##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Form 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to .
 Commission file number 0-8677
 Tidelands Royalty Trust B
  Texas
(State or other jurisdiction 
of incorporation or organization)
    
    75-6007863
(I.R.S. Employer
Identification No.)c/o The Corporate Trustee 
Bank of America, N.A. 
P.O. Box 830650, Dallas, Texas
(Address of principal executive offices)
    
    75283-0650
(Zip Code)
    
 o þ
 o þ
  þ o
 þ
  o o þ
 o þ
  1,386,375 Units




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##### 



TABLE OF CONTENTS
 PART IItem 1.
    
    Business
    
    
    2Item 1A.
    
    Risk Factors
    
    
    4Item 1B.
    
    Unresolved Staff Comments
    
    
    6Item 2.
    
    Properties
    
    
    6Item 3.
    
    Legal Proceedings
    
    
    8Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    8PART IIItem 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
    
    
    8Item 6.
    
    Selected Financial Data
    
    
    9Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operation
    
    
    9Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    11Item 8.
    
    Financial Statements and Supplementary Data
    
    
    12Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    12Item 9A.
    
    Controls and Procedures
    
    
    12Item 9B.
    
    Other Information
    
    
    12PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    12Item 11.
    
    Executive Compensation
    
    
    13Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    13Item 13.
    
    Certain Relationships and Related Transactions
    
    
    13Item 14.
    
    Principal Accountant Fees and Services
    
    
    13PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    14SubsidiariesCertification of Corporate Trustee Pursuant to Section 302Certification of Corporate Trustee Pursuant to Section 906




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Part I
 
 Item 1. Business
 Organization
    The 1951 Contract
  2




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##### Table of Contents



LeaseArea
    
    Block
    
    Number
    
    Acres
    
    Decimal
    
    OperatorGalveston
    
    
    303
    
    
    
    4565
    
    
    
    5,760
    
    
    
    0.041662
    
    
    W&T Offshore Inc.Sabine Pass
    
    
    13
    
    
    
    3959
    
    
    
    3,438
    
    
    
    0.041662
    
    
    NOEX Energy, Inc.West Cameron
    
    
    165
    
    
    
    758
    
    
    
    5,000
    
    
    
    0.041662
    
    
    Devon Energy Production Company LPWest Cameron
    
    
    225
    
    
    
    900
    
    
    
    3,750
    
    
    
    0.010416
    
    
    Dominion Exploration and Production Inc.West Cameron
    
    
    291
    
    
    
    4397
    
    
    
    5,000
    
    
    
    0.041662
    
    
    Devon Energy Production Company LPTotal acres
    
    
    
    
    
    
    
    
    
    
    22,948
  Company
    
    2006
    
    2005
    
    2004Devon Energy Production Company
    
    
    59
    %
    
    
    90
    %
    
    
    80
    %NOEX Energy Inc.
    
    
    26
    %
    
    
    
    
    
    
    Dominion Exploration & Production Co.
    
    
    
    
    
    
    1
    %
    
    
    Forest Oil Corp.
    
    
    
    
    
    
    1
    %
    
    
    1
    %W&T Offshore Inc.
    
    
    13
    %
    
    
    6
    %
    
    
    12
    %Barron Petroleum Inc.
    
    
    2
    %
    
    
    2
    %
    
    
    4
    %Orca Management LLC
    
    
    
    
    
    
    
    
    
    
    2
    %Dunhill Resources
    
    
    
    
    
    
    
    
    
    
    1
    %100
    %
    
    
    100
    %
    
    
    100
    %
  Trust Functions
    3




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Item 1A. Risk Factors
  Oil and natural gas prices fluctuate due to a number of factors, and lower prices will reduce net
proceeds available to Tidelands and distributions to Tidelands unitholders.
  
