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UNITED STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549


FORM 10-K




þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2010


OR


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


Commission file number 1-12474


TORCH ENERGY ROYALTY TRUST


(Exact Name of Registrant as Specified in its Charter)


Delaware
(State or Other Jurisdiction of 
Incorporation or Organization)
    
    74-6411424
(I.R.S. Employer Identification No.)


Rodney Square North
1100 North Market Street
Wilmington, Delaware 19890
(Address of Principal Executive Offices; Zip Code)


(Registrants Telephone number, Including Area Code)
(302) 636-6016


SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:


Title of each class
    
    Name of Each Exchange on
Which RegisteredUnits of Beneficial Interest
    
    New York Stock Exchange


SECURITIES REGISTERED PURSUANT TO SECTION 12 (G) OF THE ACT:


o þ


o þ


o þ


o o


þ


See


Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Small reporting company þ


o þ









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##### 



PageNumberPART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    6Item 1B. Unresolved Staff Comments
    
    
    12Item 2. Properties
    
    
    12Item 3. Legal Proceedings
    
    
    15Item 4. Removed and Reserved
    
    
    18PART IIItem 5. Market for Registrants Units, Related
Unitholder Matters and Registrant Purchases
of Equity Securities
    
    
    19Item 6. Selected Financial Data
    
    
    19Item 7. Managements Discussion and Analysis of
Financial Condition and Results of Operations
    
    
    20Item 7a. Quantitative and Qualitative Disclosures About
Market Risk
    
    
    24Item 8. Financial Statements and Supplementary Data
    
    
    25Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure
    
    
    40Item 9A. Controls and Procedures
    
    
    40Item 9B. Other Information
    
    
    41PART IIIItem 10. Directors, Executive Officers and Corporate
Governance
    
    
    42Item 11. Executive Compensation
    
    
    42Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Unitholders
Matters
    
    
    42Item 13. Certain Relationships and Related Transactions
    
    
    43Item 14. Principal Accountant Fees and Services
    
    
    45PART IVItem 15. Exhibits, Financial Statement Schedules
    
    
    46  Signatures
    
    
    48EX-23.1EX-23.2EX-23.3EX-31.1EX-32.1
  -i-




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PART I
 
 Item 1. Business.
  General
    1




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See See
     2




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See also
   Marketing Arrangements and Price Sharing
   3




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Gathering, Treating and Transportation Arrangements
    4




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Net Profits Interests
   Availability of Reports
 http://www.nyse.com.
 Widely Held Fixed Investment Trust Reporting Information
  5




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Item 1A. Risk Factors.
 See
 Trust Termination
   The Trusts continuing failure to timely file certain periodic reports with the SEC during the wind
up and liquidation of the Trust may pose significant risks to the Trusts business, which could
materially and adversely affect the Trust financial condition and results of operation and the
current and/or future value of the Net Profits Interests.
   6




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If natural gas and oil prices decline significantly, the Trusts cash flow from operations will
likely decline and the Trust may have to lower the cash distributions or may not be able to pay
distributions at all during the wind up and liquidation of the Trust.
  
    
    The domestic and foreign supply of and demand for oil and natural gas;
    
    The price and quantity of foreign imports of oil and natural gas;
    
    The level of consumer product demand;
    
    Weather conditions, including but not limited to, hurricanes in the Gulf
of Mexico, can adversely impact cash distributions received by the Trust. If the wells
drilled on the Underlying Properties and related infrastructure were to be damaged by
adverse weather conditions, cash flows distributed to Unitholders could be delayed
during the period in which damage to such assets were repaired. Additionally, costs
associated with such repairs not covered by insurance would reduce cash distributions
received by the Trust;
    
    Overall domestic and global economic conditions;
    
    Political and economic conditions and events in foreign oil and natural
gas producing countries, including embargoes, continued hostilities in the Middle East
and other sustained military campaigns, conditions in South America and Russia, and
acts of terrorism or sabotage;
    
    The ability of members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production controls;
    
    Technological advances affecting energy consumption;
    
    Domestic and foreign governmental regulations and taxation;
    
    The impact of energy conservation efforts;
    
    The capacity of natural gas pipelines and other transportation facilities
to the Trusts production; and
    
