**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

----

FORM 10-Q

| **x** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|--------------------------------------------------------------------------------------------------------|

 

**Forthe Quarterly Period Ended June 30, 2004**

**or**

| **o** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|---------------------------------------------------------------------------------------------------------|

 

**Commission File Number1-11450**

----

SANTA FE ENERGY TRUST

(Exact name of registrantas specified in its charter)

| **Texas**(State or other jurisdiction of  incorporation or organization)                                                                          | **76-6081498**(I.R.S. Employer Identification No.) |
|---------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------|
| **JPMorgan Chase Bank, Trustee  Institutional Trust Services  700 Lavaca  Austin, Texas 78701**(Address of principal offices, including Zip Code) |

 

**Registrant’stelephone number, including area code (512) 479-2562**

**NONE**

(Former name or formeraddress, if changed since last report)

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 an accelerated filer (as defined in Rule 12b-2of the Exchange Act).

Yes x  No o

Depository Unitsoutstanding at June 30, 2004—6,300,000

 

----

**PART I—FINANCIALINFORMATION**

**Item 1. *Financial Statements.***

**SANTA FE ENERGYTRUSTSTATEMENTS OF CASH PROCEEDS AND DISTRIBUTABLE CASH (Unaudited)(In thousands, except per unit data)**
| ** **                                      | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                      | ** ** | **2004**                                        | ** ** | **2003**                                      | ** ** | **2004** | ** ** | **2003** | ** ** |
| Royalty income                                  |       |                                            |       |                                          |       |   |   |   |   |
| ODC royalty                                     |       | $                                               | 2,276      |                                          | $          | 2,181 |   | $ | 4,194 |   | $ | 3,820 |   |
| Willard royalty                                 |       | —                                          |       | 371                                           |       | 332 |   | 752 |   |
| Net profits royalty                             |       | 2,225                                           |       | 1,909                                         |       | 4,669 |   | 8,157 |   |
| Total royalties                                 |       | 4,501                                           |       | 4,461                                         |       | 9,195 |   | 12,729 |   |
| Administrative  fee to Devon Energy Corporation |       | (74                                             | )          | (72                                           | )          | (146 | ) | (141 | ) |
| Cash withheld for  trust expenses               |       | (100                                            | )          | (150                                          | )          | (200 | ) | (200 | ) |
| Distributable  cash                             |       | $                                               | 4,327      |                                          | $          | 4,239 |   | $ | 8,849 |   | $ | 12,388 |   |
| Distributable  cash per trust unit              |       | $                                               | 0.68670    |                                          | $          | 0.67301 |   | $ | 1.40454 |   | $ | 1.96662 |   |
| Trust units outstanding                         |       | 6,300                                           |       | 6,300                                         |       | 6,300 |   | 6,300 |   |

 

**STATEMENTS OFASSETS, LIABILITIES AND TRUST CORPUS**(In thousands, except unit data)
| ** **                                                      | ** ** | **June 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------|------------|-----------------------------|------------|
| ** **                                                      | ** ** | **(Unaudited)**         | ** ** | ** **                  | ** ** |
| ASSETS                                                          |
| Current  assets—cash                                       |       |                    | $          | 95                          |       |   |   | $ | 174 |   |   |
| Investment in  royalty interests, at cost                       |       |                    | 87,276     |                        |       |   | 87,276 |   |   |
| Less: accumulated  amortization                                 |       |                    | (78,649    | )                           |       |   | (77,371 | ) |   |
|                                                            |       |                    | 8,627      |                        |       |   | 9,905 |   |   |
| Total assets                                                    |       |                    | $          | 8,722                       |       |   |   | $ | 10,079 |   |   |
| LIABILITIES AND  TRUST CORPUS                                   |
| Current  liabilities—advance from Devon Energy Corporation |       |                    | $          | 125                         |       |   |   | $ | 50 |   |   |
| Trust corpus,  6,300,000 trust units issued and outstanding     |       |                    | 8,597      |                        |       |   | 10,029 |   |   |
| Total liabilities and  trust corpus                             |       |                    | $          | 8,722                       |       |   |   | $ | 10,079 |   |   |

 

The accompanying notes arean integral part of the financial statements.

