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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 Form 10-Q
 (Mark One)
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2007
 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: 1-12474
 Torch Energy Royalty Trust
  Delaware
    
    74-6411424(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    Identification Number)Rodney Square North1100 North Market Street, Wilmington, Delaware
    
    19890(Address of Principal Executive Offices)
    
    (Zip Code)
 (Registrants telephone number, including area code)
 (Former name, former address and former fiscal year, if changed since last report)
 þ o
  o o þ
 o þ




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 1. Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures about Market RiskItem 4. Controls and ProceduresPART II. OTHER INFORMATIONITEM 1. Legal ProceedingsITEM 1A. Risk FactorsITEM 2. Unregistered Sales of Equity Securities and Use of ProceedsITEM 3. Defaults upon Senior SecuritiesITEM 4. Submission of Matters to a Vote of UnitholdersITEM 5. Other InformationITEM 6. ExhibitsSIGNATURESExhibit IndexCertification Pursuant to Section 302Certification Pursuant to Section 1350    Table of Contents  Torch Energy Royalty Trust
 
  
 Item 1. Financial Statements
  Introduction
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Torch Energy Royalty Trust
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##### Table of Contents



Torch Energy Royalty Trust
 
 June 30, 2007
    
    
    December 31, 2006(Unaudited)ASSETSCash
    
    $
    1
    
    
    $
    1Net profits interests in oil and gas properties
(Net of accumulated amortization of $163,176 and
$162,215 at June 30, 2007 and December 31, 2006,
respectively)
    
    
    17,424
    
    
    
    18,385$
    17,425
    
    
    $
    18,386LIABILITIES AND TRUST CORPUSTrust expense payable
    
    $
    290
    
    
    $
    222Trust corpus
    
    
    17,135
    
    
    
    18,164$
    17,425
    
    
    $
    18,386
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Torch Energy Royalty Trust
 
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Net profits
income
    
    $
    1,158
    
    
    $
    2,014
    
    
    $
    2,240
    
    
    $
    5,230Infill Well Net Proceeds
    
    
    
    
    
    
    404
    
    
    
    
    
    
    
    5161,158
    
    
    
    2,418
    
    
    
    2,240
    
    
    
    5,746General and
administrative expenses
    
    
    340
    
    
    
    245
    
    
    
    597
    
    
    
    490Interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81340
    
    
    
    245
    
    
    
    597
    
    
    
    571Distributable income
    
    $
    818
    
    
    $
    2,173
    
    
    $
    1,643
    
    
    $
    5,175Distributable income per Unit
(8,600 Units)
    
    $
    .10
    
    
    $
    .25
    
    
    $
    .19
    
    
    $
    .60Distributions per Unit
    
    $
    .10
    
    
    $
    .25
    
    
    $
    .20
    
    
    $
    .60
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Torch Energy Royalty Trust
 
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Trust corpus, beginning of period
    
    $
    17,648
    
    
    $
    20,991
    
    
    $
    18,164
    
    
    $
    21,441Amortization of Net Profits Interests
    
    
    (471
    )
    
    
    (417
    )
    
    
    (961
    )
    
    
    (850
    )Distributable income
    
    
    818
    
    
    
    2,173
    
    
    
    1,643
    
    
    
    5,175Distributions to Unitholders
    
    
    (860
    )
    
    
    (2,167
    )
    
    
    (1,711
    )
    
    
    (5,186
    )Trust corpus, end of period
    
    $
    17,135
    
    
    $
    20,580
    
    
    $
    17,135
    
    
    $
    20,580
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Torch Energy Royalty Trust
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##### Table of Contents



Torch Energy Royalty Trust
        
    
    Revenues are recognized in the period in which amounts are received by the Trust. Therefore,
revenues recognized during the three-month and six-month periods ended June 30, 2007 and 2006
are derived from oil and gas production sold during the three-month and six-month periods
ended March 31, 2007 and 2006, respectively. General and administrative expenses are
recognized on an accrual basis.
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Torch Energy Royalty Trust
  
    
    Amortization of the Net Profits Interests is calculated on a unit-of-production basis and charged directly to trust corpus.
    