    The price and availability of alternative fuels.
  Trust expenses may have an adverse impact on the distributions to Unitholders during the wind up
and liquidation of the Trust.
  The estimated reserve quantities in this report are based on many assumptions that may prove to be
inaccurate. Any material inaccuracies in these reserve estimates or underlying assumptions will
materially affect the quantities and present value of the Trusts reserves.
 7




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See
  As more Infill Wells are drilled, they could cause a reduction in amounts payable to the Trust or a
purchaser of the Net Profits Interests.
  The Trusts business is subject to operational risks that may not be fully insured, which, if they
were to occur, could adversely affect the Trusts financial condition or results of operations and,
as a result, the Trusts ability to pay distributions to Unitholders.
  8




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The Trust may be unable to compete effectively with larger companies, which may adversely affect
the Trusts ability to generate sufficient revenue and its ability to pay distributions to
Unitholders prior to the windup and liquidation of the Trust.
  The Trusts operations are subject to regulations which may limit the Trusts production of natural
gas or the price that the Trust receives for natural gas.
  If it is determined that the Trust is subject to the Texas margin tax, the Trustee may have to
withhold a disproportionate amount from future distributions to pay the tax liability.
 see
 Federal Regulation
  9




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State Regulation
  Because the Trust handles oil and natural gas petroleum products, the Trust may incur significant
costs and liabilities in the future resulting from a failure to comply with new or existing
environmental regulations or an accidental release of hazardous substances in the environment.
  Net Proceeds Attributable to the Robinsons Bend Field have declined significantly.
 Trust Venture Company, LLC v. Constellation Energy Partners LLC
 10




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See
  The market price for the Trusts Units may not reflect the value of the Net Profits Interests held
by the Trust.
  Financial information of the Trust is not prepared in accordance with GAAP.
  The Trust is dependent on certain service providers to provide various services to the Trust.
    11




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Unitholders have limited voting rights.
  
 Item 1B. Unresolved Staff Comments.
  
 Item 2. Properties.
 Description of the Underlying Properties
 Chalkley Field
 Robinsons Bend Field
 Cotton Valley Fields
 Austin Chalk Fields
 12




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Oil and Natural Gas Reserves
 See
 Well Count and Acreage Summary
  Natural Gas Wells
    
    
    Oil WellsGross
    
    
    Net
    
    
    Gross
    
    
    NetChalkley Field
    
    
    6
    
    
    
    0.8
    
    
    
    
    
    
    
    Robinsons Bend Field
    
    
    426
    
    
    
    170.4
    
    
    
    
    
    
    
    Cotton Valley Fields
    
    
    73
    
    
    
    25.4
    
    
    
    
    
    
    
    Austin Chalk Fields
    
    
    26
    
    
    
    4.3
    
    
    
    35
    
    
    
    5.9Total
    
    
    531
    
    
    
    200.9
    
    
    
    35
    
    
    
    5.9
  AcreageGross
    
    
    NetChalkley Field
    
    
    2,152
    
    
    
    348Robinsons Bend Field
    
    
    33,404
    
    
    
    14,288Cotton Valley Fields
    
    
    4,411
    
    
    
    2,606Austin Chalk Fields
    
    
    22,468
    
    
    
    3,791Total
    
    
    62,435
    
    
    
    21,033
 Drilling Activity
   Development Wells  Chalkley Field (a)Gross
    
    NetProductive
    
    Dry Holes
    
    Total
    
    Productive
    
    Dry Holes
    
    Total2010
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02009
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02008
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
 13




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##### Table of Contents



Development Wells  Cotton Valley FieldsGross
    
    NetProductive
    
    Dry Holes
    
    Total
    
    Productive
    
    Dry Holes
    
    Total2010
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02009
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02008
    
    
    1
    
    
    
    0
    
    
    
    1
    
    
    
    0.2
    
    
    
    0
    
    
    
    0.2
 Development Wells  Austin Chalk Fields (b)Gross
    
    NetProductive
    
    Dry Holes
    
    Total
    
    Productive
    
    Dry Holes
    
    Total2010
    
    
    0
    
    
    
    1
    
    
    
    1
    
    
    
    0
    
    
    
    0.04
    
    
    
    0.042009
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02008
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
 Development Wells  Robinsons Bend Field (c)Gross
    
    NetProductive
    
    Dry Holes
    
    Total
    
    Productive
    
    Dry Holes
    
    Total2010
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02009
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    02008
    