2

----

**SANTA FE ENERGYTRUSTSTATEMENTS OF CHANGES IN TRUST CORPUS (Unaudited)Six Months Ended June 30, 2004 and 2003(In thousands)**
| Balance at  December 31, 2002 |   | $       | 13,175 |   |
|------------------------------------|--------|---------|--------|--------|
| Cash proceeds                      |   | 12,588  |   |
| Cash distributions                 |   | (12,388 | )      |
| Trust expenses                     |   | (271    | )      |
| Amortization of royalty interests  |   | (1,616  | )      |
| Balance at  June 30, 2003     |   | $       | 11,488 |   |
| Balance at December 31, 2003  |   | $       | 10,029 |   |
| Cash proceeds                      |   | 9,049   |   |
| Cash distributions                 |   | (8,849  | )      |
| Trust expenses                     |   | (354    | )      |
| Amortization of royalty interests  |   | (1,278  | )      |
| Balance at June 30,  2004     |   | $       | 8,597  |   |

 

The accompanying notes are an integral part of the financialstatements.

3

----

 

**SANTA FE ENERGY TRUSTNOTES TO FINANCIAL STATEMENTS (Unaudited)**

**Note 1.The Trust**

The financial statements at June 30, 2004 and forthe three-month and six-month periods ended June 30, 2004 and2003 are unaudited and reflect all adjustments (consisting of only normal andrecurring adjustments) that are, in the opinion of Devon Energy Corporation,necessary for a fair presentation of the financial position and cash proceedsand distributable cash of the Santa Fe Energy Trust for the interim periods.

Santa Fe Energy Trust (the “Trust”) was formed on October 22,1992, with JPMorgan Chase Bank, formerly The Chase Manhattan Bank, successor bymerger to Chase Bank of Texas, National Association formerly Texas CommerceBank, National Association, as trustee (the “Trustee”), to acquire and holdcertain royalty interests (the “Royalty Interests”) in certain properties (the “RoyaltyProperties”) conveyed to the Trust by Devon Energy ProductionCompany, L.P. (“Devon”), successor by merger to Devon SFS Operating, Inc.,formerly Santa Fe Snyder Corporation, formerly Santa Fe Energy Resources, Inc.Through December 31, 2003, the Royalty Interests consisted of two termroyalty interests in two production units in the Wasson field in west Texas(the “Wasson Royalties”) and a net profits royalty interest in certain royaltyand working interests in a diversified portfolio of properties located in 11states (the “Net Profits Royalties”). On December 31, 2003, the term onthe royalty interest in one of the Wasson production units terminated. TheRoyalty Interests are passive in nature and the Trustee has no control over orresponsibility relating to the operation of the Royalty Properties. The Trustwill be liquidated on February 15, 2008 (the “Liquidation Date”).

In November 1992, 5,725,000 Depository Units,each consisting of beneficial ownership of one unit of undivided beneficialinterest in the Trust (“Trust Units”) and a $20 face amount beneficialownership interest in a $1,000 face amount zero coupon United States Treasuryobligation maturing on or about February 15, 2008, were sold in a publicoffering for $20 per Depository Unit. A total of $114.5 million wasreceived from public investors, of which $38.7 million was used to purchase theTreasury obligations and $5.7 million was used to pay underwritingcommissions and discounts. Devon received the remaining $70.1 million and575,000 Depository Units. In the first quarter of 1994, Devon sold, in a publicoffering, the 575,000 Depository Units which it held.

The trust agreementunder which the Trust was formed (the “Trust Agreement”) provides, among otherthings, that:

·       theTrustee shall not engage in any business or commercial activity or acquire anyasset other than the Royalty Interests initially conveyed to the Trust;

·       theTrustee may not sell all or any portion of the Wasson Royalties orsubstantially all of the Net Profits Royalties without the prior consent ofDevon;

·       Devonmay sell the Royalty Properties, subject to and burdened by the RoyaltyInterests, without consent of the holders of the Trust Units; following anysuch transfer, the Royalty Properties will 

4

----

 

continue to be burdened bythe Royalty Interests and after any such transfer the royalty paymentattributable to the transferred property will be calculated separately and paidby the transferee;

·       theTrustee may establish a cash reserve for the payment of any liability that iscontingent, uncertain in amount or that is not currently due and payable;

·       theTrustee is authorized to borrow funds required to pay liabilities of the Trust,provided that such borrowings are repaid in full prior to further distributionsto the holders of the Trust Units; and

·       theTrustee will make quarterly cash distributions to the holders of the TrustUnits.

