**SECURITIES 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 ACTOF 1934

**FORTHE QUARTERLY PERIOD ENDED MARCH 31, 2006**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

**FORTHE TRANSITION PERIOD FROM*                        *TO*                        ***

**Commissionfile number 1-8432**

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**MESA OFFSHORE TRUST**

(Exact name of Registrantas Specified in its Charter)

| **Texas**                                                                                       | **76-6004065**       |
|-------------------------------------------------------------------------------------------------|----------------------|
| (State of  Incorporation                                                                        | (I.R.S. Employer     |
| or Organization)                                                                                | Identification  No.) |
| **JPMorgan Chase Bank, N.A., Trustee  Institutional Trust Services  700 Lavaca  Austin, Texas** | **78701**            |
| (Address of  Principal Executive Offices)                                                       | (Zip Code)           |

 

**1-800-852-1422** / 1-512-479-2562

(Registrant’s TelephoneNumber, Including Area Code)

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports) and (2) has been subject to such filing requirementsfor the past 90 days. Yes x  No o

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

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

 

Indicate by check markwhether the registrant is a shell company (as defined in Rule 12b-2 of theAct). Yes o   No x

Indicate the number ofshares outstanding of each of the registrant’s classes of common stock, as ofthe latest practicable date.

Asof May 15, 2006—71,980,216 Units of Beneficial Interest were outstandingin Mesa Offshore Trust.

 

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**PART I—FINANCIALINFORMATION**

**Item 1.**     *FinancialStatements.*

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

| ** **                     | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------|------------|--------------------------------------------------|------------|
| ** **                     | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Royalty income                 |       | $                                                | 40,765     |   | $ | 173,460 |   |
| Interest income                |       | 5,188                                            |       | 796 |   |
| General and administrative     |       | (45,953                                          | )          | (174,256 | ) |
| Distributable income           |       | $                                                | —     |   | $ | — |   |
| Distributable  income per unit |       | $                                                | —     |   | $ | — |   |

 

**STATEMENTOF ASSETS, LIABILITIES AND TRUST CORPUS**

| ** **                                                                         | ** ** | **March 31,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                         | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| ASSETS                                                                             |       |                     |       |                        |       |
| Cash and  short-term investments                                                   |       | $                        | 1,535,316  |                        | $          | 1,846,798 |   |
| Interest  receivable                                                               |       | 1,720                    |       | 1,582                       |       |
| Net overriding  royalty interest in oil and gas properties                         |       | 380,905,000              |       | 380,905,000                 |       |
| Accumulated  amortization                                                          |       | (380,901,975             | )          | (380,901,952                | )          |
| Total assets                                                                       |       | $                        | 1,540,061  |                        | $          | 1,851,428 |   |
| LIABILITIES AND  TRUST CORPUS                                                      |       |                     |       |                        |       |
| Reserve for Trust  expenses                                                        |       | $                        | 1,537,036  |                        | $          | 1,848,380 |   |
| Distributions  payable                                                             |       | —                   |       | —                      |       |
| Trust corpus  (71,980,216 units of beneficial interest authorized and outstanding) |       | 3,025                    |       | 3,048                       |       |
| Total liabilities  and trust corpus                                                |       | $                        | 1,540,061  |                        | $          | 1,851,428 |   |

 

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

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

| ** **                                      | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                      | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Trust corpus,  beginning of period              |       | $                                                | 3,048      |   | $ | 11,127 |   |
| Distributable income                            |       | —                                           |       | — |   |
| Distributions to unitholders                    |       | —                                           |       | — |   |
| Amortization of net overriding royalty interest |       | (23                                              | )          | (1,508 | ) |
| Trust corpus, end of  period                    |       | $                                                | 3,025      |   | $ | 9,619 |   |

 