    
    3
    
    
    
    0
    
    
    
    3
    
    
    
    0.2
    
    
    
    0
    
    
    
    0.2
 
 (a)
    
    In 2007, an Infill Well was drilled in the Chalkley Field for which the Trust has not
received cash distributions. No Infill Wells were drilled in the Chalkley Field during the three
years ended December 31, 2010. As of December 31, 2010, costs and expenses exceeded gross revenues
by approximately $2.2 million (before interest expense). The Trust will receive no payments for
distributions with respect to the Chalkley Field Infill Well until the future proceeds exceed the
sum of future costs and expenses and the cumulative excess of such costs and expenses including
interest.(b)
    
    Dry hole costs pertaining to Austin Chalk Field Infill Well drilling reduced Infill Well Net
Proceeds recognized by the Trust during the year ended December 31, 2010 by $49,319.(c)
    
    The Trust has not received cash distributions with respect to the Infill Wells drilled in the
Robinsons Bend Field. As of December 31, 2010 (pertaining to sales through September 30, 2010),
costs and expenses exceeded gross revenues by approximately $1.6 million. The Trust will receive
no payments for distributions with respect to the Robinsons Bend Infill Wells until the future
proceeds exceed the sum of future costs and expenses and the cumulative excess of such costs and
expenses including interest.  Oil and Natural Gas Sales Prices and Production Costs
  See
 14




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Chalkley, Cotton Valley And Austin Chalk Fields2010 (a)
    
    
    2009 (a)
    
    
    2008 (a)Production:Natural Gas (MMcf)
    
    
    1,156
    
    
    
    1,342
    
    
    
    1,544Oil (Mbbl)
    
    
    13
    
    
    
    15
    
    
    
    14Weighted average lifting cost per Mcfe
    
    $
    1.47
    
    
    $
    1.31
    
    
    $
    0.92Weighted average taxes on production per Mcfe
    
    $
    0.33
    
    
    $
    0.33
    
    
    $
    0.47Weighted average sales price (b)Natural Gas ($/Mcf)
    
    $
    3.34
    
    
    $
    3.46
    
    
    $
    5.51Oil ($/Bbl)
    
    $
    69.10
    
    
    $
    48.11
    
    
    $
    95.11
 Robinsons Bend Field2010
    
    
    2009
    
    
    2008Production:Natural Gas (MMcf)
    
    
    1,473
    
    
    
    1,530
    
    
    
    1,579Oil (Mbbl)
    
    
    
    
    
    
    
    
    
    
    Weighted average lifting cost per Mcfe
    
    $
    4.80
    
    
    $
    4.49
    
    
    $
    4.19Weighted average taxes on production per Mcfe
    
    $
    0.21
    
    
    $
    0.23
    
    
    $
    0.47Weighted average sales price (b)Natural Gas ($/Mcf)
    
    $
    2.89
    
    
    $
    2.92
    
    
    $
    4.85Oil ($/Bbl)
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (a)
    
    Excludes the effect of the Austin Chalk Gas Volume Adjustment. Gas volumes related to such
adjustment were 0 MMcf, 53 MMcf and 37 MMcf pertaining to gas sales during the twelve month
ended December 31, 2010, 2009 and 2008, respectively. The cumulative natural gas sales volume
adjustment for periods prior to 2008 was 108 MMcf. The total natural gas sales volumes
pertaining to the Austin Chalk Gas Volume Adjustment of 198 MMcf were compensated with natural
gas sales volumes in 2010.(b)
    
    Average sales prices are reflective of natural gas prices received by the Trust less certain
gathering, treating and transportation charges. 
 Item 3. Legal Proceedings.
 See
 inter alia
 15




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16




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Trust Venture Company, LLC v. Constellation Energy Partners LLC
    17




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Item 4. (Removed and Reserved).
 18




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PART II
 
 Item 5. Market for Registrants Units, Related Unitholder Matters and Registrant Purchases of
Equity Securities.
  CashHigh
    
