dates of such payments. Average net production of crude oil and condensate
was less than 90,000 barrels per day during each of the third and fourth quarters of 2006 and
the second quarter of 2007. Royalty payments by BP Alaska with respect to those quarters were
based on estimates by BP Alaska of production levels because actual data was not available by
the dates on which payments were required to be made to the Trust. Subsequent recalculation by
BP Alaska of royalty payments due based on actual production data resulted in the payment
adjustments shown in the table below:
 43




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##### Table of Contents



BP Prudhoe Bay Royalty Trust
Notes to Financial Statements
(Prepared on a modified basis of cash receipts and disbursements)
December 31, 2007
 
 2007 Payments ReceivedJanuary
    
    
    April
    
    
    July
    
    
    OctoberRoyalty payment as
calculated
    
    $
    41,470,000
    
    
    $
    39,297,000
    
    
    $
    44,164,111
    
    
    $
    49,636,093Adjustment for
underpayment
(overpayment), plus
accrued interest
    
    
    1,736,000
    
    
    
    (47,000
    )
    
    
    
    
    
    
    1,061,954Net payment received
    
    $
    43,206,000
    
    
    $
    39,250,000
    
    
    $
    44,164,111
    
    
    $
    50,698,047
 (9)
    
    Subsequent EventIn January 2008, the Trust received a payment of $65,384,224 from BP Alaska. This payment
consisted of $65,284,449, representing the royalty payment due with respect to the Trusts
Royalty Interest for the quarter ended December 31, 2007, plus $63,775, representing the amount
of an underpayment by BP Alaska, including interest on the underpayment, of the royalty payment
due with respect to the quarter ended September 30, 2007. See Note 8 above.(10)
    
    Summary of Quarterly Results (Unaudited)A summary of selected quarterly financial information for the years ended December 31, 2007,
2006, and 2005 is as follows (in thousands, except unit data):
 2007 Fiscal QuarterFirst
    
    
    Second
    
    
    Third
    
    
    FourthRoyalty revenues
    
    $
    43,206
    
    
    $
    39,250
    
    
    $
    44,164
    
    
    $
    50,698Interest income
    
    
    20
    
    
    
    20
    
    
    
    21
    
    
    
    20Trust administrative expenses
    
    
    (169
    )
    
    
    (391
    )
    
    
    (767
    )
    
    
    (360
    )Cash earnings
    
    
    43,057
    
    
    
    38,879
    
    
    
    43,418
    
    
    
    50,358Cash distributions
    
    
    43,059
    
    
    
    38,879
    
    
    
    43,415
    
    
    
    50,360Cash distributions per unit
    
    
    2.0121
    
    
    
    1.8168
    
    
    
    2.0287
    
    
    
    2.3533
 2006 Fiscal QuarterFirst
    
    
    Second
    
    
    Third
    
    
    FourthRoyalty revenues
    
    $
    45,383
    
    
    $
    47,539
    
    
    $
    55,797
    
    
    $
    36,145Interest income
    
    
    14
    
    
    
    18
    
    
    
    22
    
    
    
    21Trust administrative expenses
    
    
    (157
    )
    
    
    (296
    )
    
    
    (279
    )
    
    
    (325
    )Cash earnings
    
    
    45,240
    
    
    
    47,261
    
    
    
    55,540
    
    
    
    35,841Cash distributions
    
    
    45,246
    
    
    
    47,258
    
    
    
    55,538
    
    
    
    35,841Cash distributions per unit
    
    
    2.1143
    
    
    
    2.2083
    
    
    
    2.5952
    
    
    
    1.6748
 2005 Fiscal QuarterFirst
    
    
    Second
    
    
    Third
    
    
    FourthRoyalty revenues
    
    $
    33,197
    
    
    $
    33,413
    
    
    $
    37,357
    
    
    $
    49,011Interest income
    
    
    5
    
    
    
    9
    
    
    
    11
    
    
    
    12Trust administrative expenses
    
    
    (151
    )
    
    
    (367
    )
    
