**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM 10-Q**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**FORTHE QUARTERLY PERIOD ENDED JUNE 30, 2006**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934

**FORTHE TRANSITION PERIOD FROM                 TO                  **

**Commission File Number: 1-08432**

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**MESA OFFSHORE TRUST**

(Exact name of Registrantas Specified in its Charter)

| **Texas**                                 |   | **76-6004065**       |
|-------------------------------------------|--------|----------------------|
| (State or other  jurisdiction             |   | (I.R.S. Employer     |
| of Incorporation or  Organization)        |   | Identification  No.) |
| **JPMorgan Chase Bank, N.A., Trustee**    |   | ** **           |
| **Institutional  Trust Services**         |   | ** **           |
| **221  West Sixth Street**                |   | ** **           |
| **Austin,  Texas**                        |   | **78701**            |
| (Address of  Principal Executive Offices) |   | (Zip Code)           |

 

**1-800-852-1422**

(Registrant’s TelephoneNumber, Including Area Code)

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days. Yes x  No o

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-acceleratedfiler. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):

| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer x |
|--------------------------------|--------|---------------------|--------|------------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).Yes o  No x

Asof August 14, 2006—71,980,216 Units of Beneficial Interest in MesaOffshore Trust.

 

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**PART I—FINANCIALINFORMATION**

**Item1.**                           *Financial Statements.*

**MESA OFFSHORE TRUSTSTATEMENTS OF DISTRIBUTABLE INCOME(Unaudited)**

| ** **                          | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                          | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Royalty income                      |       | $                                               | 73,780     |                                          | $          | 505,409 |   | $ | 114,545 |   | $ | 678,869 |   |
| Interest income                     |       | 5,008                                           |       | 1,151                                         |       | 10,196 |   | 1,947 |   |
| General and  administrative expense |       | (78,788                                         | )          | (506,560                                      | )          | (124,741 | ) | (680,816 | ) |
| Distributable income                |       | $                                               | —     |                                          | $          | — |   | $ | — |   | $ | — |   |
| Distributable income per unit       |       | $                                               | —     |                                          | $          | — |   | $ | — |   | $ | — |   |

 

**STATEMENTSOF ASSETS, LIABILITIES AND TRUST CORPUS**

| ** **                                                                         | ** ** | **June 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                                         | ** ** | **(Unaudited)**         | ** ** | ** **                  | ** ** |
| ASSETS                                                                             |       |                    |       |                        |       |
| Cash and short-term  investments                                                   |       | $                       | 1,301,951  |                        | $          | 1,846,798 |   |
| Interest receivable                                                                |       | 1,591                   |       | 1,582                       |       |
| Net overriding royalty  interest in oil and gas properties                         |       | 380,905,000             |       | 380,905,000                 |       |
| Accumulated amortization                                                           |       | (380,902,034            | )          | (380,901,952                | )          |
| Total assets                                                                       |       | $                       | 1,306,508  |                        | $          | 1,851,428 |   |
| LIABILITIES AND TRUST  CORPUS                                                      |       |                    |       |                        |       |
| Reserve for Trust  expenses                                                        |       | $                       | 1,303,542  |                        | $          | 1,848,380 |   |
| Distributions payable                                                              |       | —                  |       | —                      |       |
| Trust corpus (71,980,216  units of beneficial interest authorized and outstanding) |       | 2,966                   |       | 3,048                       |       |
| Total liabilities and trust corpus                                                 |       | $                       | 1,306,508  |                        | $          | 1,851,428 |   |

 

**MESA OFFSHORE TRUSTSTATEMENTS OF CHANGES IN TRUST CORPUS(Unaudited)**

| ** **                                       | ** ** | **Three Months Ended  June 30,**          | ** ** | **Six Months Ended  June 30,**            | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------------|------------|----------------------------------------------------------|------------|
| ** **                                       | ** ** | **    2006    ** | ** ** | **    2005    ** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Trust corpus, beginning  of period               |       |                                                     | $          | 3,025                                                    |       |   |   | $ | 9,619 |   |   | $ | 3,048 |   | $ | 11,127 |   |
| Distributable income                             |       |                                                     | —     |                                                     |       |   | — |   |   | — |   | — |   |
| Distributions to  unitholders                    |       |                                                     | —     |                                                     |       |   | — |   |   | — |   | — |   |
| Amortization of net  overriding royalty interest |       |                                                     | (59        | )                                                        |       |   | (4,395 | ) |   | (82 | ) | (5,903 | ) |
| Trust corpus, end of period                      |       |                                                     | $          | 2,966                                                    |       |   |   | $ | 5,224 |   |   | $ | 2,966 |   | $ | 5,224 |   |

 

(The accompanying notes are an integral part of these financial statements.)

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**MESA OFFSHORE TRUSTNOTES TO FINANCIAL STATEMENTS(Unaudited)**

**Note 1—Trust Organization**

The Mesa Offshore Trust(the “Trust”) was created effective December 1, 1982. On that date, MesaPetroleum Co., predecessor to Mesa Limited Partnership, which was the predecessorto MESA Inc., transferred to the Trust a 99.99% interest in the MesaOffshore Royalty Partnership (the “Partnership”). The Partnership was createdto receive and hold a net overriding royalty interest (the “Royalty”) in tenproducing and nonproducing oil and gas properties located in federal watersoffshore Louisiana and Texas (the “Royalty Properties”). Mesa Inc. createdthe Royalty out of its working interest in the Royalty Properties andtransferred it to the Partnership. Until August 7, 1997, MESA Inc.owned and operated its assets through Mesa Operating Co. (“Mesa”), the operatorand the managing general partner of the Royalty Properties. On August 7,1997, MESA Inc. merged with and into Pioneer Natural Resources Company (“Pioneer”),formerly a wholly owned subsidiary of MESA, Inc., and Parker &Parsley Petroleum Company merged with and into Pioneer Natural Resources USA, Inc.(successor to Mesa) a wholly owned subsidiary of Pioneer (“PNR”) (collectively,the mergers are referred to herein as the “Merger”). Subsequent to the Merger,Pioneer owns and operates its assets through PNR and is also the managinggeneral partner of the Partnership. As hereinafter used in this report, theterm PNR generally refers to the operator of the Royalty Properties, unlessotherwise indicated.

On April 8, 2006,JPMorgan Chase Bank, N.A., (the “Trustee”) and Bank of New York announced anagreement pursuant to which Bank of New York would acquire JPMorgan Chase’scorporate trust business. This transaction does not include any transfer byJPMorgan Chase Bank, N.A. of its obligations as Trustee of this Trust.

