**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

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FORM 10-Q

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

 

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

**or**

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

 

**CommissionFile Number 1-11450**

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SANTA FE ENERGY TRUST

(Exact name of registrantas specified in its charter)
| **Texas**                                                                                       | **76-6081498**                        |
|-------------------------------------------------------------------------------------------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)                                | (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 September 30, 2004—6,300,000

 

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**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  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                      | ** ** | **2004**                                             | ** ** | **2003**                                            | ** ** | **2004** | ** ** | **2003** | ** ** |
| Royalty income                                  |       |                                                 |       |                                                |       |   |   |   |   |
| ODC royalty                                     |       | $                                                    | 2,459      |                                                | $          | 1,822 |   | $ | 6,653 |   | $ | 5,642 |   |
| Willard royalty                                 |       | —                                               |       | 318                                                 |       | 332 |   | 1,070 |   |
| Net profits royalty                             |       | 2,682                                                |       | 2,838                                               |       | 7,351 |   | 10,995 |   |
| Total royalties                                 |       | 5,141                                                |       | 4,978                                               |       | 14,336 |   | 17,707 |   |
| Administrative  fee to Devon Energy Corporation |       | (74                                                  | )          | (72                                                 | )          | (220 | ) | (213 | ) |
| Cash withheld for  trust expenses               |       | (225                                                 | )          | (175                                                | )          | (425 | ) | (375 | ) |
| Distributable  cash                             |       | $                                                    | 4,842      |                                                | $          | 4,731 |   | $ | 13,691 |   | $ | 17,119 |   |
| Distributable  cash per trust unit              |       | $                                                    | 0.76869    |                                                | $          | 0.75075 |   | $ | 2.17323 |   | $ | 2.71737 |   |
| Trust units  outstanding                        |       | 6,300                                                |       | 6,300                                               |       | 6,300 |   | 6,300 |   |

 

**STATEMENTSOF ASSETS, LIABILITIES AND TRUST CORPUS(In thousands, except unit data)**
|                                                                 | ** ** | **September 30,  2004** | ** ** | **December 31,  2003** | ** ** |
|-----------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                                      | ** ** | **(Unaudited)**              | ** ** | ** **                  | ** ** |
| ASSETS                                                          |
| Current  assets—cash                                       |       |                         | $          | 123                         |       |   |   | $ | 174 |   |   |
| Investment in royalty  interests, at cost                       |       |                         | 87,276     |                        |       |   | 87,276 |   |   |
| Less: accumulated  amortization                                 |       |                         | (79,283    | )                           |       |   | (77,371 | ) |   |
|                                                                 |       |                         | 7,993      |                        |       |   | 9,905 |   |   |
| Total assets                                                    |       |                         | $          | 8,116                       |       |   |   | $ | 10,079 |   |   |
| LIABILITIES AND TRUST CORPUS                                    |
| Current  liabilities—advance from Devon Energy Corporation |       |                         | $          | —                      |       |   |   | $ | 50 |   |   |
| Trust corpus, 6,300,000  trust units issued and outstanding     |       |                         | 8,116      |                        |       |   | 10,029 |   |   |
| Total liabilities and trust  corpus                             |       |                         | $          | 8,116                       |       |   |   | $ | 10,079 |   |   |

 

The accompanying notes arean integral part of the financial statements.

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**SANTA FE ENERGYTRUSTSTATEMENTS OF CHANGES IN TRUST CORPUS (Unaudited)Nine Months Ended September 30, 2004 and 2003(In thousands)**
| Balance at  December 31, 2002  |   | $       | 13,175 |   |
|-------------------------------------|--------|---------|--------|--------|
| Cash proceeds                       |   | 17,494  |   |
| Cash distributions                  |   | (17,119 | )      |
| Trust expenses                      |   | (418    | )      |
| Amortization of royalty interests   |   | (2,430  | )      |
| Balance at  September 30, 2003 |   | $       | 10,702 |   |
| Balance at December 31, 2003   |   | $       | 10,029 |   |
| Cash proceeds                       |   | 14,116  |   |
| Cash distributions                  |   | (13,691 | )      |
| Trust expenses                      |   | (426    | )      |
| Amortization of royalty interests   |   | (1,912  | )      |
| Balance at  September 30, 2004 |   | $       | 8,116  |   |

 

The accompanying notes are an integral part of the financialstatements.