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

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

**Note 1—TrustOrganization**

The Mesa Offshore Trust (the “Trust”) was createdeffective December 1, 1982. On that date, Mesa Petroleum Co., predecessorto Mesa Limited Partnership, which was the predecessor to MESA Inc.,transferred to the Trust a 99.99% interest in the Mesa Offshore RoyaltyPartnership (the “Partnership”). The Partnership was created to receive andhold a net overriding royalty interest (the “Royalty”) in ten producing andnonproducing oil and gas properties located in federal waters offshoreLouisiana and Texas (the “Royalty Properties”). Mesa Inc. created theRoyalty out of its working interest in the Royalty Properties and transferredit to the Partnership. Until August 7, 1997, MESA Inc. owned andoperated its assets through Mesa Operating Co. (“Mesa”), the operator and themanaging 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. and Bank of New York announced an agreement pursuant towhich Bank of New York would acquire JPMorgan Chase's corporate trustbusiness. The transaction does not include any transfer by JPMorgan Chase Bank,N.A. of its obligations as Trustee, and the transaction is not expected to haveany material effect on the Trust.

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

*HurricaneOperations Update*

Hurricanes Katrina**andRita struck the Gulf of Mexico in August 2005 and September 2005,respectively. PNR has notified the Trust that it had received assessmentsregarding damages from Hurricanes Katrina and Rita to production facilities forproperties in which the Trust has an interest. The operator of the West Deltaproperties has informed PNR that the West Delta properties have been shut insince August 27, 2005 due to damage to the platform, the pipeline and thesales terminal. The operator has notified PNR that the pipeline has not beenrepaired and currently there is no estimate as to when the repairs will becompleted. The operator does not have an estimate on when production at WestDelta will resume.

*Status of the Trust*

The Trust Indenture provides that the Trust willterminate if the total amount of cash per year received by the Trust fallsbelow certain levels for each of three successive years. **As a result of continued declines in production onRoyalty Properties nearing the end of their estimated productive lives, Royalty**

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**incomereceived by the Trust in 2002, 2003 and 2004 fell below the TerminationThreshold prescribed by the Trust Indenture**. The Trustee has previously taken steps to beginthe process of liquidating the Trust. See “—Timing of Liquidation” belowin this Note. The Trustee, which has no authority or discretionary control overthe timing of expenditures, production or income on the Royalty Properties, hasno discretion regarding the occurrence of the Termination Threshold or itsconsequences.

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 of Travis County, Texas, 250thJudicial District, against Pioneer Natural Resources Company; Pioneer NaturalResources USA, Inc.; Woodside Energy (USA), Inc. (Woodside); and JPMorgan ChaseBank, N.A., as Trustee of the Mesa Offshore Trust (Case No. GN501113).On November 28, 2005, Plaintiff amended its petition. In the amendedpetition, MHLP asserts claims against Pioneer and Woodside for mattersincluding (1) a wrongful farmout of Brazos A-39 by Pioneer, (2) awrongful delay by Pioneer in producing Brazos A-39, (3) fraudulentaccounting practices by Pioneer, (4) breach of fiduciary duty by Pioneer,(5) aiding and abetting breach of fiduciary duty by Woodside, (6) misapplicationof Trust property by Pioneer, (7) conspiracy to misapply fiduciaryproperty by Woodside 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) an accounting;and (2) breach of fiduciary duty. The plaintiff remedies being soughtinclude (a) reconstruing the Trust Indenture to determine that the Trustis not terminated because there has or should have been production which wouldhave generated revenues to extend the life of the Trust, (b) requiring theTrustee to pursue certain claims, or to allow plaintiff to pursue such claims,(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, (d) removing JPMorgan Chase Bank, N.A.as Trustee, (e) seeking return or forfeiture of compensation to JPMorganChase Bank, N.A. (f) recovering monetary damages against Pioneer,Woodside and JPMorgan Chase Bank, N.A., and (g) pursuing exemplarydamages against all defendants.

On November 30, 2005, JPMorgan Chase Bank, N.A.announced its intention to resign as Trustee of the Mesa Offshore Trusteeeffective January 31, 2006. Since that announcement, MHLP and others havesought a qualified institution willing to serve as successor Trustee. However,neither MHLP nor Pioneer 

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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 heldin 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 the plaintiff, as temporary Trustee and declined to appoint any other personas temporary or successor Trustee.