**Note 2—Status of the Trust, Legal Proceedings, andTiming of Liquidation**

*Hurricane Operations Update*

Hurricane Katrina**struckthe Gulf of Mexico in August 2005. PNR has notified the Trust of its currentassessments regarding damages from Hurricanes Katrina and Rita to productionfacilities for properties in which the Trust has an interest. The operator ofthe West Delta properties has informed PNR that the West Delta properties havebeen shut in since August 27, 2005 due to damage to the platform, thepipeline and the sales terminal. The operator has notified PNR that thepipeline has not been repaired and currently there is no estimate on whenproduction at West Delta will resume.

*Status of the Trust*

The Trust Indentureprovides that the Trust will terminate if the total amount of cash per yearreceived by the Trust falls below certain levels for each of three successiveyears (the “Termination Threshold”). **As aresult of continued declines in production on Royalty Properties nearing theend of their estimated productive lives, Royalty income received by the Trustin 2002, 2003 and 2004 fell below the Termination Threshold prescribed by theTrust Indenture.**The Trustee has taken steps to begin the 

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processof liquidating the Trust. See “—Timing of Liquidation” below in this Note. TheTrustee, which has no authority or discretionary control over the timing ofexpenditures, production or income on the Royalty Properties, has no discretionregarding the occurrence of the Termination Threshold or its consequences.

The Trust Indentureprovides the Trustee a two-year period during which it must sell all of theTrust properties. The Trust Indenture provides that such properties must besold for cash and not for any other consideration. The Trustee expects that thesale process will be open to any persons desiring to participate, but, as iscustomary, access to information and participation may be limited to personswho execute confidentiality agreements regarding information provided by theworking interest owners. The Trustee may also require bidders to identifythemselves clearly and to represent or evidence sufficient financing in orderto participate, as the Trustee expects payment will be required promptly afterthe close of bidding without any financing conditions. Accordingly, the auctionmay not be a “public” auction in the sense that it may not be open to anyonewho does not satisfy these requirements. The Trustee is currently reviewing apotential online bidding process for participants in order to provide currentpublic information on bidding to the marketplace. The Trustee will alsodetermine a duration of bidding that it deems in the best interest of theUnitholders. See “Timing of Liquidation” for further update.

*Legal Proceedings*

On April 11, 2005,MOSH Holding, L.P. (MHLP) filed an Original Petition in the District Court ofTravis County, Texas, 250th Judicial District, against Pioneer NaturalResources Company; Pioneer Natural Resources USA, Inc.; Woodside Energy(USA), Inc.(Woodside); and JPMorgan Chase Bank, N.A., as Trustee of theMesa Offshore Trust (Case No. GN501113). On November 28, 2005,Plaintiff amended its petition. In the amended petition, MHLP asserts claimsagainst Pioneer and Woodside for matters including (1) a wrongful farmoutof Brazos A-39 by Pioneer , (2) a wrongful delay by Pioneer inproducing Brazos A-39, (3) fraudulent accounting practices byPioneer, (4) breach of fiduciary duty by Pioneer, (5) aiding andabetting breach of fiduciary duty by Woodside, (6) misapplication of Trustproperty by Pioneer, (7) conspiracy to misapply fiduciary property byWoodside and Pioneer, (8) common law fraud by Pioneer, (9) grossnegligence by Pioneer, and (10) breach of the conveyance agreement byPioneer. MHLP asserts claims for damages against the Trustee for (1) anaccounting; and (2) breach of fiduciary duty. The plaintiff remedies beingsought include (a) reconstruing the Trust Indenture to determine that theTrust is not terminated because there has or should have been production whichwould have generated revenues to extend the life of the Trust, (b) requiringthe Trustee to pursue certain claims, or to allow plaintiff to pursue suchclaims, (c) setting aside any farmouts by Pioneer in which there have beenconveyances to an affiliate of Pioneer in violation of the Trust’s Conveyanceand as a self-dealing transaction, and (d) removing JPMorgan Chase Bank,N.A. as Trustee, (e) seeking return or forfeiture of compensation toJPMorgan Chase Bank, N.A., (f) recovering monetary damages againstPioneer, Woodside and JPMorgan Chase Bank, N.A., and (g) pursuingexemplary damages against all defendants.

On November 30, 2005,JPMorgan Chase Bank, N.A. announced its intention to resign as Trustee of theMesa Offshore Trustee effective January 31, 2006. Since that announcement,MHLP and others have sought a qualified institution willing to serve assuccessor Trustee. However, neither MHLP nor Pioneer have identified a willingqualified successor Trustee that is not also a lender under one of Pioneer’scredit facilities (which status MHLP contends is an alleged conflict ofinterest).

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On January 27, 2006,a hearing was held in the 334th Judicial DistrictCourt of Harris County, Texas, regarding MHLP’s Verified Application forEmergency Appointment of a Temporary Trustee in Case No. 2006-01984,MOSH Holding, L.P. v. Pioneer Natural Resources Company; Pioneer NaturalResources USA, Inc; Woodside Energy (USA), Inc.; and JPMorgan Chase Bank,N.A., as Trustee of the Mesa Offshore Trust. This case follows the transfer ofprior claims filed by the plaintiff in Case No. GN501113. At this hearing,the court declined to approve MHLP’s motion to appoint Timothy J. Roberson, aprincipal and affiliate of MHLP, as temporary Trustee and declined to appointany other person as temporary or successor Trustee.

In light of thisdevelopment, and the absence of an identified successor Trustee, JPMorgan ChaseBank, N.A. withdrew its resignation as Trustee. The Trustee continues to desirethe appointment of a qualified successor Trustee.

To date, the Trustee hasallowed MHLP to proceed on the issue of whether the farmout by Pioneer was avalid farmout. While Pioneer has provided a reasoned analysis of why it believesthe farmout was in fact valid under the terms of the conveyance, only a court,and not the Trustee, can make a final adjudication. Further, while MHLP’sclaims on the farmout issue may merit adjudication, based on facts known to theTrustee at this time, the Trustee is unable to determine, even if MHLPprevailed on its uncertain liability claims, whether the Trust would realizeany economic benefit. Based on information received to date, the Trustee hasnot concluded that it would be in the best interest of the unitholders to fundthe MHLP claims directly with Trust funds. However, as noted above, the Trusteehas not opposed MHLP’s pursuit of its claims on behalf of the unitholders attheir own expense, which reasonable expenses would be subject to repayment ofthe claims proved successful and a benefit were conferred upon all unitholdersof the Trust. In connection with both the anticipated sale of Trust propertiespursuant to the Trust’s termination and the pending litigation, the Trustee has(1) engaged an independent reserve engineer to review the estimatedreserves and (2) had an independent joint venture auditor review certainhistorical expenditures and revenue receipts on Trust properties. The Trusteebelieves expenditures for these reviews were prudent and in the interest of theunitholders.