    
    (388
    )
    
    
    (191
    )Cash earnings
    
    
    33,051
    
    
    
    33,055
    
    
    
    36,980
    
    
    
    48,832Cash distributions
    
    
    33,051
    
    
    
    33,060
    
    
    
    36,971
    
    
    
    48,826Cash distributions per unit
    
    
    1.5444
    
    
    
    1.5449
    
    
    
    1.7276
    
    
    
    2.2816
 44




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##### Table of Contents



BP Prudhoe Bay Royalty Trust
Notes to Financial Statements
(Prepared on a modified basis of cash receipts and disbursements)
December 31, 2007
 Fiscal Year Ended2007
    
    
    2006
    
    
    2005Royalty revenues
    
    $
    177,318
    
    
    $
    184,864
    
    
    $
    152,978Interest income
    
    
    81
    
    
    
    75
    
    
    
    37Trust administrative expenses
    
    
    (1,687
    )
    
    
    (1,057
    )
    
    
    (1,097
    )Cash earnings
    
    
    175,712
    
    
    
    183,882
    
    
    
    151,918Cash distributions
    
    
    175,713
    
    
    
    183,883
    
    
    
    151,908Cash distributions per unit
    
    
    8.211
    
    
    
    8.593
    
    
    
    7.098
 (11)
    
    Supplemental Reserve Information and Standardized Measure of Discounted Future Net Cash Flow
Relating to Proved Reserves (Unaudited)Pursuant to Statement of Financial Accounting Standards No. 69, Disclosures About Oil and Gas
Producing Activities(FASB 69), the Trust is required to include in its financial statements
supplementary information regarding estimates of quantities of proved reserves attributable to
the Trust and future net cash flows.Estimates of proved reserves are inherently imprecise and subjective and are revised over time
as additional data becomes available. Such revisions may often be substantial. Information
regarding estimates of proved reserves attributable to the combined interests of BP Alaska and
the Trust were based on reserve estimates prepared by BP Alaska. BP Alaskas reserve estimates
are believed to be reasonable and consistent with presently known physical data concerning the
size and character of the Field.There is no precise method of allocating estimates of physical quantities of reserve volumes
between BP Alaska and the Trust, since the Royalty Interest is not a working interest and the
Trust does not own and is not entitled to receive any specific volume of reserves from the
Field. Reserve volumes attributable to the Trust were estimated by allocating to the Trust its
share of estimated future production from the Field, based on the WTI Price on December 31, 2007
($96.01 per barrel), December 31, 2006 ($61.06 per barrel) and December 31, 2005 ($61.04 per
barrel). Because the reserve volumes attributable to the Trust are estimated using an allocation
of reserve volumes based on the estimated future production and on the current WTI Price, a
change in the timing of estimated production or a change in the WTI price will result in a
change in the Trusts estimated reserve volumes. Therefore, the estimated reserve volumes
attributable to the Trust will vary if different production estimates and prices are used.In addition to production estimates and prices, reserve volumes attributable to the Trust are
affected by the amount of Chargeable Costs that will be deducted in determining the Per Barrel
Royalty. Net proved reserves of oil and condensate attributable to the Trust as of December 31,
2007, 2006 and 2005, based on BP Alaskas latest reserve estimate at such time and the WTI
Prices on December 31, 2007, 2006 and 2005, were estimated to be 98, 81 and 85 million barrels,
respectively (of which 87, 69 and 73 million barrels, respectively, are proved developed). Under
the provisions of FASB 69, no consideration can be given to reserves not considered proved at
the present time.The standardized measure of discounted future net cash flow relating to proved reserves
disclosure required by FASB 69 assigns monetary amounts to proved reserves based on current
prices. This discounted future net cash flow should not be construed as the current market value
of the Royalty
 45