In light of this development, and the absence of anidentified successor Trustee, JPMorgan Chase Bank, N.A. withdrew itsresignation as Trustee. The Trustee continues to desire the appointment of aqualified successor Trustee.

To date, the Trustee has allowed MHLP to proceed onthe issue of whether the farmout by Pioneer was a valid farmout. While Pioneerhas provided a reasoned analysis of why it believes the farmout was in factvalid under the terms of the conveyance, only a court, and not the Trustee, canmake a final determination. Further, while the plaintiff’s claims on thefarmout issue may merit adjudication, based on facts known to the Trustee atthis time, the Trustee is unable to determine, even if the plaintiff prevailedon its uncertain liability claims, whether the Trust would realize any economicbenefit. Based on information received to date, the Trustee has not concludedthat it would be in the best interest of the unitholders to fund the MHLPclaims directly with Trust funds. However, as noted above, the Trustee has notopposed the plaintiff’s pursuit of its claims on behalf of the unitholders attheir own expense, which reasonable expenses would be subject to repayment ifthe claims proved successful and a benefit were conferred upon all untiholdersof 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 D&M,see pages 23 and 24 of the Form 10-K for the year ended December 31,2005 and Note 7 in the Notes to Financial Statements included elsewhere in the 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” below, PNR withholds from the Trust a reserve to coverits share of those future abandonment and removal costs. To the extent acertain party is able to complete the abandonment for an amount less than thefunds withheld by PNR, the related rights to the abandonment accrual are likelyto be deemed marketable. The final distribution to unitholders will be anamount net of funds required to satisfy all Trust liabilities.

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*Timing ofLiquidation*

In connection with this litigation, the Trustee hasagreed that it will give MHLP at least 60 days notice prior to the sale of any Trustproperties in connection with the termination of the Trust. As of the date ofthis filing, based on the information currently provided by Pioneer and thepreliminary state of the proceeding, the Trustee has not made any definitiveconclusions as to the validity of the claims asserted by MHLP. However, thereview of reserves by the independent reserve engineer has not shown theexistence of significant reserves not previously included in the reserve reportprepared by Pioneer in quantities originally alleged in the plaintiff’spetition. The Trustee will continue the joint venture audit of the Trustproperties by an independent auditor that had already begun its inquiry in theordinary course as part of the termination of the Trust, and the Trustee will continueto review MHLP’s claims.

As previously mentioned, the Trustee engaged anindependent joint venture auditor in October 2004 to review the Trustproperties as part of the termination of the Trust. The joint venture auditorreviewed the periods from 2003 through 2004. The Trustee believed thisengagement of an outside expert on these matters to be a prudent step toidentify any potential benefits to the Trust, as well as any limitations onpotential benefits, due to differing interpretations of accounting matters thatcommonly occur in the oil and gas production industry. The review of theindependent joint venture auditor was completed in December 2005, and itwas 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 audit exceptions on April 20, 2006. PNR, Stone andNewfield and have granted and denied exceptions on all of the areas pointed inthe Joint Venture Audit findings.  TheTrust is in the process of reviewing the exceptions denied before accepting orrejecting 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 ofPresentation**

The accompanying unaudited financial information hasbeen prepared by the Trustee in accordance with the instructions to Form 10-Q.JPMorgan Chase Bank, N.A. was formerly known as The Chase Manhattan Bank and isthe successor by mergers to the original name of the Trustee, Texas CommerceBank National Association. The Trustee believes such information includes allthe disclosures necessary to make the information presented not misleading. Theinformation furnished reflects all adjustments which are, in the opinion of theTrustee, necessary for a fair presentation of the results for the interimperiods presented. The financial information should be read in conjunction withthe financial statements and notes thereto included in the Trust’s 2005 AnnualReport on Form 10-K.