The Trustee will make thefull detail of the underlying data of the December 31, 2005 reserve reportavailable for use in connection with the sale of the Trust properties as partof the Trust termination. For more information regarding the estimatedremaining life of each of the Royalty Properties, the estimated future netrevenues of the Royalty Properties and information relating to farm-outs ofinterests on the Royalty Properties based on information provided by DeGolyer &MacNaughton (D&M), see pages 22 and 23 of the Trust’s Annual Report onForm 10-K for the year ended December 31, 2005 and Note 6 inthe Notes to Financial Statements included elsewhere in the Trust’s Form 10-K.The sale of the assets of the Trust estate will include the related rights toabandonment accruals made by PNR. As explained in “Regulation and Prices—PlatformAbandonment and Removal” on page 26 in the Trust’s 2005 Form 10-K,PNR withholds from the Trust a reserve to cover its share of those futureabandonment and removal costs. To the extent a certain party is able tocomplete the abandonment for an amount less than the funds withheld by PNR, therelated rights to the abandonment accrual are likely to be deemed marketable.The final distribution to unitholders will be an amount net of funds requiredto satisfy all Trust liabilities.

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*Timing of Liquidation*

In connection with thislitigation, the Trustee has agreed that it will give MHLP at least 60 daysnotice prior to the sale of any Trust properties in connection with thetermination of the Trust. As of the date of this filing, based on theinformation currently provided by Pioneer and the preliminary state of the proceeding,the Trustee has not made any definitive conclusions as to the validity of theclaims asserted by MHLP. The Trustee will perform additional joint ventureaudits of the Trust properties by an independent auditor. This is a processthat the Trust had already begun in its inquiry in the ordinary course as partof the termination of the Trust, and the Trustee will continue to review MHLP’sclaims.

As previously mentioned,the Trustee engaged an independent joint venture auditor in October 2004to review the Trust properties as part of the termination of the Trust. Thejoint venture auditor reviewed the periods from 2003 through 2004. The Trusteebelieved this engagement of an outside expert on these matters to be a prudentstep to identify any potential benefits to the Trust, as well as anylimitations on potential benefits, due to differing interpretations ofaccounting matters that commonly occur in the oil and gas production industry.The review of the independent joint venture auditor was completed in December 2005,and it was the joint venture auditor’s opinion that the charges and credits andrevenue to the Trust were in accordance with the applicable agreements, exceptfor certain items noted in the report. The report notes exceptions, which mayor may not turn out to be meritorious, as to amounts due to the Trust of$204,219. PNR, Stone Energy (Stone) and Newfield Exploration Company (Newfield)responded to these exceptions on April 20, 2006. PNR, Stone and Newfield havegranted and denied exceptions on all of the areas pointed in the Joint VentureAudit findings. The Trust is in the process of reviewing the exceptions deniedbefore accepting or rejecting PNR, Stone and Newfield’s answers.

Due to the pendinglitigation, the Trustee cannot predict the timing of the sale of all or aportion of the Trust properties as part of the Trust Termination.

**Note 3—Basis of Presentation**

The accompanying unauditedfinancial information has been prepared by the Trustee in accordance with theinstructions to Form 10-Q. JPMorgan Chase Bank, N.A. was formerlyknown as The Chase Manhattan Bank and is the successor by mergers to theoriginal name of the Trustee, Texas Commerce Bank National Association. TheTrustee believes such information includes all the disclosures necessary tomake the information presented not misleading. The information furnishedreflects all adjustments which are, in the opinion of the Trustee, necessaryfor a fair presentation of the results for the interim periods presented. The financialinformation should be read in conjunction with the financial statements andnotes thereto included in the Trust’s 2005 Annual Report on Form 10-K.

Thefinancial statements of the Trust are prepared on the following basis:

(a)    Royalty income recorded for a month is theTrust’s interest in the amount computed and paid by the working interest ownerto the Partnership for such month rather than either the value of a portion ofthe oil and gas produced by the working interest owner for such month or the amountsubsequently determined to be 90% of the net proceeds for such month;

(b)   Interest income, interest receivable and distributions payable tounitholders include interest to be earned on short-term investments from thefinancial statement date through the next date of distribution;

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(c)    Trust general and administrative expenses, net of reimbursements,are recorded in the month they accrue;

(d)   Amortization of the net overriding royalty interest, which iscalculated on the basis of current royalty income in relation to estimatedfuture royalty income, is charged directly to trust corpus since such amountdoes not affect distributable income; and

(e)    Distributions payable are determined on a monthly basis and arepayable to unitholders of record as of the last business day of each month orsuch other day as the Trustee determines is required to comply with legal orstock exchange requirements. However, cash distributions are made quarterly inJanuary, April, July and October, and include interest earned from themonthly record dates to the date of distribution.

This basis for reportingRoyalty income is considered to be the most meaningful because distributions tothe unitholders for a month are based on net cash receipts for such month.However, it will differ from the basis used for financial statements preparedin accordance with accounting principles generally accepted in the UnitedStates because, under such accounting principles, Royalty income for a monthwould be based on net proceeds from production for such month without regard towhen calculated or received and interest income for a month would be calculatedonly through the end of such month.

The instruments conveyingthe Royalty provide that the working interest owner will calculate and pay thePartnership each month an amount equal to 90% of the net proceeds for thepreceding month. Generally, net proceeds means the excess of the amountsreceived by the working interest owner from sales of oil and gas from theRoyalty Properties plus other cash receipts over operating and capital costsincurred. For the three and six months ended June 30, 2006, Royalty incomewas applied solely to cover a portion of general and administrative expenses;accordingly, no Trust distribution to the unit holders was made.

Generally, net proceedsmeans the excess of the amounts received by the working interest owner fromsales of oil and gas from the Royalty Properties plus other cash receipts overoperating and capital costs incurred. No Royalty income will be distributed tounitholders until the Trustee recoups Trust expenses being paid from thereserve that the Trustee has established for anticipated future expenses. As ofJune 30, 2006, $696,458 will be withheld by the Trustee from futureRoyalty income before Trust distributions to the unitholders will resume. Theunexpended amount withheld by PNR for future abandonment costs at June 30,2006 was $372,826.

During the second quarters of 2006 and 2005, the Trusthad no distributable income. Royalty income and the reserve for Trust expenseswere used to pay the Trust’s second quarter 2006 general and administrativeexpenses of $312,260.