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##### Table of Contents



BP Prudhoe Bay Royalty Trust
Notes to Financial Statements
(Prepared on a modified basis of cash receipts and disbursements)
December 31, 2007
 Interest. A market valuation determination would include, among other things,
anticipated price changes and the value of additional reserves not considered proved at the
present time or reserves that may be produced after the currently anticipated end of field life. At December 31, 2007,
2006 and 2005, the standardized measure of discounted future net cash flow relating to proved
reserves attributable to the Trust (estimated in accordance with the provisions of FASB 69),
based on the WTI Prices on those dates of $96.01, $61.06 and $61.04, respectively, were as follows (in thousands):
 December 31,2007
    
    
    2006
    
    
    2005Future cash inflows
    
    $
    3,209,305
    
    
    $
    1,855,304
    
    
    $
    2,095,16310% annual discount for
estimated timing of cash flows
    
    
    (1,609,463
    )
    
    
    (803,320
    )
    
    
    (885,424
    )Standardized measure of discounted future
net cash flow (a)
    
    $
    1,599,842
    
    
    $
    1,051,984
    
    
    $
    1,209,739
 
 (a)
    
    The following are the principal sources of the change in the standardized measure of
discounted future net cash flows (in thousands):


December 31,2007
    
    
    2006
    
    
    2005Revision of previous quantity estimates
    
    $
    64,461
    
    
    $
    (94,069
    )
    
    $
    2,472Net changes in prices and production costs
    
    
    1,364,445
    
    
    
    6,635
    
    
    
    753,468Net change in production taxes
    
    
    (778,644
    )
    
    
    1,382
    
    
    
    (116,558
    )Other
    
    
    1,608
    
    
    
    (1,073
    )
    
    
    (370
    )651,870
    
    
    
    (87,125
    )
    
    
    639,012Royalty income received (b)
    
    
    (209,172
    )
    
    
    (191,604
    )
    
    
    (173,224
    )Accretion of discount
    
    
    105,195
    
    
    
    120,974
    
    
    
    67,632Net increase (decrease) during the year
    
    $
    547,893
    
    
    $
    (157,755
    )
    
    $
    533,420





|    |  |                                                                                                             
|--- |  | ------------------------------------------------------------------------------------------------------------
|(b) |  | For the purpose of this calculation, royalty income received for 2007, 2006 and 2005
includes the following:

Period October 1, 2007 through December 31, 2007
    
    $
    65,182Period October 1, 2006 through December 31, 2006
    
    $
    43,206Period October 1, 2005 through December 31, 2005
    
    $
    45,383




46



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##### Table of Contents



BP Prudhoe Bay Royalty Trust
Notes to Financial Statements
(Prepared on a modified basis of cash receipts and disbursements)
December 31, 2007
  Estimated net proved reserves of oil and condensate at December 31, 2005
    
    
    85,313Production
    
    
    (4,932
    )Reserve estimate revisions
    
    
    697Change caused by prices/costs
    
    
    Estimated net proved reserves of oil and condensate at December 31, 2006
    
    
    81,078Production
    
    
    (5,249
    )Reserve estimate revisions
    
    
    (10,792
    )Change caused by prices/costs
    
    
    32,762Estimated net proved reserves of oil and condensate at December 31, 2007
    
    
    97,799Proved reserves:December 31, 2005
    
    
    85,313December 31, 2006
    
    
    81,078December 31, 2007
    
    
    97,799
 47




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##### Table of Contents



ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
      48




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##### Table of Contents



Internal Control Over Financial Reporting
 Managements Annual Report on Internal Control Over Financial Reporting. Internal ControlIntegrated Framework
  Report of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated Framework
    49




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##### Table of Contents



Internal Control  Integrated Framework
   
 
 Changes in Internal Control Over Financial Reporting.
 
 ITEM 9B.
    
    OTHER INFORMATION
  
 PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
    50




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##### Table of Contents



ITEM 11.
    