**Note 2. Basis of Accounting**

The financial statements of the Trust are prepared onthe cash basis of accounting for revenues and expenses. Royalty income isrecorded when received (generally during the quarter following the end of thequarter in which the income from the Royalty Properties is received by Devon)and is net of any cash basis exploration and development expenditures andamounts reserved for any future exploration and development costs. Expenses ofthe Trust, which will include accounting, engineering, legal and otherprofessional fees, Trustee fees, an administrative fee paid to Devon andout-of-pocket expenses, are recognized when paid. Under accounting principlesgenerally accepted in the United States of America, revenues and expenses wouldbe recognized on an accrual basis. Amortization of the Trust’s investment inRoyalty Interests is recorded using the unit-of-production method in the periodin which the cash is received with respect to such production; therefore, astatement of cash flows is not presented.

The conveyance of the Royalty Interests to the Trustwas accounted for as a purchase transaction. The $87,276,000 reflected in theStatements of Assets and Trust Corpus as Investment in Royalty Interestsrepresents 6,300,000 Trust Units valued at $20 per unit less the $38,724,000paid for the Treasury obligations. The carrying value of the Trust’s investmentin the Royalty Interests is not necessarily indicative of the fair value ofsuch Royalty Interests.

The Trust is a grantor trust and as such is not subjectto income taxes and accordingly no recognition has been given to income taxesin the Trust’s financial statements. The tax consequences of owning Trust Unitsare included in the income tax returns of the individual Trust Unit holders.

The preparation of theTrust’s financial statements requires the use of certain estimates. Actualresults may differ from such estimates.

**Note 3. The Royalty Interests**

Through December 31, 2003, the Wasson Royaltiesconsisted of interests conveyed out of Devon’s royalty interest in the WassonODC Unit (the “ODC Royalty”) and the Wasson Willard Unit (the “Willard Royalty”).On December 31, 2003, the term on the royalty interest in the WassonWillard Unit terminated. The ODC Royalty entitles the Trust to receivequarterly royalty payments with respect to 12.3934% of the actual gross oilproduction from the Wasson ODC Unit, subject to certain quarterly limitationsset forth in the conveyance agreement, for the period from November 1,1992 to December 31, 2007. The Willard Royalty entitled the Trust toreceive quarterly royalty payments with respect to 6.8355% of the actual gross 

5

----

 

oil production from theWasson Willard Unit, subject to certain quarterly limitations set forth in theconveyance agreement, for the period from November 1, 1992 to December 31,2003.

The Net Profits Royaltiesentitle the Trust to receive, on a quarterly basis, 90% of the net proceeds, asdefined in the conveyance agreement, from the sale of production from theproperties subject to the conveyance agreement. The Net Profits Royalties arenot limited in term, although the Trustee is required to sell such royaltiesprior to the Liquidation Date.           

**Note 4. Distribution to Trust Unit Holders**

TheTrust has received royalty payments net of administrative fees paid to Devonand made distributions as follows:
| ** **     | ** ** | **Royalty  Payment**                                              | ** ** | **Distributions** | ** ** |
|----------------|------------|-------------------------------------------------------------------|------------|-------------------|------------|
| ** **     | ** ** | **Received**                                                      | ** ** | **Amount**        | ** ** | **Per Trust Unit** | ** ** |
| ** **     | ** ** | **(in thousands, except per unit data)** | ** ** |
| 2003           |       |                                                              |       |              |       |   |   |   |   |
| First quarter  |       | $                                                                 | 8,199      | (a)               | $          | 8,149 |   |   | $ | 1.29361 |   |   |
| Second quarter |       | 4,389                                                             |       | 4,239             |       |   | 0.67301 |   |   |
| Third quarter  |       | 4,906                                                             |       | 4,731             |       |   | 0.75075 |   |   |
| Fourth quarter |       | 4,414                                                             |       | 4,264             |       |   | 0.67684 |   |   |
|           |       | $                                                                 | 21,908     |              | $          | 21,383 |   |   | 3.39421 |   |   |
| 2004           |       |                                                              |       |              |       |   |   |   |   |
| First quarter  |       | $                                                                 | 4,622      |              | $          | 4,522 |   |   | $ | 0.71784 |   |   |
| Second quarter |       | 4,427                                                             |       | 4,327             |       |   | 0.68670 |   |   |

----

(a)           Includesproceeds from the sale of Net Profits Properties of $4.6 million or $0.72565per Trust Unit.