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**SANTA FE ENERGYTRUSTNOTES TO FINANCIAL STATEMENTS (Unaudited)**

**Note 1. TheTrust**

The financial statements at September 30, 2004and for the three-month and nine-month periods ended September 30,2004 and 2003 are unaudited and reflect all adjustments (consisting of onlynormal and recurring adjustments) that are, in the opinion of Devon EnergyCorporation, necessary for a fair presentation of the financial position andcash proceeds and distributable cash of the Santa Fe Energy Trust for theinterim 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:

·  the Trustee shall not engage in any businessor commercial activity or acquire any asset other than the Royalty Interestsinitially conveyed to the Trust;

·  the Trustee may not sell all or any portion ofthe Wasson Royalties or substantially all of the Net Profits Royalties withoutthe prior consent of Devon;

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·  Devon may sell the Royalty Properties, subjectto and burdened by the Royalty Interests, without consent of the holders of theTrust Units; following any such transfer, the Royalty Properties will continueto be burdened by the Royalty Interests and after any such transfer the royaltypayment attributable to the transferred property will be calculated separatelyand paid by the transferee;

·  the Trustee may establish a cash reserve forthe payment of any liability that is contingent, uncertain in amount or that isnot currently due and payable;

·  the Trustee is authorized to borrow fundsrequired to pay liabilities of the Trust, provided that such borrowings arerepaid in full prior to further distributions to the holders of the TrustUnits; 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 include accounting, engineering, legal and other professionalfees, Trustee fees, an administrative fee paid to Devon and out-of-pocketexpenses, are recognized when paid. Under accounting principles generallyaccepted in the United States of America, revenues and expenses would berecognized 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, Liabilities and Trust Corpus as Investment in RoyaltyInterests represents 6,300,000 Trust Units valued at $20 per unit less the$38,724,000 paid for the Treasury obligations. The carrying value of the Trust’sinvestment in the Royalty Interests is not necessarily indicative of the fairvalue of such Royalty Interests.

The Trust is a grantor trust and as such is notsubject to income taxes and accordingly no recognition has been given to incometaxes in the Trust’s financial statements. The tax consequences of owning TrustUnits are included in the income tax returns of the individual Trust Unitholders.

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

**Note 3. The Royalty Interests**

The Wasson Royalties consist of interests conveyed outof Devon’s royalty interest in the Wasson ODC Unit (the “ODC Royalty”) and theWasson Willard Unit (the “Willard Royalty”). On December 31, 2003, theterm on the royalty interest in the Wasson Willard Unit terminated. The ODCRoyalty entitles the Trust to receive quarterly royalty payments with respectto 12.3934% of the actual gross oil production from the Wasson ODC Unit,subject to certain quarterly limitations set forth in the conveyance agreement,

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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 grossoil production from the Wasson Willard Unit, subject to certain quarterlylimitations set forth in the conveyance 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 |   |   |
| Third quarter  |       | 5,067                                                             |       | 4,842             |       |   | 0.76869 |   |   |

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(a)           Includes proceeds fromthe sale of Net Profits Properties of $4.6 million or $0.72565 per Trust Unit.

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**Item 2. *Management’s Discussion and Analysis of Financial Condition and Resultsof 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. The Trust is a passive entity that collects royaltyincome generated by the Royalty Properties. Through December 31, 2003, theRoyalty Interests consisted of two term royalty interests in two productionunits (the “Wasson ODC Unit” and the “Wasson Willard Unit”) in the Wasson fieldin West Texas, and a net profits royalty interest (the “Net Profits Royalties”)in certain royalty and working interests in a diversified portfolio ofproperties located predominantly in Texas, Louisiana and Oklahoma (the “NetProfits Properties”). On December 31, 2003, the term on the royaltyinterest in the Wasson Willard Unit terminated. The Royalty Interests arepassive in nature and the Trustee has no control over or responsibilityrelating to the operation of the Royalty Properties. Under the terms of theTrust Agreement, the Trustee cannot engage in any other business or commercialactivity or acquire any asset other than the Royalty Interests initiallyconveyed to the Trust. Therefore, the Royalty Interests are the sole source offunds for the Trust from which to pay expenses and liabilities and makedistributions to the Holders. The Trust will be liquidated on 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 September 30, 2004, Devon has no outstanding advances to the Trust.