    Distributions to Unitholders are recorded when declared by the Trustee.
    
    An impairment loss is recognized when the net carrying value of the Net Profits Interests exceeds its fair market value. No
impairment loss was recognized during the three-month and six-month periods ended June 30, 2007 and 2006.
    
    The financial statements of the Trust differ from financial statements prepared in accordance with GAAP because net profits
income is not accrued in the period of production and amortization of the Net Profits Interests is not charged against
operating results.
    
    Estimates and assumptions have been made in preparing the financial statements of the Trust in order for the financial
statements to be in conformity with accounting principles generally accepted in the United States.
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Torch Energy Royalty Trust
    Marketing Arrangements
    10




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Torch Energy Royalty Trust
    Gathering, Treating and Transportation Arrangements
  Administrative Services Agreement
  11




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Torch Energy Royalty Trust
   Operator Overhead Fees
  Compensation of the Trustee and Transfer Agent
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Torch Energy Royalty Trust
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Torch Energy Royalty Trust
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
 Results of Operations
  Three Months Ended June 30,2007
    
    
    2006Bbls
    
    
    Mcf
    
    
    Bbls
    
    
    Mcfof Oil
    
    
    of Gas
    
    
    of Oil
    
    
    of GasChalkley Field
    
    
    1,069
    
    
    
    246,293
    
    
    
    1,168
    
    
    
    283,608Robinsons Bend Field
    
    
    
    
    
    
    412,998
    
    
    
    
    
    
    
    431,337Cotton Valley Fields
    
    
    714
    
    
    
    159,726
    
    
    
    509
    
    
    
    159,559Austin Chalk Fields
    
    
    2,021
    
    
    
    58,312
    
    
    
    3,179
    
    
    
    54,3833,804
    
    
    
    877,329
    
    
    
    4,856
    
    
    
    928,887
 Six Months Ended June 30,2007
    
    
    2006Bbls
    
    
    Mcf
    
    
    Bbls
    
    
    Mcfof Oil
    
    
    of Gas
    
    
    of Oil
    
    
    of GasChalkley Field
    
    
    2,097
    
    
    
    506,179
    
    
    
    2,426
    
    
    
    583,235Robinsons Bend Field
    
    
    
    
    
    
    848,073
    
    
    
    
    
    
    
    888,093Cotton Valley Fields
    
    
    916
    
    
    
    323,384
    
    
    
    777
    
    
    
    325,711Austin Chalk Fields
    
    
    5,910
    
    
    
    110,016
    
    
    
    6,712
    
    
    
    100,9248,923
    
    
    
    1,787,652
    
    
    
    9,915
    
    
    
    1,897,963
 Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2006
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Torch Energy Royalty Trust
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Torch Energy Royalty Trust
    Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2006
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Torch Energy Royalty Trust
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Torch Energy Royalty Trust
  Three Months Ended June 30, 2007
    
    
    Three Months Ended June 30, 2006Chalkley,Cotton
    
    
    
    
    
    
    
    
    
    
    Chalkley,Valley and
    
    
    
    
    
    
    
    
    
    
    Cotton ValleyAustin Chalk
    
    
    Robinsons
    
    
    
    
    
    
    and Austin
    
    
    RobinsonsFields
    
    
    Bend Field
    
    
    Total
    
    
    Chalk Fields
    
    
    Bend Field
    
    
    TotalOil and gas revenues
    
    $
    2,180
    
    
    $
    1,598
    
    
    $
    3,778
    
    
    $
    2,922
    
    
    $
    2,047
    
    
    $
    4,969Direct operating expenses:Lease operating expenses and
property tax
    
    
    557
    
    
    
    1,523
    
    
    
    2,080
    
    
    
    612
    
    
    
    1,544
    
    
    
    2,156Severance tax
    
    
    198
    
    
    