6

----

**Item 2. *Management’s Discussionand Analysis of Financial Condition and Results of Operations***

**General; Liquidity and Capital Resources**

The Trust was formed on October 22, 1992. TheTrust holds Royalty Interests in Royalty Properties (“Royalty Properties”) conveyedto the Trust by Devon Energy Production Company, L.P. (“Devon”). The Trust is apassive entity that collects royalty income generated by the RoyaltyProperties. Through December 31, 2003, the Royalty Interests consisted oftwo term royalty interests in two production units (the “Wasson ODC Unit” andthe “Wasson Willard Unit”) in the Wasson field in West Texas, and a net profitsroyalty interest (the “Net Profits Royalties”) in certain royalty and workinginterests in a diversified portfolio of properties located predominantly inTexas, Louisiana and Oklahoma (the “Net Profits Properties”). On December 31,2003, the term on the royalty interest in the Wasson Willard Unit terminated.The Royalty Interests are passive in nature and the Trustee has no control overor responsibility relating to the operation of the Royalty Properties. Underthe terms of the Trust Agreement, the Trustee cannot engage in any otherbusiness or commercial activity or acquire any asset other than the RoyaltyInterests initially conveyed to the Trust. Therefore, the Royalty Interests arethe sole source of funds for the Trust from which to pay expenses andliabilities and make distributions to the Holders. The Trust will be liquidatedon or before February 15, 2008 (the “Liquidation Date”).

The royalty interest in the Wasson ODC Unit (the “WassonODC Royalty”) is a fixed percentage royalty interest in specified levels ofquarterly maximum production from the underlying properties in each year duringthe term of the royalty. The Wasson ODC Royalty terminates on December 31,2007. The Net Profits Royalties are life-of-property interests that will besold by the Trust prior to the Liquidation Date. The Net Profits Royaltiesentitle the Trust to receive 90% of the net proceeds (after deducting, amongother things, the costs of production and marketing and capital expenditures)from the sale of production from the Net Profits Properties. The Net ProfitsProperties generally are mature producing oil and gas properties and theproduction and reserves attributable to such properties are expected to declinesubstantially over the life of the Trust. The Net Profits Royalties areexpected to have a relatively small liquidation value at the Liquidation Date.

Trust expenses includeaccounting, engineering, legal and other professional fees, Trustee fees, anadministrative fee paid to Devon and other out-of-pocket expenses. The Trust’sability to pay expenses primarily depends on receipt of royalty income. Devonmay, at its sole discretion and without obligation to do so, advance funds tothe Trust to enable the Trust to pay expenses. The Trustee is authorized toborrow funds required to pay liabilities of the Trust, provided that any suchborrowings are repaid in full prior to making further distributions to Holders.As of June 30, 2004, there was an outstanding advance to the Trust fromDevon Energy Corporation of $125,000.

**Results of Operations**

The Trust’s results ofoperations are dependent upon the sales prices and quantities of oil and gasproduced from the Royalty Properties, the costs of producing such resources andthe amount of capital expenditures made with respect to such properties.

7

----

Since, on an equivalent basis, the majority of theTrust’s proved reserves are crude oil, even relatively modest changes in crudeoil prices may significantly affect the Trust’s revenues and results ofoperations. Crude oil prices are subject to significant changes in response tofluctuations in the domestic and world supply and demand and other marketconditions as well as the world political situation as it affects OPEC andother oil producing countries. In addition, a substantial portion of the Trust’srevenues come from properties which produce sour (i.e., high sulfur content)crude oil which sells at prices lower than sweeter (i.e., low sulfur content)crude oils. The Trust’s weighted average crude oil sales price for the secondquarter of 2004 was $30.97 per barrel compared with $29.84 per barrel for thesame period in 2003. Crude oil prices with respect to the Trust’s results inthe third quarter of 2004 averaged $33.83 per barrel. The Trust’s weightedaverage crude oil sales price for the first six months of 2004 was $29.20 perbarrel compared with $27.86 per barrel for the same period of 2003.