    
    Low
    
    
    DistributionsFiscal Year Ended December 31, 2009:Quarter ended March 31, 2009
    
    $
    2.99
    
    
    $
    1.19
    
    
    $
    0.00Quarter ended June 30, 2009
    
    $
    4.80
    
    
    $
    1.44
    
    
    $
    0.35Quarter ended September 30, 2009
    
    $
    8.74
    
    
    $
    3.20
    
    
    $
    0.00Quarter ended December 31, 2009
    
    $
    7.35
    
    
    $
    4.36
    
    
    $
    0.10Fiscal Year Ended December 31, 2010:Quarter ended March 31, 2010
    
    $
    5.35
    
    
    $
    3.36
    
    
    $
    0.00Quarter ended June 30, 2010
    
    $
    5.48
    
    
    $
    3.75
    
    
    $
    0.00Quarter ended September 30, 2010
    
    $
    4.64
    
    
    $
    3.19
    
    
    $
    0.00Quarter ended December 31, 2010
    
    $
    4.99
    
    
    $
    3.50
    
    
    $
    0.00
 
 Item 6. Selected Financial Data.
 Year Ended December 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Net profits income
    
    $
    1,285
    (a)
    
    $
    2,516
    
    
    $
    6,217
    
    
    $
    4,842
    
    
    $
    7,796Infill Well Net Proceeds
    
    $
    1,937
    
    
    $
    89
    
    
    $
    161
    
    
    $
    400
    
    
    $
    516Distributable income
    
    $
    2,060
    (a)
    
    $
    1,236
    
    
    $
    3,162
    
    
    $
    4,133
    
    
    $
    7,262Distributions declared
    
    $
    
    
    
    $
    3,891
    
    
    $
    258
    
    
    $
    4,102
    
    
    $
    7,250Distributable income
per Unit
    
    $
    0.24
    (a)
    
    $
    0.14
    
    
    $
    0.37
    
    
    $
    0.48
    
    
    $
    0.84Cash Reserve per Unit
    
    $
    0.29
    
    
    $
    0.10
    
    
    $
    0.46
    
    
    $
    0.00
    
    
    $
    0.00Distributions per Unit
    
    $
    0.00
    
    
    $
    0.45
    
    
    $
    0.03
    
    
    $
    0.48
    
    
    $
    0.84Total assets
(at end of period)
    
    $
    14,219
    
    
    $
    15,250
    
    
    $
    19,623
    
    
    $
    16,694
    
    
    $
    18,386
 
 (a)
    
    In 2010, net profits income and distributable income were reduced by $756,000 and
826,000 (including $70,000 of interest expense), respectively, by the Austin Chalk Gas
Volume Adjustment. Distributable income per unit was reduced by $0.10 for such
adjustment. See Note 4 to the Trusts audited financial statements for
additional information concerning the Austin Chalk Gas Volume Adjustment.  19




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 Results of Operations
 Discussion of Years Ended December 31, 2010, 2009, and 2008
  See
 Bbls of Oil2010
    
    
    2009
    
    
    2008Chalkley Field
    
    
    2,337
    
    
    
    2,906
    
    
    
    3,550Robinsons Bend Field
    
    
    
    
    
    
    
    
    
    
    Cotton Valley Fields
    
    
    1,042
    
    
    
    1,560
    
    
    
    1,552Austin Chalk Fields
    
    
    9,256
    
    
    
    10,322
    
    
    
    9,069Total
    
    
    12,635
    
    
    
    14,788
    
    
    
    14,171
 Mcf of Natural Gas2010
    
    
    2009
    
    
    2008Chalkley Field
    
    
    609,035
    
    
    
    702,898
    
    
    
    822,474Robinsons Bend Field
    
    
    1,473,483
    
    
    
    1,529,997
    
    
    
    1,579,276Cotton Valley Fields
    
    
    438,941
    
    
    
    513,335
    
    
    
    580,232Austin Chalk Fields
    
    
    108,062
    (a)
    
    
    125,887
    (a)
    
    
    140,911
    (a)Total
    
    
    2,629,521
    
    
    
    2,872,117
    
    
    
    3,122,893
 
 (a)
    
    Excludes the effect of the Austin Chalk Gas Volume Adjustment. Such adjustment
adversely affected gas sales attributable to the Underlying Properties in the Austin Chalk
Fields during the twelve months ended September 30, 2010, 2009 and 2008 by 0 MMcf, 53 MMcf
and 37 MMcf, respectively. Oil sales were not impacted by this adjustment. See
Note 4 to the Trusts audited financial statements for additional information. The
cumulative natural gas sales volume adjustment for periods prior to 2008 was 108 MMcf. The
total natural gas sales volumes pertaining to the Austin Chalk Gas Volume Adjustment of 198
MMcf were compensated with natural gas sales volumes in 2010.   20