    141
    
    
    
    339
    
    
    
    220
    
    
    
    200
    
    
    
    420755
    
    
    
    1,664
    
    
    
    2,419
    
    
    
    832
    
    
    
    1,744
    
    
    
    2,576Net proceeds before capital
expenditures
    
    
    1,425
    
    
    
    (66
    )
    
    
    1,359
    
    
    
    2,090
    
    
    
    303
    
    
    
    2,393Capital expenditures
    
    
    206
    
    
    
    41
    
    
    
    247
    
    
    
    98
    
    
    
    175
    
    
    
    273Net proceeds
    
    
    1,219
    
    
    
    (107
    )
    
    
    1,112
    
    
    
    1,992
    
    
    
    128
    
    
    
    2,120Net profits percentage
    
    
    95
    %
    
    
    n/a
    
    
    
    n/a
    
    
    
    95
    %
    
    
    95
    %
    
    
    95
    %Net profits income
    
    $
    1,158
    
    
    $
    
    
    
    $
    1,158
    
    
    $
    1,892
    
    
    $
    122
    
    
    $
    2,014
 Six Months Ended June 30, 2007
    
    
    Six Months Ended June 30, 2006Chalkley,Cotton
    
    
    
    
    
    
    
    
    
    
    Chalkley,Valley and
    
    
    
    
    
    
    
    
    
    
    Cotton ValleyAustin Chalk
    
    
    Robinsons
    
    
    
    
    
    
    and Austin
    
    
    RobinsonsFields
    
    
    Bend Field
    
    
    Total
    
    
    Chalk Fields
    
    
    Bend Field
    
    
    TotalOil and gas revenues
    
    $
    4,417
    
    
    $
    3,202
    
    
    $
    7,619
    
    
    $
    6,835
    
    
    $
    4,984
    
    
    $
    11,819Direct operating expenses:Lease operating expenses and
property tax
    
    
    1,228
    
    
    
    3,000
    
    
    
    4,228
    
    
    
    1,110
    
    
    
    3,014
    
    
    
    4,124Severance tax
    
    
    408
    
    
    
    285
    
    
    
    693
    
    
    
    470
    
    
    
    509
    
    
    
    9791,636
    
    
    
    3,285
    
    
    
    4,921
    
    
    
    1,580
    
    
    
    3,523
    
    
    
    5,103Net proceeds before capital
expenditures
    
    
    2,781
    
    
    
    (83
    )
    
    
    2,698
    
    
    
    5,255
    
    
    
    1,461
    
    
    
    6,716Capital expenditures
    
    
    423
    
    
    
    73
    
    
    
    496
    
    
    
    411
    
    
    
    226
    
    
    
    6372,358
    
    
    
    (156
    )
    
    
    2,202
    
    
    
    4,844
    
    
    
    1,235
    
    
    
    6,079Cumulative Deficit
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (574
    )
    
    
    (574
    )Net proceeds
    
    
    2,358
    
    
    
    (156
    )
    
    
    2,202
    
    
    
    4,844
    
    
    
    661
    
    
    
    5,505Net profits percentage
    
    
    95
    %
    
    
    
    
    
    
    
    
    
    
    95
    %
    
    
    95
    %
    
    
    95
    %Net profits income
    
    $
    2,240
    
    
    $
    
    
    
    $
    2,240
    
    
    $
    4,602
    
    
    $
    628
    
    
    $
    5,230
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Torch Energy Royalty Trust
 
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
   19




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Torch Energy Royalty Trust
 
 Item 4. Controls and Procedures
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Torch Energy Royalty Trust
 
  
 ITEM 1.
    
    Legal ProceedingsNone.
 
 ITEM 1A.
    