    EXECUTIVE COMPENSATION
    Transfer Agent and RegistrarYear ended December 31,
    
    Trustees Fees
    
    Fees2005
    
    $
    141,288
    
    
    $
    7,0752006
    
    
    147,081
    
    
    
    6,8602007
    
    
    194,570
    *
    
    
    6,494
 
 *
    
    Includes $20,300 of extraordinary service fees. 
 ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER
MATTERS
 Securities Authorized for Issuance under Equity Compensation Plans
  Unit Ownership of Certain Beneficial Owners
  Unit Ownership of Management
  51




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##### Table of Contents



Changes in Control
  
 ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
   
 ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2007
    
    
    2006Audit
    
    $
    135,000
    
    
    $
    123,500Audit related
    
    
    18,000
    
    
    
    16,500Tax
    
    
    200,000
    
    
    
    200,000Other
    
    
    
    
    
    
    $
    353,000
    
    
    $
    340,000
  
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
          52




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##### Table of Contents



4.1
    
    BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among The Standard Oil
Company, BP Exploration (Alaska) Inc., The Bank of New York, Trustee, and F. James Hutchinson,
Co-Trustee.4.2
    
    Overriding Royalty Conveyance dated February 27, 1989 between BP Exploration (Alaska) Inc.
and The Standard Oil Company.4.3
    
    Trust Conveyance dated February 28, 1989 between The Standard Oil Company and BP Prudhoe Bay
Royalty Trust.4.4
    
    Support Agreement dated as of February 28, 1989, as amended May 8, 1989, among The British
Petroleum Company p.l.c., BP Exploration (Alaska) Inc., The Standard Oil Company and BP
Prudhoe Bay Royalty Trust.4.5
    
    Letter agreement executed October 13, 2006 between BP Exploration (Alaska) Inc. and The Bank
of New York, as Trustee.4.6
    
    Letter agreement executed January 11, 2008 between BP Exploration (Alaska) Inc. and The Bank
of New York, as Trustee.31
    
    Rule 13a-14(a) certification.32
    
    Section 1350 certification.
 53




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##### Table of Contents



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.
 BP PRUDHOE BAY ROYALTY TRUSTBy:
    THE BANK OF NEW YORK, as TrusteeBy:
    /s/ Remo RealeRemo RealeVice President   54




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##### Table of Contents



INDEX TO EXHIBITS
 Exhibit No.
    
    Description4.1
    
    BP Prudhoe Bay Royalty Trust Agreement dated February 28, 1989 among The Standard Oil
Company, BP Exploration (Alaska) Inc., The Bank of New York, Trustee, and F. James Hutchinson,
Co-Trustee. Incorporated by reference to the correspondingly numbered exhibit to the
Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (File No.
1-10243).4.2
    
    Overriding Royalty Conveyance dated February 27, 1989 between BP Exploration (Alaska) Inc.
and The Standard Oil Company. Incorporated by reference to the correspondingly numbered
exhibit to the Registrants Annual Report on Form 10-K for the fiscal year ended December 31,
2006 (File No. 1-10243).4.3
    
    Trust Conveyance dated February 28, 1989 between The Standard Oil Company and BP Prudhoe Bay
Royalty Trust. Incorporated by reference to the correspondingly numbered exhibit to the
Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (File No.
1-10243).4.4
    
    Support Agreement dated as of February 28, 1989 among The British Petroleum Company p.l.c.,
BP Exploration (Alaska) Inc., The Standard Oil Company and BP Prudhoe Bay Royalty Trust.
Incorporated by reference to the correspondingly numbered exhibit to the Registrants Annual
Report on Form 10-K for the fiscal year ended December 31, 2006 (File No. 1-10243).4.5
    
    Letter agreement executed October 13, 2006 between BP Exploration (Alaska) Inc. and The Bank
of New York, as Trustee. Incorporated by reference to the correspondingly numbered exhibit to
the Registrants Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (File
No. 1-10243).4.5
    
    Letter agreement executed January 11, 2008 between BP Exploration (Alaska) Inc. and The Bank
of New York, as Trustee. Incorporated by reference to the correspondingly numbered exhibit to
the Registrants Current Report on Form 8-K dated January 11, 2008 (File No. 1-10243).31*
    
    Rule 13a-14(a) certification.32*
    
    Section 1350 certification.
 
 *
    
    Filed herewith.