**Results of Operations**

The Trust’s results of operations are dependent uponthe sales prices and quantities of oil and gas produced from the RoyaltyProperties, the costs of producing such resources and the amount of capitalexpenditures made with respect to such properties.

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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 thirdquarter of 2004 was $33.83 per barrel compared with $28.00 per barrel for thesame period in 2003. Crude oil prices with respect to the Trust’s results inthe fourth quarter of 2004 averaged $38.02 per barrel. The Trust’s weightedaverage crude oil sales price for the first nine months of 2004 was $30.68 perbarrel compared with $27.91 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 third quarter of 2004 was $5.25 per Mcf comparedwith $5.88 per Mcf in the third quarter of 2003. Natural gas prices withrespect to the Trust’s results in the fourth quarter of 2004 averaged $5.58 perMcf. The Trust’s weighted average price for natural gas in the first ninemonths of 2004 was $4.86 per Mcf compared with $4.35 per Mcf for the sameperiod of 2003.

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 fourth quarter of 2004 reflects revenues receivedand costs and expenses paid by Devon in the third quarter of 2004. On November 30,2004, the Trust will make a cash distribution of $5.9 million, or $0.93712per Trust Unit, to unitholders of record on November 16, 2004.

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| ** **                                                                        | ** **   | **Three Months Ended  September 30,** | ** **   | **Nine Months Ended  September 30,** | ** **   | **Fourth  Quarter** | ** **   |
|-----------------------------------------------------------------------------------|--------------|------------------------------------------------------|--------------|-----------------------------------------------------|--------------|---------------------|--------------|
| ** **                                                                        | ** **   | **2004**                                             | ** **   | **2003**                                            | ** **   | **2004**            | ** **   | **2003** | ** ** | **2004** | ** ** |
| ***Volumes and Prices***                                                |         |                                                 |         |                                                |         |                |         |   |   |   |   |
| Oil volumes (Bbls):                                                               |         |                                                 |         |                                                |         |                |         |   |   |   |   |
| Wasson ODC royalty                                                                |         | 74,900                                               |         | 72,100                                              |         | 221,900             |         | 209,900 |   | 74,900 |   |
| Wasson Willard royalty(1)                                                         |         | —                                               |         | 12,000                                              |         | 12,000              |         | 39,200 |   | — |   |
| Net profits royalties                                                             |         | 46,161                                               |         | 38,681                                              |         | 143,361             |         | 131,880 |   | 48,433 |   |
| Gas volumes (Mcf):                                                                |         |                                                 |         |                                                |         |                |         |   |   |   |   |
| Net profits royalties                                                             |         | 368,353                                              |         | 398,553                                             |         | 1,025,071           |         | 1,089,099 |   | 353,000 |   |
| Oil average prices ($/Bbl):                                                       |         |                                                 |         |                                                |         |                |         |   |   |   |   |
| Wasson ODC royalty                                                                |         | $                                                    | 35.43        |                                                | $            | 27.10               |         | $ | 32.26 |   | $ | 28.76 |   | $ | 40.79 |   |
| Wasson Willard royalty(1)                                                         |         | —                                               |         | 27.10                                               |         | 28.50               |         | 28.54 |   | — |   |
| Net profits royalty                                                               |         | 31.23                                                |         | 29.94                                               |         | 28.43               |         | 26.35 |   | 33.75 |   |
| Gas average prices ($/Mcf):                                                       |         |                                                 |         |                                                |         |                |         |   |   |   |   |
| Net profits royalties                                                             |         | 5.25                                                 |         | 5.88                                                |         | 4.86                |         | 4.35 |   | 5.58 |   |
| ***Cash  Proceeds and Distributable Cash  (in thousands, except per unit data)*** | *** *** | *** ***                                         | *** *** | *** ***                                        | *** *** | *** ***        | *** *** | *** *** | *** *** | *** *** | *** *** |
| Wasson ODC royalty:                                                               |         |                                                 |         |                                                |         |                |         |   |   |   |   |