Natural gas prices fluctuate due to weatherconditions, the level of natural gas in storage, the relative balance betweensupply and demand and other economic factors. The Trust’s weighted averageprice for natural gas in the second quarter of 2004 was $4.85 per Mcf comparedwith $3.78 per Mcf in the second quarter of 2003. Natural gas prices withrespect to the Trust’s results in the third quarter of 2004 averaged $5.25 perMcf. The Trust’s weighted average price for natural gas in the first six monthsof 2004 was $4.63 per Mcf compared with $3.47 per Mcf for the same period of2003.

Royalty income is recordedby the Trust when received, generally during the quarter following the end ofthe quarter in which revenues are received and costs and expenses are paid byDevon. Cash proceeds from the Royalty Properties may fluctuate from quarter toquarter due to the timing of receipts and payment of revenues and costs andexpenses as well as changes in prices and production volumes. The followingtable reflects pertinent information with respect to the cash proceeds from theRoyalty Properties and the net distributable cash of the Trust. The informationpresented with respect to the third quarter of 2004 reflects revenues receivedand costs and expenses paid by Devon in the second quarter of 2004. On August 31,2004, the Trust will make a cash distribution of $4.8 million, or $0.76869per Trust Unit, to unitholders of record on August 16, 2004.

8

----

 
| ** **                                                                        | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** | **Third  Quarter** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------|------------|--------------------|------------|
| ** **                                                                        | ** ** | **2004**                                        | ** ** | **2003**                                      | ** ** | **2004**           | ** ** | **2003** | ** ** | **2004** | ** ** |
| ***Volumes  and Prices***                                                         |       |                                            |       |                                          |       |               |       |   |   |   |   |
| Oil volumes (Bbls):                                                               |       |                                            |       |                                          |       |               |       |   |   |   |   |
| Wasson ODC royalty                                                                |       | 74,900                                          |       | 72,100                                        |       | 147,000            |       | 137,800 |   | 74,900 |   |
| Wasson Willard royalty(1)                                                         |       | —                                          |       | 12,000                                        |       | 12,000             |       | 27,200 |   | — |   |
| Net profits royalties                                                             |       | 47,376                                          |       | 46,594                                        |       | 97,200             |       | 93,199 |   | 46,161 |   |
| Gas volumes (Mcf):                                                                |       |                                            |       |                                          |       |               |       |   |   |   |   |
| Net profits royalties                                                             |       | 317,414                                         |       | 333,638                                       |       | 656,718            |       | 690,546 |   | 368,353 |   |
| Oil average prices ($/Bbl):                                                       |       |                                            |       |                                          |       |               |       |   |   |   |   |
| Wasson ODC royalty                                                                |       | $                                               | 32.71      |                                          | $          | 32.28              |       | $ | 30.64 |   | $ | 29.63 |   | $ | 35.43 |   |
| Wasson Willard royalty(1)                                                         |       | —                                          |       | 32.28                                         |       | 28.50              |       | 29.18 |   | — |   |
| Net profits royalty                                                               |       | 28.23                                           |       | 25.42                                         |       | 27.10              |       | 24.87 |   | 31.23 |   |
| Gas average prices ($/Mcf):                                                       |       |                                            |       |                                          |       |               |       |   |   |   |   |
| Net profits royalties                                                             |       | 4.85                                            |       | 3.78                                          |       | 4.63               |       | 3.47 |   | 5.25 |   |
| ***Cash  Proceeds and Distributable Cash  (in thousands, except per unit data)*** |       |                                            |       |                                          |       |               |       |   |   |   |   |
| Wasson ODC royalty:                                                               |       |                                            |       |                                          |       |               |       |   |   |   |   |
| Sales                                                                             |       | $                                               | 2,450      |                                          | $          | 2,328              |       | $ | 4,505 |   | $ | 4,084 |   | $ | 2,653 |   |
| Operating expenses                                                                |       | (174                                            | )          | (147                                          | )          | (311               | )          | (264 | ) | (194 | ) |
|                                                                              |       | 2,276                                           |       | 2,181                                         |       | 4,194              |       | 3,820 |   | 2,459 |   |
| Wasson Willard royalty(1):                                                        |       |                                            |       |                                          |       |               |       |   |   |   |   |
| Sales                                                                             |       | —                                          |       | 387                                           |       | 342                |       | 793 |   | — |   |
| Operating expenses                                                                |       | —                                          |       | (16                                           | )          | (10                | )          | (41 | ) | — |   |
|                                                                              |       | —                                          |       | 371                                           |       | 332                |       | 752 |   | — |   |
| Net profits royalty:                                                              |       |                                            |       |                                          |       |               |       |   |   |   |   |
| Sales                                                                             |       | 2,875                                           |       | 2,509                                         |       | 5,678              |       | 4,774 |   | 3,376 |   |
| Proceeds from property sales                                                      |       | —                                          |       | —                                        |       | —             |       | 4,572 |   | — |   |
| Operating expenses                                                                |       | (637                                            | )          | (583                                          | )          | (1,188             | )          | (1,145 | ) | (686 | ) |
| Capital (expenditures) recoveries                                                 |       | (13                                             | )          | (17                                           | )          | 179                |       | (44 | ) | (8 | ) |
|                                                                              |       | 2,225                                           |       | 1,909                                         |       | 4,669              |       | 8,157 |   | 2,682 |   |
| Total royalties                                                                   |       | 4,501                                           |       | 4,461                                         |       | 9,195              |       | 12,729 |   | 5,141 |   |
| Administrative fee  to Devon                                                      |       | (74                                             | )          | (72                                           | )          | (146               | )          | (141 | ) | (74 | ) |
| Payment received                                                                  |       | 4,427                                           |       | 4,389                                         |       | 9,049              |       | 12,588 |   | 5,067 |   |
| Cash withheld for  trust expenses                                                 |       | (100                                            | )          | (150                                          | )          | (200               | )          | (200 | ) | (225 | ) |
| Distributable cash                                                                |       | $                                               | 4,327      |                                          | $          | 4,239              |       | $ | 8,849 |   | $ | 12,388 |   | $ | 4,842 |   |
| Distributable cash per  unit                                                      |       | $                                               | 0.68670    |                                          | $          | 0.67301            |       | $ | 1.40454 |   | $ | 1.96662 |   | $ | 0.76869 |   |