    
    political conditions worldwide, in particular political
disruption, war or other armed conflicts in oil producing regions;
    
    worldwide economic conditions;
    
    weather conditions;
    
    the supply and price of foreign oil and natural gas;
    
    the level of consumer demand;
    
    the price and availability of alternative fuels;
    
    the proximity to, and capacity of, transportation facilities;
and
    
    the effect of worldwide energy conservation measures.
   Operating risks for the working interest owners interests in the Royalty Area can adversely affect
distributions.
  Royalty interests are depleting assets and, if the working interest owners or other operators of
the Royalty Area do not perform additional development projects, the assets may deplete faster than
expected.
  4




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The owner of any properties in the Royalty Area may abandon any property, terminating the related
royalty interest Tidelands may hold.
   The Trustee, Tidelands and its unitholders do not control the operation or development of the
properties in the Royalty Area and have little influence over operation or development.
   Important reserve and other information with respect to the particular leases subject to Tidelands
royalty interest is difficult to obtain.
  Terrorism and continued geopolitical hostilities could adversely affect Tidelands distributions to
its unitholders or the market price of its units.
  Unitholders have limited voting rights.
  5




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The limited liability of the unitholders is uncertain.
  If it is determined that the Trust is subject to the Texas margin tax, the Trustee may have to
withhold a disproportionate amount from future distributions to pay the tax liability.
  Tidelands royalty interest can be sold and the Tidelands trust can be terminated.
  The operators of the working interest owner are subject to extensive governmental regulation.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2. Properties
 General
 Reserves Difficulty in Obtaining Certain Data
   6




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Production
 2006
    
    2005
    
    2004Quantity of royalty oil and natural gas sold:Oil (in barrels (bbls))
    
    
    6,722
    
    
    
    5,839
    
    
    
    8,022Natural gas (in thousand cubic feet (mcf))
    
    
    229,697
    
    
    
    263,901
    
    
    
    175,835Weighted average sales price for royalty oil and natural
gas sold:Oil (per bbl) (1)
    
    $
    65.04
    
    
    $
    53.74
    
    
    $
    41.73Natural gas (per mcf) (1)
    
    $
    6.91
    
    
    $
    7.76
    
    
    $
    5.92
 
 (1)
    
    The weighted average sales price is calculated from data provided by the operators.  Interests in Properties
 Productive Properties.
 Gross Productive Wells:Oil
    
    
    3Natural Gas
    
    
    1013Gross Leased Acres:Productive
    
    
    22,948Non-Productive
    
    
    022,948
  Present Activities
   7




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Difficulty in Obtaining Certain Data
 
 Item 3. Legal Proceedings
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Part II
 
 Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchaser of
Equity Securities
   Bid Quotation
    
    DistributionsYear Ended December 31,
    
    High
    
    Low
    
    (Per Unit)2006First quarter
    
    $
    18.00
    
    
    $
    10.25
    
    
    $
    0.08Second quarter
    
    
    12.70
    
    
    
    8.50
    
    
    
    0.13Third quarter
    
    
    11.68
    
    
    
    9.61
    
    
    
    0.41Fourth quarter
    
    
    14.20
    
    
    
    9.96
    
    
    
    0.602005First quarter
    
    $
    11.90
    
    
    $
    7.50
    
    
    $
    0.39Second quarter
    
    
    15.75
    
    
    
    9.05
    
    
    
    0.54Third quarter
    
    
    19.50
    
    
    
    14.05
    
    
    
    0.56Fourth quarter
    
    
    18.80
    
    
    
    12.00
    
    
    
    0.13
  8




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Item 6. Selected Financial Data
 (In Thousands, Except Per Unit Amounts)2006
    