| Sales                                                                             |         | $                                                    | 2,653        |                                                | $            | 1,954               |         | $ | 7,158 |   | $ | 6,038 |   | $ | 3,055 |   |
| Operating expenses                                                                |         | (194                                                 | )            | (132                                                | )            | (505                | )            | (396 | ) | (213 | ) |
|                                                                              |         | 2,459                                                |         | 1,822                                               |         | 6,653               |         | 5,642 |   | 2,842 |   |
| Wasson Willard royalty(1):                                                        |         |                                                 |         |                                                |         |                |         |   |   |   |   |
| Sales                                                                             |         | —                                               |         | 326                                                 |         | 342                 |         | 1,119 |   | — |   |
| Operating expenses                                                                |         | —                                               |         | (8                                                  | )            | (10                 | )            | (49 | ) | — |   |
|                                                                              |         | —                                               |         | 318                                                 |         | 332                 |         | 1,070 |   | — |   |
| Net profits royalty:                                                              |         |                                                 |         |                                                |         |                |         |   |   |   |   |
| Sales                                                                             |         | 3,376                                                |         | 3,503                                               |         | 9,054               |         | 8,277 |   | 3,603 |   |
| Proceeds from property sales                                                      |         | —                                               |         | —                                              |         | —              |         | 4,572 |   | — |   |
| Operating expenses                                                                |         | (686                                                 | )            | (589                                                | )            | (1,874              | )            | (1,734 | ) | (449 | ) |
| Capital (expenditures) recoveries                                                 |         | (8                                                   | )            | (76                                                 | )            | 171                 |         | (120 | ) | 32 |   |
|                                                                              |         | 2,682                                                |         | 2,838                                               |         | 7,351               |         | 10,995 |   | 3,186 |   |
| Total royalties                                                                   |         | 5,141                                                |         | 4,978                                               |         | 14,336              |         | 17,707 |   | 6,028 |   |
| Administrative fee  to Devon                                                      |         | (74                                                  | )            | (72                                                 | )            | (220                | )            | (213 | ) | (74 | ) |
| Payment received                                                                  |         | 5,067                                                |         | 4,906                                               |         | 14,116              |         | 17,494 |   | 5,954 |   |
| Cash withheld for  trust expenses                                                 |         | (225                                                 | )            | (175                                                | )            | (425                | )            | (375 | ) | (50 | ) |
| Distributable cash                                                                |         | $                                                    | 4,842        |                                                | $            | 4,731               |         | $ | 13,691 |   | $ | 17,119 |   | $ | 5,904 |   |
| Distributable cash per  unit                                                      |         | $                                                    | 0.76869      |                                                | $            | 0.75075             |         | $ | 2.17323 |   | $ | 2.71737 |   | $ | 0.93712 |   |

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(1)          Nine months ended September 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.

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Sales increased $0.2 million from the thirdquarter of 2003 to the third quarter of 2004. Sales increased $0.7 milliondue to a $5.83 per barrel increase in the average price of oil from $28.00 perbarrel in the 2003 quarter to $33.83 per barrel in the 2004 quarter. Sales decreased $0.3 million dueto a $0.63 per Mcf decrease in the average gas price from $5.88 per Mcf in thethird quarter of 2003 to $5.25 per Mcf inthe third quarter of 2004. A production decrease of approximately7,000 barrels of oil equivalent (“Boe”) in the third quarter of 2004, ascompared to the third quarter of 2003, caused sales to decrease by $0.2 million.This decrease was due mainly to the termination of the Trust’s conveyedownership in the Wasson Willard Unit.