----

(1)          Six months ended June 30,2004 production, sales and operating expenses for the Wasson Willard Unit arerelated to calendar year 2003. These are the last production, sales andoperating expenses the Trust will report since the Trust’s conveyed ownershipin the Wasson Willard Unit terminated on December 31, 2003.

9

----

Sales increased $0.1 million from the secondquarter of 2003 to the second quarter of 2004. Sales increased$0.4 million due to a $1.13 per barrel increase in the average price ofoil from $29.84 per barrel in the 2003 quarter to $30.97 per barrel in the 2003quarter and due to a $1.07 per Mcf increase in the average gas price during thesame period. A decrease in second quarter 2004’s production of approximately 11,000barrels of oil equivalent (“Boe”) caused sales to decrease $0.3 million. Thisdecrease was due mainly to the termination of the Trust’s conveyed ownership inthe Wasson Willard Unit.

Sales increased $0.9 million from the first halfof 2003 to the first half of 2004. Sales increased $1.1 million due to a$1.34 per barrel increase in the average price of oil from $27.86 per barrel inthe first half of 2003 to $29.20 per barrel in the first half of 2004 and dueto a $1.16 per Mcf increase in the average gas price from $3.47 in the firsthalf of 2003 to $4.63 during the first half of 2004. A decrease in first half2004’s production of approximately 8,000 Boe caused sales to decrease by$0.2 million. This decrease was due mainly to the termination of the Trust’sconveyed ownership in the Wasson Willard Unit as well as a decrease inproduction from the Net Profits Royalties properties partially offset by anincrease in production from the Wasson ODC Unit.