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Below is a summary ofgeneral and administrative expenses and the adjustments made to the reserve forTrust expenses:

| ** **                                                        | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                        | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| General  and administrative costs incurred during the period |       | $                                               | 312,260    |                                          | $          | 270,004 |   | $ | 668,873 |   | $ | 415,956 |   |
| Deductions from (additions to) reserve  for Trust expenses   |       | (233,472                                        | )          | 236,556                                       |       | (544,132 | ) | 264,860 |   |
| General and administrative costs as reported                 |       | $                                               | 78,788     |                                          | $          | 506,560 |   | $ | 124,741 |   | $ | 680,816 |   |

 

General and administrativeexpenses of the Trust for the second quarter of 2006 increased 14% to $312,260as compared to $270,004 for the same period in 2005. General and administrativeexpenses for the first half of 2006 increased 38% to $668,873 as compared to$415,956 for the same period in 2005. The increase in general andadministrative expenses in 2006 is primarily due to an increase in legal feesas a result of pending litigation discussed in “Legal Proceedings”.

**Note 4—Assets and Liabilities in Process of Liquidation**

As aresult of the contractual termination of the Trust effective January 1,2005, the Trust is in the process of liquidation. The below table presents theassets of the Trust at their estimated fair value:

| ** **                                                 | ** ** | **June 30,  2006** | ** ** |
|------------------------------------------------------------|------------|-------------------------|------------|
| ASSETS                                                     |       |                    |       |
| Cash and short term  investments                           |       | $                       | 1,301,951  |   |
| Interest receivable                                        |       | 1,591                   |       |
| Net overriding royalty  interest in oil and gas properties |       | 3,187,957               |       |
| Total assets                                               |       | $                       | 4,491,499  |   |
| LIABILITIES                                                |       |                    |       |
| Reserve for Trust  expenses                                |       | $                       | 1,303,542  |   |
| Total liabilities                                          |       | 1,303,542               |       |
| Net assets in process of liquidation                       |       | $                       | 3,187,957  |   |

 

The net overriding royaltyinterest in oil and gas properties at June 30, 2006 reflect the Trustee’sestimate of value (in the absence of third-party appraisals or evaluations),based on the Trust’s share of future net revenues from the net overridingroyalty interest in the properties as of June 30, 2006. This estimate isbased on the Trustee’s current assessment of the impact of selling existingassets based on current market conditions, and includes the followingassumptions:

·       TheTrust’s estimated share of oil and gas reserve volumes at June 30, 2006,which were derived from the December 31, 2005 reserve report prepared by D&M,and updated for year to date 2006 production (1). The working interest ownerhas not prepared a reserve report as of June 30, 2006, and therefore anyrevisions in oil and gas reserves during the six months ended June 30,2006 have 

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not been consideredin the estimate of fair value of the net overriding royalty interest in oil andgas properties.

·       Forwardstrip commodity prices on June 30, 2006 for the life of the reserves.

·       Exclusionof estimated future abandonment costs (2).

·       Discount rate of 10%.

Theactual net proceeds from the sales of oil and gas properties may vary substantiallyfrom these estimates in value due to changes in current and estimated futureoil and gas prices, subsequent production, estimates of actual abandonmentcosts and other factors which may be applied by the buyers.

Forall other assets presented in the above table, the Trustee believes thathistorical cost approximates fair market value due to the short-term nature ofsuch assets. The Trustee will continue to reserve funds to recoup itspreviously established reserves to pay Trust expenses, which will primarilyconsist of expenses incurred by the Trustee to liquidate the Trust’s assets.Any funds remaining after all expenses have been paid will be distributed tothe Unitholders.

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(1)          Asa result of the litigation described above, the Trust has been unable to obtainnecessary information from the working interest owner regarding such owner’sown current estimate of the fair value of the proved reserves on the MidwayProspect. The Trustee engaged D&M, an independent reserve engineer, toreview all oil and gas reserves pertaining to the Royalty, including the MidwayProspect reserves and the Trust’s interest in these reserves as ofDecember 31, 2005.

(2)          The sale of the assetscurrently owned by the Partnership will include the related rights toabandonment costs previously withheld by the working interest owner. Theworking interest owner has withheld funds to cover the Trust’s share of futureabandonment and removal costs. To the extent the abandonment is completed foran amount less than the funds withheld by the working interest owner, thosefunds would be distributed to the Trust. Therefore, estimated futureabandonment costs are not reflected as a reduction of future net revenue.

**Item 2.**                        *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations.*

The following review ofthe Trust’s financial condition and results of operations should be read inconjunction with the financial statements and notes thereto.

**Note RegardingForward-Looking Statements**

This Form 10-Qincludes “forward-looking statements” within the meaning ofSection 27A of the Securities Act of 1933, as amended, andSection 21E of the Securities Exchange Act of 1934, as amended. Allstatements other than statements of historical facts included in thisForm 10-Q, including without limitation the statements under“Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and Note 4 to the financial statements of the Trust regardingthe estimated fair value of assets of the Trust, are forward-lookingstatements. Although Pioneer has advised the Trust that it believes that theexpectations reflected in such forward-looking statements are reasonable,no assurance can be given that such expectations will prove to have beencorrect. Important factors that could cause actual results to differ materiallyfrom expectations (“Cautionary Statements”) are disclosed in this Form 10-Q,including, without limitation, in conjunction with the forward-lookingstatements included in 

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thisForm 10-Q and in the Trust’s Form 10-K for the year endedDecember 31, 2005, including under Part I, Item 1A. “Risk Factors” in the2005 Annual Report on Form 10-K. All subsequent written and oral forward-lookingstatements attributable to the Trust or persons acting on its behalf areexpressly qualified in their entirety by the Cautionary Statements.

**Financial Review**

The amount of cash distributed by the Trust isdependent on, among other things, the sales prices and quantities of gas, crudeoil, condensate and natural gas liquids produced from the Royalty Propertiesand the quantities sold. Substantial uncertainties exist with regard to futuregas and oil prices, which are subject to fluctuations due to the regionalsupply and demand for natural gas and oil, production levels and otheractivities of the Organization of the Petroleum Exporting Countries (“OPEC”)and other oil and gas producers, weather, storage levels, industrial growth,conservation measures, competition and other variables.