Sales increased $1.1 million from the first ninemonths of 2003 to the first nine months of 2004. Sales increased$1.5 million due to a $2.77 per barrel increase in the average price ofoil from $27.91 per barrel in the first nine months of 2003 to $30.68 perbarrel in the first nine months of 2004 and due to a $0.51 per Mcf increase inthe average gas price from $4.35 per Mcf in the first nine months of 2003 to$4.86 per Mcf in the first nine months of 2004. A decrease in the first ninemonths production of approximately 14,000 Boe caused sales to decrease by $0.4million. This decrease was mainly due to the termination of the Trust’sconveyed ownership in the Wasson Willard Unit.

Sales increased $0.6 million from the third quarter of2004 to the fourth quarter of 2004. Sales increased $0.6 million due to a$0.33 per Mcf increase in the average gas price from $5.25 per Mcf in the thirdquarter of 2004 to $5.58 per Mcf in the fourth quarter of 2004 as well as a$4.19 per barrel increase in the average price of oil from $33.83 per barrel inthe third quarter of 2004 to $38.02 per barrel in the fourth quarter of 2004. Boeproduction from the third quarterof 2004 to the fourth quarter of 2004 was essentially flat.

Proceeds from the sales of property were$4.6 million during the first nine months of 2003 due to sales of certainNet Profits Properties in that period.

Operating expenses increased $0.2 million from thethird quarter of 2003 to the third quarter of 2004 and $0.2 million from thefirst nine months of 2003 to the first nine months of 2004. Operating expensesdecreased $0.2 million from the third quarter of 2004 to the fourth quarter of2004. Operating expenses may fluctuate from quarter to quarter due to thetiming of payments.

Proceeds from the Net Profits Royalties are net ofcapital expenditures with respect to the development of the Net ProfitsProperties. Capital expenditures were $8,000, $76,000 and $120,000 for thethird quarter of 2004, the third quarter of 2003 and the nine months ended2003, respectively. Capital recoveries were $171,000 and $32,000 for the ninemonths ended 2004 and the fourth quarter of 2004, respectively.

**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

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note that actual resultscould differ materially from those projected by such forward-lookingstatements. Although it is believed that the expectations reflected in suchforward-looking statements are reasonable and such forward-lookingstatements are based upon the best data available at the time this report isfiled with the Securities and Exchange Commission, no assurance can be giventhat such expectations will prove correct. Factors that could cause results todiffer materially from the results discussed in such forward-looking statementsinclude: production variances from expectations, volatility of oil and gasprices, the need to develop and replace reserves, capital expenditures requiredto fund operations, environmental risks, uncertainties about estimates ofreserves, competition and government regulation and political risks. All suchforward-looking statements in this document are expressly qualified intheir entirety by the cautionary statements in this paragraph.

**Item 3. *Quantitative and QualitativeDisclosures 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.

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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 capital expenditures,environmental and other liabilities, the effects of regulatory changes and thenumber of producing wells and acreage, (ii) plans for future operating andcapital expenditures, (iii) geological data relating to reserves and (iv) projectedproduction. Neither the Trustee nor Devon (to the extent Devon is not also theworking interest owner) control this information, and they rely entirely on theworking interest owners to provide accurate and timely information whenrequested 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 its responsibilitiesbeyond 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.

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**PART IIOTHER INFORMATION**

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

**Item6. Exhibits**

           Exhibits

(Asterisk indicates exhibit previously filed withthe Securities Exchange Commission and incorporated herein by reference.)
|        | ** ** | ** **                                                                                                                                             | **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. |                                      |       |                |       |

 

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**SIGNATURE**

Pursuantto the requirements of the Securities Exchange Act 1934, the Registrant hasduly caused this report to be signed on its behalf by the undersigned,thereunto duly authorized, on the 5th day of November, 2004.
|        | SANTA FE ENERGY TRUST**(Registrant)**                |
|--------|------------------------------------------------------|
|   | By                                                   | JPMORGAN CHASE BANK,  TRUSTEE |
|   | By                                                   | /s/  MIKE ULRICH |
|   | Mike Ulrich*Vice President & Trust Officer* |

 

Date: November 5, 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.

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