Sales increased $0.7 million from the secondquarter of 2004 to the third quarter of 2004. Sales increased $0.5 milliondue to a $2.86 per barrel increase in the average price of oil from $30.97 perbarrel in the second quarter of 2004 to $33.83 per barrel in the third quarterof 2004 and due to a $0.40 per Mcf increase in the average gas price from $4.85in the second quarter of 2004 to $5.25 in the third quarter of 2004. Anincrease in production of approximately 7,300 Boe from the second quarter of2004 to the third quarter of 2004 caused sales to increase $0.2 million. Theincrease was primarily due to an increase in production from the Net ProfitsRoyalty properties.

Proceeds from the sales of property were$4.6 million during the first half of 2003 due to sales of certain NetProfits Properties in the period.

Operating expenses remained essentially flat from thesecond quarter of 2004 to the second quarter of 2003 and from the first half of2004 to the first half of 2003. Operating expenses also remained relativelyconstant from the second quarter of 2004 to the third quarter of 2004.Operating expenses may fluctuate from quarter to quarter due to the timing ofpayments.

Proceeds from the NetProfits Royalties are net of capital expenditures with respect to thedevelopment of the Net Profits Properties. Capital expenditures were $13,000,$17,000, $44,000 and $8,000 for the second quarter of 2004, the second quarterof 2003, the six months ended 2003 and the third quarter of 2004, respectively.Capital recoveries were $179,000 for the six months ended 2004.

**Forward Looking Statements**

Management’s Discussionand Analysis of Financial Condition and Results of Operations includes certainstatements (other than statements of historical fact) that constitute forward-lookingstatements within the meaning of Section 27A of the Securities Act of 1933and Section 21E of the Securities Exchange Act of 1934. When used herein,the words “anticipates,” “expects,” “believes,” “intends” or “projects” andsimilar expressions are intended to identify forward-looking statements.It is important to note that actual results could differ materially from thoseprojected by such forward-looking statements. 

10

----

Althoughit is believed that the expectations reflected in such forward-lookingstatements are reasonable and such forward-looking statements are basedon the best data available at the time this report is filed with the Securitiesand Exchange Commission, no assurance can be given that such expectations willprove correct. Factors that could cause results to differ materially from theresults discussed in such forward-looking statements include, but are notlimited to, the following: production variances from expectations, volatilityof oil and gas prices, the need to develop and replace reserves, the capitalexpenditures required to fund operations, environmental risks, uncertaintiesabout estimates of reserves, competition and government regulation andpolitical risks. All such forward-looking statements in this document areexpressly qualified in their entirety by the cautionary statements in thisparagraph.

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

**Disclosures About Market Risk**

Not applicable.

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

**Evaluation of Disclosure Controls and Procedures**

The Trustee maintains disclosure controls andprocedures designed to ensure that information required to be disclosed by theTrust in the reports that it files or submits under the Exchange Act of 1934,as amended, is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and regulations. Disclosure controlsand procedures include controls and procedures designed to ensure thatinformation required to be disclosed by the Trust is accumulated andcommunicated by Devon to JPMorgan Chase Bank, as Trustee of the Trust, and itsemployees who participate in the preparation of the Trust’s periodic reports asappropriate to allow timely decisions regarding required disclosure.

Within 90 days of the date of this report, the Trusteecarried out an evaluation of the Trustee’s disclosure controls and procedures.Mike Ulrich, as Trust Officer of the Trustee, has concluded that the controlsand procedures are generally effective, subject to the limitations ondisclosure controls and procedures as set forth below.

11

----

Due to thecontractual arrangements of (i) the Trust Agreement and (ii) Devon’sconveyances of the Royalty Interests to the Trust regarding informationfurnished by the working interest owners, there are certain weaknesses that arenot subject to change or modification by the Trustee or its employees. Devonoperates only a small number of the Royalty Properties and is not expected tobe able to significantly influence the operations or future development of theRoyalty Properties that are royalty interests or that consist of relativelysmall working interests. Such operations will generally be controlled bypersons unaffiliated with the Trustee and Devon. Devon, however, owns workinginterests in the Wasson ODC Unit and may be able to exercise some influence,though not control, over unit operations. The contractual limitations creatingpotential weaknesses in disclosure controls and procedures may be deemed toinclude:

·       Theworking interest owners alone control (i) historical operating data,including production volumes, marketing of products, operating and capitalexpenditures, environmental and other liabilities, the effects of regulatorychanges and the number of producing wells and acreage, (ii) plans forfuture operating and capital expenditures, (iii) geological data relatingto reserves and (iv) projected production. Neither the Trustee nor Devon(to the extent Devon is not also the working interest owner) control thisinformation, and they rely entirely on the working interest owners to provideaccurate and timely information when requested for use in the Trust’s reports.