    2005
    
    2004
    
    2003
    
    2002Income  oil and natural gas
royalties
    
    $
    2,025
    
    
    $
    2,363
    
    
    $
    1,376
    
    
    $
    1,365
    
    
    $
    1,011Net income
    
    $
    1,912
    
    
    $
    2,241
    
    
    $
    1,264
    
    
    $
    1,271
    
    
    $
    879Net income per unit
    
    $
    1.38
    
    
    $
    1.62
    
    
    $
    0.91
    
    
    $
    0.92
    
    
    $
    0.63Distributions to unitholders
    
    $
    1,040
    
    
    $
    2,663
    
    
    $
    954
    
    
    $
    1,349
    
    
    $
    668Distributions per unit
    
    $
    0.75
    
    
    $
    1.92
    
    
    $
    0.69
    
    
    $
    0.97
    
    
    $
    0.48Total assets at year-end
    
    $
    2,666
    
    
    $
    1,797
    
    
    $
    1,804
    
    
    $
    1,489
    
    
    $
    1,533
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operation
 Critical Accounting Policies
 Results of Operations
   9




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Summary Review
    For Years Ended December 31,2006
    
    
    2005
    
    
    2004Income:Oil royalties
    
    $
    437,209
    
    
    $
    313,777
    
    
    $
    334,770Natural gas royalties
    
    
    1,588,203
    
    
    
    2,048,982
    
    
    
    1,040,881$
    2,025,412
    
    
    $
    2,362,759
    
    
    $
    1,375,651Net production quantities:Oil (bbls)
    
    
    6,722
    
    
    
    5,839
    
    
    
    8,022Natural gas (mcf)
    
    
    229,697
    
    
    
    263,901
    
    
    
    175,835Average net prices:Oil (1)
    
    $
    65.04
    
    
    $
    53.74
    
    
    $
    41.73Natural gas (1)
    
    $
    6.91
    
    
    $
    7.76
    
    
    $
    5.92
 
 (1)
    
    These amounts are net of the cost of transportation from offshore leases to onshore receiving
points. Oil and Natural Gas Royalties  2006 and 2005.
    Oil and Natural Gas Royalties  2005 and 2004.
 10




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Capital Resources and Liquidity
   Forward-Looking Statements .
 
 Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    11




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Item 8. Financial Statements and Supplementary Data
  Page Report of Independent Registered Public Accounting Firm
    
    15 Consolidated Balance Sheets as of December 31, 2006 and 2005
    
    16 Consolidated Statements of Income and Undistributed Income for the Three Years Ended December 31, 2006
    
    17 Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2006
    
    18 Notes to Consolidated Financial Statements
    
    19
 Exhibits and Financial Statement Schedules
 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A. Controls and Procedures
  
 Item 9B. Other Information
  
 Part III
 
 Item 10. Directors and Executive Officers of the Registrant
   12




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th
  
 Item 11. Executive Compensation
  Other AnnualName of Individual or Entity
    
    Year
    
    Compensation(1)Bank of America, N.A., the Trustee
    
    
    2006
    
    
    $
    21,2482005
    
    
    $
    20,9382004
    
    
    $
    23,279
 
 (1)
    
    Under the Indenture, the Trustee is entitled to reasonable and customary fees and compensation
for its services.  Other AnnualName of Individual or Entity
    
    Year
    
    CompensationMarine Petroleum Corporation
    
    
    2006
    
    
    $
    25,5582005
    
    
    $
    36,6842004
    
    
    $
    24,525
 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  Amount BeneficiallyName and Address of
    
    Owned as of
    
    PercentTitle of Class
    
    Beneficial Owner
    
    December 31, 2006
    
    of ClassUnits of Beneficial
Interest
    
    Marine Petroleum Trust
P.O. Box 830241
Dallas, Texas 75283-0241
    
    
    452,366
    
    
    
    32.6
    %
  
 Item 13. Certain Relationships and Related Transactions
  13




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Item 14. Principal Accountant Fees and Services
  2006
    
    2005Audit Fees
    
    $
    38,400
    
    
    $
    32,250Audit-related Fees
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    
  
 Part IV
 
 Item 15. Exhibits and Financial Statement Schedules
 Financial Statements and Supplementary Data
  4.1
    