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The financial statements of the Trust are prepared onthe following basis:

(a)    Royaltyincome recorded for a month is the Trust’s interest in the amount computed andpaid by the working interest owner to the Partnership for such month ratherthan either the value of a portion of the oil and gas produced by the workinginterest owner for such month or the amount subsequently determined to be 90%of the net proceeds for such month;

(b)   Interestincome, interest receivable and distributions payable to unitholders includeinterest to be earned on short-term investments from the financial statementdate through the next date of distribution;

(c)    Trustgeneral and administrative expenses, net of reimbursements, are recorded in themonth they accrue;

(d)   Amortizationof the net overriding royalty interest, which is calculated on the basis ofcurrent royalty income in relation to estimated future royalty income, ischarged directly to trust corpus since such amount does not affectdistributable income; and

(e)    Distributionspayable are determined on a monthly basis and are payable to unitholders ofrecord as of the last business day of each month or such other day as theTrustee determines is required to comply with legal or stock exchangerequirements. However, cash distributions are made quarterly in January, April,July and October, and include interest earned from the monthly recorddates to the date of distribution.

This basis for reporting Royalty income is consideredto be the most meaningful because distributions to the unitholders for a monthare based on net cash receipts for such month. However, it will differ from thebasis used for financial statements prepared in accordance with accountingprinciples generally accepted in the United States because, under suchaccounting principles, Royalty income for a month would be based on netproceeds from production for such month without regard to when calculated orreceived and interest income for a month would be calculated only through theend of such month.

The instruments conveying the Royalty provide that theworking interest owner will calculate and pay the Partnership each month anamount equal to 90% of the net proceeds for the preceding month. Generally, netproceeds means the excess of the amounts received by the working interest ownerfrom sales of oil and gas from the Royalty Properties plus other cash receiptsover operating and capital costs incurred. For the three months ended March 31,2006, royalty income in excess of general and administrative expenses wasapplied solely to the Reserve for Trust Expenses; accordingly, no Trustdistribution 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 ofMarch 31, 2006, $462,964 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 March 31,2006 was $355,318.

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**Note 4—Assets andLiabilities in the 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:

| ** **                                                 | ** ** | **March 31,** | ** ** |
|------------------------------------------------------------|------------|--------------------|------------|
| ** **                                                 | ** ** | **2006**           | ** ** |
| ASSETS                                                     |       |               |       |
| Cash and short  term investments                           |       | $                  | 1,535,316  |   |
| Interest  receivable                                       |       | 1,720              |       |
| Net overriding  royalty interest in oil and gas properties |       | 3,766,156          |       |
| Total assets                                               |       | $                  | 5,303,192  |   |
| LIABILITIES                                                |       |               |       |
| Reserve for Trust  expenses                                |       | $                  | 1,537,036  |   |
| Total liabilities                                          |       | 1,537,036          |       |
| Net assets in process of  liquidation                      |       | $                  | 3,766,156  |   |

 

The net overridingroyalty interest in oil and gas properties at March 31, 2006 reflect theTrustee’s estimate of value, (in the absence of third-party appraisals orevaluations) based on the Trust’s share of future net revenues from the netoverriding royalty interest in the properties as of March 31, 2006. Thisestimate is based on the Trustee’s current assessment of the impact of sellingexisting assets based on current market conditions, and includes the followingassumptions:

·       TheTrust’s estimated share of oil and gas reserve volumes at March 31, 2006,which were derived from the December 31, 2005 reserve report prepared by DeGolyerand MacNaughton (D&M) and updated for first quarter 2006 production. Theworking interest owner has not prepared a reserve report as of March 31,2006, and therefore any revisions in oil and gas reserves during the firstquarter 2006 have not been considered in the estimate of fair value of the netoverriding royalty interest in oil and gas properties.

·       Forward strip commodityprices on March 31, 2006 for the life of the reserves

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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 in order to estimate thefair value of the proved reserves on the Midway Prospect. The Trustee hasengaged DeGolyer & MacNaughton (D&M), an independent reserveengineer, to review all oil and gas reserves pertaining to the Royalty,including the Midway Prospect reserves and the Trust’s interest in thesereserves as of December 31, 2005.