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see
     21




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See
    22




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##### Table of Contents



Year Ended December 31,2010
    
    
    2009
    
    
    2008Chalkley,Cotton Valley
    
    
    Robinsons
    
    
    
    
    
    
    Chalkley, Cotton
    
    
    Robinsons
    
    
    
    
    
    
    Chalkley, Cotton
    
    
    Robinsonsand Austin
    
    
    Bend
    
    
    
    
    
    
    Valley and Austin
    
    
    Bend
    
    
    
    
    
    
    Valley and Austin
    
    
    BendChalk Fields
    
    
    Field
    
    
    Total
    
    
    Chalk Fields
    
    
    Field
    
    
    Total
    
    
    Chalk Fields
    
    
    Field
    
    
    TotalOil and
natural gas revenues (a)
    
    $
    3,944
    
    
    $
    4,254
    
    
    
    
    
    
    $
    5,356
    
    
    $
    4,472
    
    
    
    
    
    
    $
    9,846
    
    
    $
    7,662Direct operating expenses:Lease operating expenses (including
property tax)
    
    
    1,811
    
    
    
    7,074
    
    
    
    
    
    
    
    1,872
    
    
    
    6,877
    
    
    
    
    
    
    
    1,491
    
    
    
    6,619Severance tax
    
    
    404
    
    
    
    305
    
    
    
    
    
    
    
    474
    
    
    
    358
    
    
    
    
    
    
    
    771
    
    
    
    7432,215
    
    
    
    7,379
    
    
    
    
    
    
    
    2,346
    
    
    
    7,235
    
    
    
    
    
    
    
    2,262
    
    
    
    7,362Net proceeds before
capital expenditures
    
    
    1,729
    
    
    
    (3,125
    )
    
    
    
    
    
    
    3,010
    
    
    
    (2,763
    )
    
    
    
    
    
    
    7,584
    
    
    
    300Capital expenditures
    
    
    376
    
    
    
    14
    
    
    
    
    
    
    
    362
    
    
    
    1
    
    
    
    
    
    
    
    1,040
    
    
    
    41,353
    
    
    
    (3,139
    )
    
    
    
    
    
    
    2,648
    
    
    
    (2,764
    )
    
    
    
    
    
    
    6,544
    
    
    
    296Net profits percentage
    
    
    95
    %
    
    
    
    (b)
    
    
    
    
    
    
    95
    %
    
    
    
    (b)
    
    
    
    
    
    
    95
    %
    
    
    
    (b)Net profits income
    
    $
    1,285
    
    
    $
    
    
    
    $
    1,285
    
    
    $
    2,516
    
    
    $
    
    
    
    $
    2,516
    
    
    $
    6,217
    
    
    $
    
    
    
    $
    6,217
 
 (a)
    
    Net of the Austin Chalk Gas Volume Adjustment which reduced net profits income in 2010 by
$756,000. See Note 4 to the Trusts audited financial statements for additional
information.(b)
    
    With respect to the Robinsons Bend Field, the Trust received no cash distributions during
each of the years ended December 31, 2010, 2009 and 2008 (pertaining to production during the
twelve months ended September 30, 2010, 2009 and 2008, respectively.) Critical Accounting Policies
 Reserve Estimates
  23




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Austin Chalk Gas Volume Adjustment
  Modified Cash Basis
  
 Item 7A.
    
    Quantitative and Qualitative Disclosures About Market
Risk.
   See
 24




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Item 8.
    
    Financial Statements and Supplementary Data.
  PageReport
of Independent Registered Public Accounting Firm
    
    26Statements
of Assets, Liabilities and Trust Corpus at December 31, 2010 and
2009
    
    27Statements
of Distributable Income for the Years Ended December 31, 2010,
2009 and 2008
    
    28Statements of Changes in Trust Corpus for the Years Ended December 31, 2010, 2009 and
2008
    
    29Notes
to Financial Statements
    
    30
 25




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       /s/ UHY LLP
 26




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December 31,
    
    
    December 31,2010
    
    
   2009Cash reserve
    
    $
    2,486
    
    
    $
    847Restricted cash
    
    
    
    
    