    Risk FactorsThe risk factors from our annual report on Form 10-K and Form
10-K/A are supplemented by the following:If the Trust terminates there is no assurance that the Trustee can sell the Net Profits
Interests at all or that the Net Profits Interests will be sold for a certain amount.The Trust will terminate on March 1 of any year if it is determined that the pre-tax
future net cash flows, discounted at 10%, attributable to the estimated net proved
reserves of the Net Profits Interests on the preceding December 31 are less than $25.0
million. The pre-tax future net cash flows, discounted at 10%, attributable to
estimated net proved reserves of the Net Profits Interests as of December 31, 2006 was
approximately $26.4 million. Such reserve report was prepared pursuant to Securities
and Exchange Commission guidelines and utilized an unescalated Purchase Contract price
(after gathering, treating and transportation fees) of $4.06 per Mcf. The computation
of the $4.06 per Mcf Purchase Contract price was based on an unescalated Henry Hub spot
price for natural gas on December 31, 2006 of $5.64 per MMBtu. The December 31, 2006
reserve value was greater than $25.0 million. Therefore, the Trust did not terminate as of
March 1, 2007. In preparing the reserve report, the
Purchase Contract Price was utilized for the life of the Underlying Properties because the Trust
believes that the Net Profits Interest will continue to burden the Underlying
Properties for their remaining life and will continue to be calculated as if the
Purchase Contract was still in effect.In addition, the Trust terminates upon an affirmative vote of the holders of not
less than 66-2/3% of the then outstanding Units. In accordance with the provisions of
the Trust Agreement, Trust Venture has requested that the Trustee call a meeting of the
Unitholders to consider a proposal to terminate the Trust (see footnote 6). Due to
limitations in the Trust Agreement and the other governing documents, neither the Trust
nor Trustee is able to take positions on the value of the Units, including making
recommendations in a tender offer or in connection with a Unitholder vote to terminate
the Trust and are limited in this regard. Upon termination of the Trust, Article IX of
the Trust Agreement requires that the Trustee sell the Net Profits Interests. The
Trustee shall continue to act as the trustee of the estate of the Trust after
termination and shall exercise the powers granted under the Trust Agreement until its
duties have been fully performed and the estate of the Trust
finally distributed so that the affairs of the Trust may be liquidated and wound
up. No assurances
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Torch Energy Royalty Trust
 can be given that the Trustee will be able to sell the Net Profits
Interests, or the amounts that will be available to be distributed to Unitholders
following such a sale. Such distributions could be below the market price of the Units.
Upon making final distribution to the Unitholders and cancellation of the Trust, the
Trustee shall not be under any further liability under the Trust Agreement.
 
 ITEM 2.
    
    Unregistered Sales of Equity Securities and Use of ProceedsNone.
 
 ITEM 3.
    
    Defaults upon Senior SecuritiesNone.
 
 ITEM 4.
    
    Submission of Matters to a Vote of UnitholdersNone.
 
 ITEM 5.
    
    Other InformationNone
 
 ITEM 6.
    
    Exhibits
   4.1
    
    Form of Torch Energy Royalty Trust Agreement. *4.2
    
    Form of Louisiana Trust Agreement. *4.3
    
    Specimen Trust Unit Certificate. *4.4
    
    Designation of Ancillary Trustee. *31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Incorporated by reference from Registration Statements on Form S-1 of Torch Energy
Advisors Incorporated (Registration No. 33-68688) dated November 16, 1993. 22




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Torch Energy Royalty Trust
 
   TORCH ENERGY ROYALTY TRUSTBy: Wilmington Trust Company,not in its individual capacity but solely asTrustee for the TrustBy:
    
    /s/ Bruce L. BissonBruce L. BissonVice President
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Torch Energy Royalty Trust
 
 Exhibit Index
 4.1
    
    Form of Torch Energy Royalty Trust Agreement. *4.2
    
    Form of Louisiana Trust Agreement. *4.3
    
    Specimen Trust Unit Certificate. *4.4
    
    Designation of Ancillary Trustee. *31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Incorporated by reference from Registration Statements on Form S-1 of Torch Energy
Advisors Incorporated (Registration No. 33-68688) dated November 16, 1993. 24