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·       Exclusionof estimated future abandonment costs(2)

·       Discountrate of 10%

The actual net proceedsfrom the sales of oil and gas properties may vary substantially from theseestimates in value due to changes in current and estimated future oil and gasprices, subsequent production, estimates of actual abandonment costs and otherfactors which may be applied by the buyers.

For all other assets andliabilities presented in the above table, the Trustee believes that historicalcost approximates fair market value due to the short-term nature of such assetsand liabilities. 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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(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.

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**Item 2.        *Management’s Discussionand Analysis of Financial Condition and Results of 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 of Section 27Aof the Securities Act of 1933, as amended, and Section 21E of theSecurities Exchange Act of 1934, as amended. All statements other thanstatements of historical facts included in this Form 10-Q, includingwithout limitation the statements under “Management’s Discussion and Analysisof Financial Condition and Results of Operations” and Note 1 to thefinancial statements of the Trust regarding the future net revenues of theTrust, are forward-looking statements. Although Pioneer has advised theTrust that it believes that the expectations reflected in such forward-lookingstatements are reasonable, no assurance can be given that such expectationswill prove to have been correct. Important factors that could cause actualresults to differ materially from expectations (“Cautionary Statements”) aredisclosed in this Form 10-Q, including, without limitation, inconjunction with the forward-looking statements included in this Form 10-Qand in the Trust’s Form 10-K for the year ended 2005, includingunder Item 1A. “Risk Factors”. 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.

Belowis a summary of Royalty income received on the Trust properties for the threemonths ended March 31, 2006 and 2005:

| ** **                           | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------|------------|--------------------------------------------------|------------|
| ** **                           | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Gross proceeds @  90%                |       | $                                                | 76,525     |   | $ | 272,298 |   |
| Operating  expenditures @ 90%        |       | (27,723                                          | )          | (39,780 | ) |
| Capital  expenditures @ 90%          |       | (8,033                                           | )          | — |   |
| Net proceeds  (deficit)              |       | 40,769                                           |       | 232,518 |   |
| Increase  (decrease) in deficit      |       | —                                           |       | (59,041 | ) |
| Net proceeds  after deficit recovery |       | 40,769                                           |       | 173,477 |   |
| Royalty Income (99.99%)              |       | $                                                | 40,765     |   | $ | 173,460 |   |

 

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Belowis a summary of distributable income for the three months ended March 31,2006 and 2005:

| ** **                                 | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                 | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Royalty Income                             |       | $                                                | 40,765     |   | $ | 173,460 |   |
| Interest income                            |       | 5,188                                            |       | 796 |   |
| General and  administrative expenses       |       | (45,553                                          | )          | (174,256 | ) |
| Distributable  income                      |       | $                                                | —     |   | $ | — |   |
| Distributable  income per unit             |       | $                                                | —     |   | $ | — |   |
| Accumulated deficit (as  of end of period) |       | $                                                | —     |   | $ | — |   |

 

During the first quartersof 2006 and 2005, the Trust had no distributable income. Royalty income and theReserve for Trust Expenses was used to pay the Trust’s first quarter 2006general and administrative expenses of $356,613.

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

| ** **                                                  | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                  | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| General and administrative costs incurred during the period |       | $                                                | 356,613    |   | $ | 144,152 |   |
| Deductions from (additions to) reserve for Trust expenses   |       | (310,660                                         | )          | 30,104 |   |
| General  and administrative costs as reported               |       | $                                                | 45,953     |   | $ | 174,256 |   |

 

General and administrative expenses of the Trust forthe first quarter 2006 increased 147% to $356,613 for the first quarter 2006 ascompared to $144,152 for the same period in 2005.  The increase in general and administrativeexpenses in 2006 is primarily due to an increase in legal fees as a result ofpending litigation and expenditures related to the anticipated sale of Trustproperties pursuant to the Trust’s termination.