Below is a summary ofRoyalty income received on the Trust properties for the three and six monthsended June 30, 2006 and 2005:

| ** **                           | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                           | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Gross proceeds @ 90%                 |       | $                                               | 88,041     |                                          | $          | 523,325 |   | $ | 164,566 |   | $ | 795,623 |   |
| Operating expenditures @  90%        |       | (14,253                                         | )          | (17,866                                       | )          | (41,976 | ) | (57,645 | ) |
| Capital expenditures @  90%          |       | —                                          |       | —                                        |       | (8,033 | ) | — |   |
| Net proceeds (deficit)               |       | 73,788                                          |       | 505,459                                       |       | 114,557 |   | 737,978 |   |
| Increase (decrease) in  deficit      |       | —                                          |       | —                                        |       | — |   | (59,041 | ) |
| Net proceeds after  deficit recovery |       | $                                               | 73,788     |                                          | $          | 505,459 |   | $ | 114,557 |   | $ | 678,937 |   |
| Royalty Income (99.99%)              |       | $                                               | 73,780     |                                          | $          | 505,409 |   | $ | 114,545 |   | $ | 678,869 |   |

 

Belowis a summary of distributable income for the three and six months endedJune 30, 2006 and 2005:

| ** **                                 | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                 | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Royalty Income                             |       | $                                               | 73,780     |                                          | $          | 505,409 |   | $ | 114,545 |   | $ | 678,869 |   |
| Interest income                            |       | 5,008                                           |       | 1,151                                         |       | 10,196 |   | 1,947 |   |
| General and  administrative expenses       |       | (78,788                                         | )          | (506,560                                      | )          | (124,741 | ) | (680,816 | ) |
| Distributable income                       |       | $                                               | —     |                                          | $          | — |   | $ | — |   | $ | — |   |
| Distributable income per  unit             |       | $                                               | —     |                                          | $          | — |   | $ | — |   | $ | — |   |
| Accummulated deficit (as of end of period) |       | $                                               | —     |                                          | $          | — |   | $ | — |   | $ | — |   |

 

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During the second quarters of 2006 and 2005, the Trusthad no distributable income. Royalty income and the reserve for Trust expenseswere used to pay the Trust’s second quarter 2006 general and administrativeexpenses of $312,260.

Below is a summary of general and administrativeexpenses and the adjustments made to the reserve for Trust expenses:

| ** **                                                        | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                        | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| General and  administrative costs incurred during the period |       | $                                               | 312,260    |                                          | $          | 270,004 |   | $ | 668,873 |   | $ | 415,956 |   |
| Deductions from  (additions to) reserve for Trust expenses   |       | (233,472                                        | )          | 236,556                                       |       | (544,132 | ) | 264,860 |   |
| General and administrative costs as reported                 |       | $                                               | 78,788     |                                          | $          | 506,560 |   | $ | 124,741 |   | $ | 680,816 |   |

 

General and administrativeexpenses of the Trust for the second quarter of 2006 increased 14% to $312,260as compared to $270,004 for the same period in 2005. General and administrativeexpenses for the first half of 2006 increased 38% to $668,873 as compared to$415,956 for the same period in 2005. The increase in general andadministrative expenses in 2006 is primarily due to an increase in legal feesas a result of pending litigation discussed in “Legal Proceedings”.

**Operational Review**

PNR has advised the Trustthat during the second quarter of 2006 its offshore gas production was marketedunder short-term contracts at spot market prices primarily to TOTAL S.A. andthat it expects to continue to market its production under short-term contractsfor the foreseeable future. Spot market prices for natural gas in the secondquarter of 2006 were generally higher than spot market prices in the secondquarter of 2005.

The amount of cash distributedby the Trust is dependent on, among other things, the sales prices andquantities of gas, crude oil and condensate produced from the RoyaltyProperties and the quantities sold. Substantial uncertainties exist with regardto future gas and oil prices, which are subject to fluctuations due to theregional supply and demand for natural gas and oil, production levels and otheractivities of the Organization of the Petroleum Exporting Countries (“OPEC”)and other oil and gas producers, weather, storage levels, industrial growth,conservation measures, competition and other variables.

Below is an operationalreview of the remaining producing Trust properties:

***Brazos A-7and A-39***

| ** **                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                    | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Gross proceeds @  90%         |       | $                                               | 32,189     |                                          | $          | 58,743 |   | $ | 77,426 |   | $ | 94,824 |   |
| Operating  expenditures @ 90% |       | (12,208                                         | )          | (15,787                                       | )          | (34,833 | ) | (44,225 | ) |
| Capital  expenditures @ 90%   |       | —                                          |       | —                                        |       | — |   | — |   |
| Net proceeds (deficit)        |       | $                                               | 19,981     |                                          | $          | 42,956 |   | $ | 45,593 |   | $ | 50,599 |   |

 

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The Brazos A-7 and A-39 blocks continuedto experience a decrease in natural gas production due to natural productiondecline. As of June 30, 2006, these two blocks had one well producing, theBrazos A-7 No. B-1 well, which is operated by Newfield ExplorationCompany. The Brazos A-39 No. A-3 well ceased production duringthe fourth quarter of 2003. PNR entered into farmout agreements for the Trust’sinterest in both of these blocks so that two exploration prospects could bedrilled and in which the Trust will retain an overriding royalty interest. Thefirst prospect on Brazos A-7 was drilled during 2003 and was determinedto be a dry hole. As such, the well was plugged and abandoned. In 2005, PNR performedabandonment procedures at the PNR operated Brazos A-7 and the A-39blocks, with minor sitework clearance remaining. These abandonment procedures havebeen substantially completed during 2006.

The second exploration prospect, the Brazos A-39#5, was drilled on Brazos A-39, which PNR announced as a discovery. Aproduction test was completed in 2005. PNR, the operator on this property, hasinformed the Trustee that the lower horizon of the prospect was determined tobe non-commercial, while the middle horizon in the Big Hum 4 sand produced at10,000 Mcf of gas per day during a seventeen hour flow test. This wellcame on line April 20, 2006. However, this well has been shut in from time totime since then as the operator has encountered and addressed hydrogen sulfideissues. The well has also produced a carbon dioxide content that exceedspipeline specifications. This higher content requires the operator to mixproduction at the platform with production from other fields in order to transportthe product. Production is being routed to the A-52C platform owned by ColdrenResources LP. That platform is being operated by Arena, which is also servingas the contract operator for the Midway property. The well was shut in July 21,2006 by Williams Pipeline due to reported detection of mercury in the gas stream.Timing for resolution of this issue remains unclear. The last flow rate priorto shut in was 2,800 Mcf a day with 4200 psi flowing tubing pressure, with agradually declining flowing pressure.

Under the terms of a Farmout Agreement between PNR andWoodside Energy (USA) Inc., PNR farmed out to Woodside the undivided one-halfinterest previously burdened by the Trust’s net profits interest, but expresslyproviding that the farmed out interest would not be subject to the Trust’s netprofits interest. PNR reserved a 10% overriding royalty interest,proportionately reduced to the interest conveyed, which interest, upon Woodside’srecoupment of specified costs and expenses, would increase to 12.5%,proportionately reduced to the interest conveyed. The Trust’s net profitsinterest burdens the overriding royalty interest reserved by PNR. PNR hasinformed the Trustee that it believes this process is consistent with the termsof the original conveyance and with the handling of other farmout transactionsinvolving lands burdened by the Trust’s net profits interest.