    Indenture of Trust dated June 1, 1954, as amended, filed as an Exhibit to
Tidelands Quarterly Report on Form 10-Q for the period ended September 30, 2001,
filed with the Securities and Exchange Commission on November 14, 2001, and
incorporated herein by reference.21.1
    
    Subsidiaries of Tidelands Royalty Trust B.31.1
    
    Certification of the Principal Accounting Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Corporate Trustee pursuant to Section 302 of the Sarbanes-Oxley of
Act of 2002.32.1
    
    Certification of the Principal Accounting Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Corporate Trustee pursuant to Section 906 of the
Sarbanes-Oxley of Act of 2002.
  14




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    Dallas, TexasMarch 30, 2007
    /s/ KPMG LLP 15




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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
 
 CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2006 AND 2005
 2006
    
    
    2005AssetsCurrent assets:Cash and cash equivalents
    
    $
    1,834,550
    
    
    $
    1,662,154Oil and natural gas royalties receivable
    
    
    831,022
    
    
    
    134,434Total current assets
    
    
    2,665,572
    
    
    
    1,796,588Oil, natural gas and other mineral properties
    
    
    2
    
    
    
    2$
    2,665,574
    
    
    $
    1,796,590Liabilities and Trust EquityCurrent liabilities:Accounts payable
    
    $
    25,558
    
    
    $
    8,699Federal income taxes payable
    
    
    9,351
    
    
    
    1,401Income distributable to unitholders
    
    
    720,922
    
    
    
    749,343Total current liabilities
    
    
    755,831
    
    
    
    759,443Trust equity:Corpus  authorized 1,386,525 units of beneficial interest,
issued 1,386,375 units at nominal value
    
    
    2
    
    
    
    2Undistributed income
    
    
    1,909,741
    
    
    
    1,037,145Total trust equity
    
    
    1,909,743
    
    
    
    1,037,147$
    2,665,574
    
    
    $
    1,796,590
  16




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




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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED DECEMBER 31, 2006
 2006
    
    
    2005
    
    
    2004Cash flows from operating activities:Net income
    
    $
    1,912,403
    
    
    $
    2,241,485
    
    
    $
    1,264,280Adjustments to reconcile net income to net cash
provided by operating activities:Amortization of premium
    
    
    
    
    
    
    
    
    
    
    12,760Loss on sale of U.S. Treasury and agency bonds
    
    
    
    
    
    
    
    
    
    
    761Change in assets and liabilities:Oil and natural gas royalties receivable
    
    
    (696,588
    )
    
    
    261,581
    
    
    
    (230,250
    )Interest receivable
    
    
    
    
    
    
    1,403
    
    
    
    4,261Accounts payable
    
    
    16,859
    
    
    
    (9,285
    )
    
    
    12,852Federal income tax payable
    
    
    7,950
    
    
    
    (2,159
    )
    
    
    2,858Net cash provided by operating activities
    
    
    1,240,624
    
    
    
    2,493,025
    
    
    
    1,067,522Cash flows used in investing activities:Investment in U.S. Treasury and agency bonds
    
    
    
    
    
    
    
    
    
    
    (201,034
    )Proceeds from sale of U.S. agency bonds
    
    
    
    
    
    
    200,000
    
    
    
    699,549Net cash provided by (used in) investing activities
    
    
    
    
    
    
    200,000
    
    
    
    498,515Cash flows used in financing activities  cash
distributions to unitholders
    
    
    (1,068,228
    )
    
    
    (2,237,675
    )
    
    
    (965,195
    )Net increase (decrease) in cash and cash
equivalents
    
    
    172,396
    
    
    
    455,350
    
    
    
    600,842Cash and cash equivalents at beginning of year
    
    
    1,662,154
    
    
    
    1,206,804
    
    
    
    605,962Cash and cash equivalents at end of year
    
    
    1,834,550
    
    
    