**Operational Review**

PNR has advised the Trust that during the firstquarter of 2006 its offshore gas production was marketed under short-term contractsat spot market prices primarily to TOTAL S.A. and that it expects to continueto market its production under short-term contracts for the foreseeable future.Spot market prices for natural gas in the first quarter of 2006 were generallyhigher than spot market prices in the first quarter of 2005.

The amount of cash distributed by the Trust isdependent on, among other things, the sales prices and quantities of gas, crudeoil and condensate produced from the Royalty Properties and the quantitiessold. Substantial uncertainties exist with regard to future gas and oil prices,which are subject to fluctuations due to the regional supply and demand fornatural gas and oil, production levels and other activities of the Organizationof the Petroleum Exporting Countries (“OPEC”) and other oil and gas producers,weather, storage levels, industrial growth, conservation measures, competitionand other variables.

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Below is an operationalreview of the remaining producing Trust properties:

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

| ** **                    | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------|------------|--------------------------------------------------|------------|
| ** **                    | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Gross proceeds @  90%         |       | $                                                | 45,237     |   | $ | 36,081 |   |
| Operating  expenditures @ 90% |       | (22,625                                          | )          | (28,439 | ) |
| Capital  expenditures @ 90%   |       | —                                           |       | — |   |
| Net proceeds (deficit)        |       | $                                                | 22,612     |   | $ | 7,642 |   |

 

The Brazos A-7 and A-39 blocks continuedto experience a decrease in natural gas production due to natural productiondecline. As of March 31, 2006, these two blocks had one well producing,the Brazos A-7 No. B-1 well which is operated by NewfieldExploration Company. The Brazos A-39 No. A-3 well ceasedproduction during the fourth quarter of 2003. PNR entered into farmoutagreements for the Trust’s interest in both of these blocks so that twoexploration prospects could be drilled and in which the Trust will retain anoverriding royalty interest. The first prospect on Brazos A-7 was drilledduring 2003 and was determined to be a dry hole. As such, the well was pluggedand abandoned. In 2005, PNR has performed abandonment procedures at the PNRoperated Brazos A-7 and the A-39 blocks, with minor sitework clearanceremaining. These abandonment procedures are expected to be completed during2006.

The second exploration prospect, the Brazos A-39 #5,was drilled on Brazos A-39, which PNR has 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 produced at 10 million cubic feetof gas per day during a seventeen hour flow test. There is no assurance thatthese flow rates will continue, as offshore oil and gas properties oftenexperience stronger initial flow rates and more rapid declines than onshoreproperties. PNR tied the Brazos A-39 #5 well into an existing platform that isoperated by a third party. First production from the well was realized April20, 2006; however, due to the brief time period over which the Brazos A-39 #5 wellhas produced, no conclusions can be drawn yet as to the well’s performance.Under the terms of a Farmout Agreement between PNR and Woodside Energy (USA)Inc., PNR farmed out to Woodside the undivided one-half interest previouslyburdened by the Trust’s net profits interest, but expressly providing that thefarmed out interest would not be subject to the Trust’s net profits interest. PNRreserved a 10% overriding royalty interest, proportionately reduced to theinterest conveyed, which interest, upon Woodside’s recoupment of specifiedcosts and expenses, would increase to 12.5%, proportionately reduced to theinterest conveyed. The Trust’s net profits interest burdens the overridingroyalty interest reserved by PNR. This process is consistent with the terms ofthe 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).

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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 and related agreements, those drilling andabandonment costs have been born entirely by PNR and Woodside and are notsubject to recoupment from any proceeds otherwise payable to the Trust.Similarly, the Trust’s current interest in the “Midway” well on Brazos A-39will be entitled to payment prior to PNR’s and Woodside’s recovery of expensesfor drilling, completion, sub-sea tie backs and other costs.