PNR continues to own the undivided one-half interestnot burdened by the Trust’s net profits interest and will participate in andoperate the well as owner of that undivided one-half interest (subject to anagreement with Woodside to grant Woodside such interest in PNR’s remainingundivided one-half interest to equalize those parties participation in thewell).

PNR has noted to the Trustee that the FarmoutAgreement enabled the drilling costs of these prospects to be carried on theTrust’s interest in part by Woodside. PNR further noted that the Trust’s netprofits interest would not have entitled the Trust to payment until drillingcosts and applicable interest were recovered, whereas the overriding royaltyinterest retained under the Farmout Agreement entitles the Trust to paymentsprior to the recoupment of expenses incurred by Woodside and PNR. As notedabove, the first prospect on Brazos A-7 was determined to be a dry hole.Under the Farmout Agreement 

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and related agreements,those drilling and abandonment costs have been born entirely by PNR andWoodside and are not subject to recoupment from any proceeds otherwise payableto the Trust. Similarly, the Trust’s current interest in the “Midway” prospecton Brazos A-39 will be entitled to payment prior to PNR’s and Woodside’srecovery of expenses for drilling, completion, sub-sea tie backs and othercosts.

The Brazos A-7 and A-39blocks also experienced a significant decrease in operating expenditures due tothe Brazos A-39 No. A-3 well no longer producing.

***West Delta 61 and62***

| ** **                    | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                    | ** ** | **2006**                                        | ** ** | **2005**                                      | ** ** | **2006** | ** ** | **2005** | ** ** |
| Gross proceeds @  90%         |       | $                                               | 55,852     |                                          | $          | 464,582 |   | $ | 87,140 |   | $ | 700,799 |   |
| Operating  expenditures @ 90% |       | (2,045                                          | )          | (2,079                                        | )          | (7,143 | ) | (13,420 |   |
| Capital  expenditures @ 90%   |       | —                                          |       | —                                        |       | (8,033 | ) | — |   |
| Net proceeds (deficit)        |       | $                                               | 53,807     |                                          | $          | 462,503 |   | $ | 71,964 |   | $ | 687,379 |   |

 

**HurricaneKatrina**struck the Gulf of Mexicoin August 2005. The operator of the West Delta properties has informed PNRthat the West Delta properties have been shut in since August 27, 2005 dueto damage to the platform, the pipeline and the sales terminal. The operatorhas notified PNR that the pipeline has not been repaired and currently there stillis no estimate as to when the repairs will be completed. The operator does nothave an estimate on when production at West Delta will resume. Second quarterproceeds consist of revenues adjustments related to prior periods received bythe Trust in the second quarter 2006.**

The PNR-operated wellsceased production in 2002 and the wells were plugged and abandoned by year-endwith the facilities being completely abandoned during 2003. The only remainingwells on this block are in West Delta 61. PNR farmed out a portion of WestDelta 61 to Stone retaining a 12.5% (11.25% net to the Trust) overridingroyalty interest.

***Capital Expenditures***

PNR does not anticipateany significant capital expenditures on the Royalty Properties in the future.Due to the limited financial capacity of the Trust, PNR has advised that itintends to farm out the Trust’s interest in the blocks it believes may beproduced economically, retaining an overriding royalty interest for the Trust.

***Abandonment Expenditures***

Thetable below provides a rollforward of the abandonment and removal costs cashreserve that PNR has withheld from the Trust:

| Balance,  December 31, 2005 |   | $      | 348,066 |   |
|----------------------------------|--------|--------|---------|--------|
| Abandonment cost  incurred       |   | 24,760 |    |
| Balance, June 30,  2006     |   | $      | 372,826 |   |

 

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***Production andPrice Review***

Production volumes fornatural gas decreased to 12,428 Mcf in the second quarter of 2006 as comparedwith 57,122 Mcf in the second quarter of 2005 due to decreased production atWest Delta 61 as a result of damage caused by Hurricane Katrina. The averagesales price received for natural gas in the second quarter of 2006 was $6.95per Mcf as compared with $6.72 per Mcf in the second quarter of 2005. Crudeoil, condensate and natural gas liquids production volumes decreased to 49barrels in the second quarter of 2006 as compared to 2,982 barrels in thesecond quarter of 2005 due to the hurricane-related damages. The average salesprice in the second quarter of 2006 for crude oil, condensate and natural gasliquids was $33.20 per barrel as compared with $46.73 per barrel in the secondquarter of 2005.

Production volumes fornatural gas decreased to 16,914 Mcf for the six months ended June 30, 2006as compared with 87,547 Mcf for the six months ended June 30, 2005 due todecreased production at West Delta 61 as a result of damage caused by HurricaneKatrina. The average sales price received for natural gas for the six monthsended June 30, 2006 was $8.56 per Mcf as compared with $6.36 per Mcf forthe six months ended June 30, 2005. Crude oil, condensate and natural gasliquids production volumes decreased to 338 barrels for the six months ended June 30,2006 as compared to 5,356 barrels for the six months ended June 30, 2005due to the hurricane-related damages. The average sales price for the sixmonths ended June 30, 2006 for crude oil, condensate and natural gasliquids was $58.31 per barrel as compared with $44.49 per barrel for thesix months ended June 30, 2005.

***Termination of theTrust***

The Trust Indentureprovides that the Trust will terminate if the total amount of cash per yearreceived by the Trust falls below certain levels for each of three successiveyears (the “Termination Threshold”). **As aresult of continued declines in production on Royalty Properties nearing theend of their estimated productive lives, Royalty income received by the Trustin 2002, 2003 and 2004 fell below the Termination Threshold prescribed by theTrust Indenture**. TheTrustee has taken steps to begin the process of liquidating the Trust. TheTrustee, which has no authority or discretionary control over the timing ofexpenditures, production or income on the Royalty Properties, has no discretionregarding the occurrence of the Termination Threshold or its consequences.

The Trust Indentureprovides the Trustee a two-year period during which it must sell all of theTrust properties. The Trust Indenture provides that such properties must besold for cash and not for any other consideration. The Trustee expects that thesale process will be open to any persons desiring to participate, but, as iscustomary, access to information and participation may be limited to personswho execute confidentiality agreements regarding information provided by theworking interest owners. The Trustee may also require bidders to identify themselvesclearly and to represent or evidence sufficient financing in order toparticipate, as the Trustee expects payment will be required promptly after theclose of bidding without any financing conditions. Accordingly, the auction maynot be a “public” auction in the sense that it may not be open to anyone whodoes not satisfy these requirements. The Trustee is currently reviewing apotential online bidding process for participants in order to provide currentpublic information on bidding to the marketplace. The Trustee will alsodetermine a duration of bidding that it deems in the best interest of theUnitholders. See “Timing of Liquidation” in Note 2 to the financial statementsincluded in this Form 10-Q for additional information.