    1,662,154
    
    
    $
    1,206,804
  18




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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2006
 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND GENERAL
 (a)
    
    General
      (b)
    
    Unitholder Voting Matters
  (c)
    
    Principles of Consolidation
  19




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##### Table of Contents



(d)
    
    Oil, Natural Gas and Other Mineral Properties
   (e)
    
    Federal Income Taxes
  (f)
    
    Credit Risk Concentration and Cash Equivalents
   (g)
    
    Statements of Cash Flows
  (h)
    
    Use of Estimates
  (i)
    
    Net Income per Unit
  20




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TIDELANDS ROYALTY TRUST B AND SUBSIDIARY
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (CONTINUED)
 (j)
    
    Significant Royalty Sources
  2006
    
    2005
    
    2004Devon Energy Production Company
    
    
    59
    %
    
    
    90
    %
    
    
    80
    %W & T Offshore
    
    
    13
    %
    
    
    6
    %
    
    
    12
    %NOEX Energy Inc.
    
    
    26
    %
    
    
    
    
    
    
    Others
    
    
    2
    %
    
    
    4
    %
    
    
    8
    %100
    %
    
    
    100
    %
    
    
    100
    %
 (2)
    
    UNDISTRIBUTED INCOME
  (3)
    
    SUPPLEMENTAL INFORMATION RELATING TO OIL AND NATURAL GAS RESERVES (UNAUDITED)
  (4)
    
    SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
  Oil and Natural Gas
    
    
    Net
    
    
    Net IncomeRoyalties
    
    
    Income
    
    
    Per UnitQuarter ended:March 31, 2006
    
    $
    138,299
    
    
    $
    110,576
    
    
    $
    0.08June 30, 2006
    
    
    206,577
    
    
    
    181,247
    
    
    
    0.13September 30, 2006
    
    
    599,446
    
    
    
    570,301
    
    
    
    0.41December 31, 2006
    
    
    1,081,090
    
    
    
    1,050.279
    
    
    
    0.76$
    2,025,412
    
    
    $
    1,912,403
    
    
    $
    1.38Quarter ended:March 31, 2005
    
    $
    578,241
    
    
    $
    540,408
    
    
    $
    0.39June 30, 2005
    
    
    785,750
    
    
    
    750,893
    
    
    
    0.54September 30, 2005
    
    
    809,535
    
    
    
    779,819
    
    
    
    0.56December 31, 2005
    
    
    189,233
    
    
    
    170,365
    
    
    
    0.13$
    2,362,759
    
    
    $
    2,241,485
    
    
    $
    1.62
 21




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SIGNATURES
  Tidelands Royalty Trust BDate: March 30, 2007
    
    (Registrant)By:
    Bank of America, N.A.(in its capacity as Corporate Trustee of Tidelands Royalty Trust B and not in its individual capacity or otherwise)
 By:
    /s/ RON E. HOOPERRon E. HooperSenior Vice President  NAME
    
    CAPACITIES
    
    DATEBank of America, N.A.
    
    Corporate Trustee
    
    March 30, 2007By:
    /s/ RON E. HOOPERRon E. HooperSenior Vice President
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##### Table of Contents



Tidelands Royalty Trust B
c/o Bank of America, N.A.
P.O. Box 830241
Dallas, Texas 75283-0241
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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description4.1
    
    Indenture of Trust dated June 1, 1954, as amended, filed as an Exhibit to Tidelands
Quarterly Report on Form 10-Q for the period ended September 30, 2001, filed with the
Securities and Exchange Commission on November 14, 2001, and incorporated herein by reference.21.1
    
    Subsidiaries of Tidelands Royalty Trust B.31
    
    Certification of the Corporate Trustee pursuant to Section 302 of the Sarbanes-Oxley of Act of
2002.32
    
    Certification of the Corporate Trustee pursuant to Section 906 of the Sarbanes-Oxley of Act
of 2002.
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