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  March 31,** | ** ** |
|-------------------------------|------------|--------------------------------------------------|------------|
| ** **                    | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| Gross proceeds @  90%         |       | $                                                | 31,288     |   | $ | 236,217 |   |
| Operating  expenditures @ 90% |       | (5,098                                           | )          | (11,341 | ) |
| Capital  expenditures @ 90%   |       | (8,033                                           | )          | — |   |
| Net proceeds (deficit)        |       | $                                                | 18,157     |   | $ | 224,876 |   |

 

Hurricane Katrina struck the Gulf of Mexico in August 2005.PNR notified the Trust that it had received preliminary assessments regardingdamages from Hurricanes Katrina to the West Delta production facilities inwhich the Trust has an interest. The operator of the West Delta properties hasinformed PNR that the West Delta properties have been shut in since August 27,2005 due to damage to the platform, the pipeline and the sales terminal. Theoperator has notified PNR that the pipeline has not been repaired and currentlythere is no estimate as to when the repairs will be completed. The operatordoes not have an estimate on when production at West Delta will resume. Firstquarter 2006 proceeds consist of revenues related to prior periods received bythe Trust in the first quarter 2006.

The PNR-operated wells atWest Delta ceased production in 2002, and the wells were plugged and abandonedby year-end with the facilities being completely abandoned during 2003. Theonly remaining wells on this block are at West Delta 61. PNR farmed out aportion of West Delta 61 to Stone retaining a 12.5% (11.25% net to the Trust)overriding royalty 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.

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***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 (costs  incurred) credits received |   | 7,252 |    |
| Balance, March 31,  2006                  |   | $     | 355,318 |   |

 

***Production and Price Review***

Production volumes fornatural gas decreased to 4,487 Mcf in the first quarter 2006 as compared with30,425 Mcf in the first quarter 2005 primarily due to decreased production atWest Delta 61 due to damages related to Hurricane Katrina. The average salesprice received for natural gas in the first quarter 2006 was $13.03 per Mcf ascompared with $5.70 per Mcf in the first quarter 2005. Crude oil, condensateand natural gas liquids production volumes decreased to 290 barrels in thefirst quarter 2006 as compared to 2,374 barrels in the first quarter 2005. Theaverage sales price in the first quarter 2006 for crude oil, condensate and naturalgas liquids was $62.56 per barrel as compared to $41.69 per barrel in the firstquarter 2005.

***Terminationof the Trust***

The Trust Indenture provides that the Trust willterminate if the total amount of cash per year received by the Trust falls belowcertain levels for each of three successive years. **As a result of continued declines in production on Royalty Propertiesnearing the end of their estimated productive lives, Royalty income received bythe Trust in 2002, 2003 and 2004 fell below the Termination Thresholdprescribed by the Trust Indenture**. During 2005, the Trustee haspreviously taken steps to begin the process of liquidating the Trust. See “—Timingof Liquidation” below in this Note. The Trustee, which has no authority ordiscretionary control over the timing of expenditures, production or income onthe Royalty Properties, has no discretion regarding the occurrence of theTermination 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 is customary,access to information and participation may be limited to persons who executeconfidentiality agreements regarding information provided by the workinginterest 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.

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*Legal Proceedings*

On April 11, 2005, MOSHHolding, L.P. (MHLP) filed an Original Petition in the District Court of TravisCounty, Texas, 250th Judicial District, against Pioneer Natural ResourcesCompany; 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) requiring the Trustee to pursue certain claims, or to allow plaintiffto pursue such claims, (c) setting aside any farmouts by Pioneer in whichthere have been conveyances to an affiliate of Pioneer in violation of theTrust’s Conveyance and as a self-dealing transaction, (d) removingJPMorgan Chase Bank, N.A. as Trustee, (e) seeking return or forfeiture ofcompensation to JPMorgan Chase Bank, N.A. (f) recovering monetary damagesagainst Pioneer, 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 the plaintiff, as temporary Trustee and declined to appoint any other personas temporary or successor Trustee.