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*Legal Proceedings*

On April 11, 2005,MOSH Holding, L.P. (MHLP) filed an Original Petition in the District Court ofTravis County, Texas, 250th Judicial District, against Pioneer NaturalResources Company; Pioneer Natural Resources USA, Inc.; Woodside Energy(USA), Inc.(Woodside); and JPMorgan Chase Bank, N.A., as Trustee of theMesa Offshore Trust (Case No. GN501113). On November 28, 2005,Plaintiff amended its petition. In the amended petition, MHLP asserts claimsagainst Pioneer and Woodside for matters including (1) a wrongful farmoutof Brazos A-39 by Pioneer , (2) a wrongful delay by Pioneer inproducing Brazos A-39, (3) fraudulent accounting practices byPioneer, (4) breach of fiduciary duty by Pioneer, (5) aiding andabetting breach of fiduciary duty by Woodside, (6) misapplication of Trustproperty by Pioneer, (7) conspiracy to misapply fiduciary property byWoodside and Pioneer, (8) common law fraud by Pioneer, (9) grossnegligence by Pioneer, and (10) breach of the conveyance agreement byPioneer. MHLP asserts claims for damages against the Trustee for (1) anaccounting; and (2) breach of fiduciary duty. The plaintiff remedies beingsought include (a) reconstruing the Trust Indenture to determine that theTrust is not terminated because there has or should have been production whichwould have generated revenues to extend the life of the Trust, (b) requiringthe Trustee to pursue certain claims, or to allow plaintiff to pursue suchclaims, (c) setting aside any farmouts by Pioneer in which there have beenconveyances to an affiliate of Pioneer in violation of the Trust’s Conveyanceand as a self-dealing transaction, and (d) removing JPMorgan Chase Bank,N.A. as Trustee, (e) seeking return or forfeiture of compensation toJPMorgan Chase Bank, N.A., (f) recovering monetary damages againstPioneer, Woodside and JPMorgan Chase Bank, N.A., and (g) pursuingexemplary damages against all defendants.

On November 30, 2005,JPMorgan Chase Bank, N.A. announced its intention to resign as Trustee of theMesa Offshore Trustee effective January 31, 2006. Since that announcement,MHLP and others have sought a qualified institution willing to serve assuccessor Trustee. However, neither MHLP nor Pioneer have identified a willingqualified successor Trustee that is not also a lender under one of Pioneer’scredit facilities (which status MHLP contends is an alleged conflict ofinterest).

On Friday, January 27,2006, a hearing was held in the 334th Judicial District Court of Harris County,Texas, regarding MHLP’s Verified Application for Emergency Appointment of aTemporary Trustee in Case No. 2006-01984, MOSH Holding, L.P. v.Pioneer Natural Resources Company; Pioneer Natural Resources USA, Inc; WoodsideEnergy (USA), Inc.; and JPMorgan Chase Bank, N.A., as Trustee of the MesaOffshore Trust. This case follows the transfer of prior claims filed by theplaintiff in Case No. GN501113. At this hearing, the court declined toapprove MHLP’s motion to appoint Timothy J. Roberson, a principal and affiliateof MHLP, as temporary Trustee and declined to appoint any other person astemporary or successor Trustee.

In light of thisdevelopment, and the absence of an identified successor Trustee, JPMorgan ChaseBank, N.A. withdrew its resignation as Trustee. The Trustee continues to desirethe appointment of a qualified successor Trustee.

To date, the Trustee hasallowed MHLP to proceed on the issue of whether the farmout by Pioneer was avalid farmout. While Pioneer has provided a reasoned analysis of why itbelieves the farmout was in fact valid under the terms of the conveyance, onlya court, and not the Trustee, can make a final adjudication. Further, while MHLP’sclaims on the farmout issue may merit adjudication, based on facts known to theTrustee at this time, the Trustee is unable to determine, even if MHLPprevailed on its uncertain liability claims, whether the Trust would realizeany economic benefit. Based on information 

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receivedto date, the Trustee has not concluded that it would be in the best interest ofthe unitholders to fund the MHLP claims directly with Trust funds. However, asnoted above, the Trustee has not opposed MHLP’s pursuit of its claims on behalfof the unitholders at their own expense, which reasonable expenses would besubject to repayment of the claims proved successful and a benefit wereconferred upon all unitholders of the Trust. In connection with both theanticipated sale of Trust properties pursuant to the Trust’s termination andthe pending litigation, the Trustee has (1) engaged an independent reserveengineer to review the estimated reserves and (2) had an independent jointventure auditor review certain historical expenditures and revenue receipts onTrust properties. The Trustee believes expenditures for these reviews wereprudent and in the interest of the unitholders.

The Trustee will make thefull detail of the underlying data of the December 31, 2005 reserve reportavailable for use in connection with the sale of the Trust properties as partof the Trust termination. For more information regarding the estimatedremaining life of each of the Royalty Properties, the estimated future netrevenues of the Royalty Properties and information relating to farm-outs ofinterests on the Royalty Properties based on information provided by D&M,see pages 22 and 23 of the Trust’s Annual Report on Form 10-Kfor the year ended December 31, 2005 and Note 6 in the Notes to FinancialStatements included elsewhere in the Trust’s Form 10-K. The sale ofthe assets of the Trust estate will include the related rights to abandonmentaccruals made by PNR. As explained in “Regulation and Prices—PlatformAbandonment and Removal” on page 26 in the Trust’s 2005 Form 10-K, PNRwithholds from the Trust a reserve to cover its share of those futureabandonment and removal costs. To the extent a certain party is able tocomplete the abandonment for an amount less than the funds withheld by PNR, therelated rights to the abandonment accrual are likely to be deemed marketable.The final distribution to unitholders will be an amount net of funds requiredto satisfy all Trust liabilities.

*Timing of Liquidation*

In connection with thislitigation, the Trustee has agreed that it will give MHLP at least 60 daysnotice prior to the sale of any Trust properties in connection with thetermination of the Trust. As of the date of this filing, based on theinformation currently provided by Pioneer and the preliminary state of theproceeding, the Trustee has not made any definitive conclusions as to thevalidity of the claims asserted by MHLP. However, the review of reserves by theindependent reserve engineer has not shown the existence of significantreserves not previously included in the reserve report prepared by Pioneer inquantities originally alleged in the plaintiff’s petition. The Trustee will performadditional joint venture audits of the Trust properties by an independentauditor. This is a process that the Trust had already begun in its inquiry inthe ordinary course as part of the termination of the Trust, and the Trusteewill continue to review MHLP’s claims.