·       TheTrustee relies on information provided by Devon that is collected by Devon fromworking interest owners. While the Trustee may request information throughDevon, only Devon has authority to request and receive financial informationregarding the Royalty Properties from the working interest owners. The Trusteegenerally does not have any direct contact with working interest owners, otherthan Devon, and relies on Devon to request and obtain information for use inthe Trust’s reports.

·       Underthe terms of the Trust Agreement, the Trustee is entitled to, and in fact doesrely, upon certain experts in good faith, including (i) the independentreserve engineer with respect to the annual reserve report and (ii) theindependent accountants with respect to audits of financial data provided byDevon and working interest owners. The Trustee makes no independent or directverification of this financial information. The conveyances also restrictaccess to and the review of confidential data provided by Devon and workinginterest owners. While the Trustee has no reason to believe its reliance uponexperts is unreasonable, this reliance on experts and restricted access toinformation may be viewed as a weakness.

The Trustee does not intend to expand itsresponsibilities beyond those permitted or required by the Trust Agreement.

**Changesin Internal Controls.****  **Tothe knowledge of the Trustee, there have been no significant changes in theTrustee’s internal controls or in other factors that could significantly affectthe Trustee’s internal controls subsequent to the date the Trustee completedits evaluation. The Trustee notes for purposes of clarification that it has noauthority over, and makes no statement concerning, the internal controls ofDevon and the working interest owners.

12

----

 

**PART IIOTHER INFORMATION**

**Items 1, 2, 3, 4 &5 are not applicable and have been omitted.**

**Item 6. Exhibits and Reports on Form 8-K.**

(a)           Exhibits
| ** ** | ** ** | ** **                                                                                                                                             | **SEC File or  Registration Number** | ** ** | **Exhibit  Number** | ** ** |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------|------------|---------------------|------------|
| 3(a)*      |       | Form of Trust Agreement of Santa Fe Energy  Trust                                                                                                 | 33-51760                                  |       | 3.1                 |       |
| 4(a)*      |       | Form of Custodial Deposit Agreement                                                                                                               | 33-51760                                  |       | 4.2                 |       |
| 4(b)*      |       | Form of Secure Principal Energy Receipt  (included as Exhibit A to Exhibit 4(a))                                                        | 33-51760                                  |       | 4.1                 |       |
| 10(a)*     |       | Form of Net Profits Conveyance (Multi-State)                                                                                                      | 33-51760                                  |       | 10.1                |       |
| 10(b)*     |       | Form of Wasson Conveyance                                                                                                                         | 33-51760                                  |       | 10.2                |       |
| 10(c)*     |       | Form of Louisiana Mortgage                                                                                                                        | 33-51760                                  |       | 10.3                |       |
| 31         |       | Certification  required by Rule 13a-14(a) or Rule 15d-14(a) under  the Securities Exchange Act of 1934.                                 |                                      |       |                |       |
| 32         |       | Certification  required by Rule 13a-14(b) or Rule 15d-14(b) under  the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350. |                                      |       |                |       |

 

(b)          Reports on Form 8-K

None

13

----

 

**SIGNATURE**

Pursuant to the requirements of the SecuritiesExchange Act 1934, the Registrant has duly caused this report to be signed onits behalf by the undersigned, thereunto duly authorized, on the 6thday of August, 2004.
|        | Santa Fe Energy Trust**(Registrant)**                |
|--------|------------------------------------------------------|
|   | By                                                   | JPMORGAN CHASE BANK,  TRUSTEE |
|   | By                                                   | /s/  Mike Ulrich |
|   | Mike Ulrich*Vice President & Trust Officer* |

 

Date: August 6, 2004

The Registrant, Santa Fe Energy Trust, has noprincipal or chief executive officer, principal or chief financial officer,controller or principal accounting officer, board of directors or personsperforming similar functions. Accordingly, no additional signatures areavailable and none have been provided.

14

----