In light of this development,and the absence of an identified successor Trustee, JPMorgan Chase Bank, N.A.withdrew its resignation as Trustee. The Trustee continues to desire theappointment 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 determination. Further, whilethe plaintiff’s claims on the farmout issue may merit adjudication, based onfacts known to the Trustee at this time, the Trustee is unable to determine,even if the plaintiff prevailed 

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onits uncertain liability claims, whether the Trust would realize any economicbenefit. Based on information received to date, the Trustee has not concludedthat it would be in the best interest of the unitholders to fund the MHLPclaims directly with Trust funds. However, as noted above, the Trustee has notopposed the plaintiff’s pursuit of its claims on behalf of the unitholders attheir own expense, which reasonable expenses would be subject to repayment ifthe claims proved successful and a benefit were conferred upon all untiholdersof 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.

TheTrustee will make the full detail of the underlying data of theDecember 31, 2005 reserve report available for use in connection with thesale of the Trust properties as part of the Trust termination. For moreinformation regarding the estimated remaining life of each of the RoyaltyProperties, the estimated future net revenues of the Royalty Properties andinformation relating to farm-outs of interests on the Royalty Properties basedon information provided by D&M, see pages 23 and 24 of theForm 10-K for the year ended December 31, 2005 and Note 7 inthe Notes to Financial Statements included elsewhere in the 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” below, PNR withholds from the Trust a reserve to coverits share of those future abandonment and removal costs. To the extent acertain party is able to complete the abandonment for an amount less than thefunds withheld by PNR, the related rights to the abandonment accrual are likelyto be deemed marketable. The final distribution to unitholders will be anamount net of funds required to satisfy all Trust liabilities.

**Item 3.        *Quantitative andQualitative Disclosures About Market Risk.***

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

**Item 4.        *Controls and Procedures.***

*Evaluation of Disclosure Controls and Procedures.*   TheTrustee maintains disclosure controls and procedures designed to ensure thatinformation required to be disclosed by the Trust in the reports that it filesor submits under the Exchange Act of 1934, as amended, is recorded, processed,summarized and reported within the time periods specified in the SEC’s rulesand regulations. Disclosure controls and procedures include controls andprocedures designed to ensure that information required to be disclosed by theTrust is accumulated and communicated by Pioneer, as the managing generalpartner of the Partnership, and the working interest owners to JPMorgan ChaseBank, N.A., as Trustee of the Trust, and its employees who participate inthe preparation of the Trust’s periodic reports as appropriate to allow timelydecisions regarding required disclosure.

As of the end of the period covered by this report,the Trustee carried out an evaluation of the Trust’s disclosure controls andprocedures. Mike Ulrich, as Trust Officer of the Trustee, has concluded thatthe controls and procedures are effective.

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Due to the contractual arrangements of (i) the TrustIndenture, (ii) the Partnership Agreement and (iii) the rights of thePartnership under the Conveyance regarding information furnished by the workinginterest owners, the Trustee relies on: (A) information provided by theworking interest owners, including (i) the status of litigation, (ii) historicaloperating data, plans for future operating and capital expenditures, reserveinformation, as well as (iii) information relating to projected production; (B) informationprovided by the managing general partner of the Partnership that is collectedby the managing general partner from the working interest owners; and (C) conclusionsregarding reserves by reserve engineers or other experts in good faith. SeeItem 1A. Risk Factors “—None of the Trust nor its unitholders control theoperation or development of the Royalty Properties and have little influenceover operation or development” and “—The Trustee relies upon the workinginterest owners and managing general partner for information regarding theRoyalty Properties” in the Trust’s 10-K for the year ended 2005 for adescription of certain risks relating to these arrangements and reliance.

*Changesin Internal Control 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**

**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) |       | 1-8432                                |       | 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)                                             |       | 1-8432                                |       | 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,thereunto duly authorized.**
|                          | MESA OFFSHORE TRUST |
|--------------------------|---------------------|
|                     | By:                 | /s/  JPMORGAN CHASE BANK, N.A., as  Trustee |
|                     | By:                 | /s/ MIKE ULRICH |
| * *                 |                | ***Mike  Ulrich*** |
| * *                 | * *            | ***Vice  President*** |
| Date: May  15, 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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