As previously mentioned,the Trustee engaged an independent joint venture auditor in October 2004to review the Trust properties as part of the termination of the Trust. Thejoint venture auditor reviewed the periods from 2003 through 2004. The Trusteebelieved this engagement of an outside expert on these matters to be a prudentstep to identify any potential benefits to the Trust, as well as anylimitations on potential benefits, due to differing interpretations ofaccounting matters that commonly occur in the oil and gas production industry.The review of the independent joint venture auditor was completed inDecember 2005, and it was the joint venture auditor’s opinion that thecharges and credits and revenue to the Trust were in accordance with theapplicable agreements, except for certain items noted in the report. The reportnotes exceptions, which may or may not turn out to be meritorious, as toamounts due to the 

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Trust of$204,219. PNR, Stone Energy (Stone) and Newfield Exploration Company (Newfield)responded to these exceptions on April 20, 2006. PNR, Stone and Newfieldhave granted and denied exceptions on all of the areas pointed in the JointVenture Audit findings. The Trust is in the process of reviewing the exceptionsdenied before accepting or rejecting PNR, Stone and Newfield’s answers.

Due to the pendinglitigation, the Trustee cannot predict the timing of the sale of all or aportion of the Trust properties as part of the Trust Termination.

***Item 3.******                        Quantitativeand Qualitative Disclosures About Market Risk.***

The Trust does not utilizemarket risk sensitive instruments. However, see the discussion of marketing byPNR above.

***Item 4.******                       ***Controls andProcedures.

*Evaluation of DisclosureControls and Procedures.**  *The Trustee maintainsdisclosure controls and procedures designed to ensure that information requiredto be disclosed by the Trust in the reports that it files or submits under theExchange Act of 1934, as amended, is recorded, processed, summarized and reportedwithin the time periods specified in the SEC’s rules and regulations.Disclosure controls and procedures include controls and procedures designed toensure that information required to be disclosed by the Trust is accumulatedand communicated by Pioneer, as the managing general partner of thePartnership, and the working interest owners to JPMorgan Chase Bank, N.A., asTrustee of the Trust, and its employees who participate in the preparation ofthe Trust’s periodic reports as appropriate to allow timely decisions regardingrequired disclosure.

As of the end of theperiod covered by this report, the Trustee carried out an evaluation of theTrust’s disclosure controls and procedures. Mike Ulrich, as Trust Officer ofthe Trustee, has concluded that the disclosure controls and procedures areeffective.

Due to the contractualarrangements of (i) the Trust Indenture, (ii) the PartnershipAgreement and (iii) the rights of the Partnership under the Conveyanceregarding information furnished by the working interest owners, the Trusteerelies on: (A) information provided by the working interest owners,including (i) the status of litigation, (ii) historical operatingdata, plans for future operating and capital expenditures, reserveinformation, as well as (iii) information relating to projectedproduction; (B) information provided by the managing general partner ofthe Partnership that is collected by the managing general partner from theworking interest owners; and (C) conclusions regarding reserves by reserveengineers or other experts in good faith. See Item 1A. “Risk Factors—None ofthe Trust nor its unitholders control the operation or development of theRoyalty Properties and have little influence over operation or development” inthe Trust’s Form 10-K for the year ended  2005 for a description of certain risksrelating to these arrangements and reliance.

*Changes in InternalControl over Financial Reporting.**  *Inconnection with the evaluation by the Trustee of changes in internal controlover financial reporting of the Trust that occurred during the Trust’s lastfiscal quarter, no change in the Trust’s internal control over financialreporting was identified that has materially affected, or is reasonably likelyto materially affect, the Trust’s internal control over financial reporting.The Trustee notes for purposes of clarification that it has no authority over,has not evaluated and makes no statement concerning, the internal control overfinancial reporting of the working interest owners or the managing generalpartner of the Partnership.

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**PART II—OTHER INFORMATION**

**Item 1A.**                *Risk Factors.*

There has not been any material changes from the riskfactors previously disclosed in response to Part I, Item 1A. “Risk Factors” ofthe Trust’s Annual Report on Form 10-K for the year ended December 31, 2005.

**Item 6.**                        *Exhibits.*

(Asteriskindicates exhibit previously filed with the Securities and Exchange Commissionand incorporated herein by reference. JPMorgan Chase Bank, N.A. was formerlyknown as The Chase Manhattan Bank and is successor by mergers to the originalname of the Trustee, Texas Commerce Bank National Association).

|                  | ** ** | ** ** | ** **                                                                                                                                                                                                                                                                                                            | ** ** | **SEC File or  Registration  Number** | ** ** | **Exhibit  Number** |   |
|------------------|------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|---------------------|--------|
|   4(a) |       | *          | Mesa Offshore  Trust Indenture between Mesa Petroleum Co. and Texas Commerce Bank National  Association, as Trustee, dated December 15, 1982                                                                                                                                                                     |       | 2-79673                               |       | 10(gg)              |
|   4(b) |       | *          | Overriding  Royalty Conveyance between Mesa Petroleum Co. and Mesa Offshore Royalty  Partnership, dated December 15, 1982                                                                                                                                                                                        |       | 2-79673                               |       | 10(hh)              |
|   4(c) |       | *          | Partnership  Agreement between Mesa Offshore Management Co. and Texas Commerce Bank  National Association, as Trustee, dated December 15, 1982                                                                                                                                                                   |       | 2-79673                               |       | 10(ii)              |
|   4(d) |       | *          | Amendment to  Partnership Agreement between Mesa Offshore Management Co., Texas Commerce  Bank National Association, as Trustee, and Mesa Operating Limited  Partnership, dated December 27, 1985 (Exhibit 4(d) to  Form 10-K for year ended December 31, 1992 of Mesa Offshore  Trust) |       | 1-08432                               |       | 4(d)                |
|   4(e) |       |       | Amendment to  Partnership Agreement between Texas Commerce Bank National Association, as  Trustee and Mesa Operating dated as of January 5, 1994  (Exhibit 4(e) to Form 10-K for year ended  December 31, 1993 of Mesa Offshore Trust)                                                  |       | 1-08432                               |       | 4(e)                |
| 31               |       |       | Certification  furnished pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                              |       |                                  |       |                |
| 32               |       |       | Certification  furnished pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                             |       |                                  |       |                |

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|        | MESA OFFSHORE TRUST |
|--------|---------------------|
|   | By:                 | /s/  JPMORGAN CHASE BANK, N.A., Trustee |
|   | By:                 |  |
|   |                | ***Mike  Ulrich*** |
|   |                | ***Vice  President & Trust Officer*** |

 

Date: August 14, 2006

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

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