    
    1,288Net profits interests in oil and natural gas properties (net of
accumulated amortization of $168,867 and $167,485 at
December 31, 2010 and 2009, respectively)
    
    
    11,733
    
    
    
    13,115$
    14,219
    
    
    $
    15,250LIABILITIES AND TRUST CORPUSTrust expense payable
    
    $
    367
    
    
    $
    2,076Trust corpus
    
    
    13,852
    
    
    
    13,174$
    14,219
    
    
    $
    15,250
 
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Year Ended December 31,2010
    
    
    2009
    
    
    2008Net profits income
    
    $
    1,285
    
    
    $
    2,516
    
    
    $
    6,217Infill well net proceeds Infill well net
proceeds
    
    
    1,937
    
    
    
    89
    
    
    
    161Other income Other income
    
    
    
    
    
    
    24
    
    
    
    373,222
    
    
    
    2,629
    
    
    
    6,415General and administrative expenses
    
    
    1,092
    
    
    
    1,393
    
    
    
    3,253Interest expense
    
    
    70
    
    
    
    
    
    
    
    Distributable income
    
    $
    2,060
    
    
    $
    1,236
    
    
    $
    3,162Distributable income per Unit (8,600 Units)
    
    $
    0.24
    
    
    $
    0.14
    
    
    $
    0.37Distributions per Unit
    
    $
    0.00
    
    
    $
    0.45
    
    
    $
    0.03
 
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##### Table of Contents



Year Ended December 31,2010
    
    
    2009
    
    
    2008Trust corpus, beginning of year
    
    $
    13,174
    
    
    $
    17,644
    
    
    $
    16,449Amortization of Net Profits Interests
    
    
    (1,382
    )
    
    
    (1,815
    )
    
    
    (1,709
    )Distributable income
    
    
    2,060
    
    
    
    1,236
    
    
    
    3,162Distributions to Unitholders
    
    
    
    
    
    
    (3,891
    )
    
    
    (258
    )Trust Corpus, end of year
    
    $
    13,852
    
    
    $
    13,174
    
    
    $
    17,644
 
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See
 30




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
    
    Revenues are recognized in the period in which amounts are received by the Trust. Therefore, revenues recognized
during the years ended December 31, 2010, 2009 and 2008 are derived from oil and natural gas production sold during the
twelve-month periods ended September 30, 2010, 2009 and 2008, respectively. General and administrative expenses are
recognized on an accrual basis.
    
    Amortization of the Net Profits Interests is calculated on a unit-of-production basis and charged directly to Trust
corpus.
    
    Distributions to Unitholders are recorded when declared by the Trustee.
    
    The Trust reviews the Net Profits Interests for impairment whenever events or changes in circumstances indicate the
carrying amount of the Net Profits Interests may not be recoverable. Recoverability is measured by a comparison of the
carrying amount of an asset to future net cash flows expected to be generated by the Net Profits Interests. If such
asset is considered to be impaired,
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the impairment recognized is measured by the amount by which the carrying amount of the assets
exceeds either the fair value or the estimated discounted cash flows of the assets, whichever is
more readily measurable. At December 31, 2010 and 2009, no impairment was deemed necessary.
    
    The financial statements of the Trust differ from financial
statements prepared in accordance with GAAP because net
profits income is not accrued in the period of production and
amortization of the Net Profits Interests is not charged
against operating results.
    
    Restricted cash represents monies paid to the Trust by a
Working Interest Owner of the Underlying Properties that may
represent a potential overpayment pertaining to oil and
natural gas sales from certain Infill Wells during periods
subsequent to the Trusts termination. In 2010, the Trust
determined that the restricted cash was rightly owned by the
Trust. Accordingly, in 2010 the Trust classified the
restricted cash as unrestricted cash, decreased the Trust
expense payable on the Trusts Statements of Assets,
Liabilities and Trust Corpus and increased Infill Well Net
Proceeds included in distributable income by $1.3 million.
    
    At December 31, 2009, the Trust adopted the Securities and
Exchange Commissions (SEC) Modernization of Oil and Gas
Reporting, as well as the conforming rule changes issued by
the Financial Accounting Standards Board. Upon adoption, the
primary rule change that impacted the Trusts year-end 2009
reserve estimates were those related to assumptions for
pricing. The SECs prior rules required proved reserve
estimates to be calculated using prices as of the end of the
period and held constant over the life of the reserves. The
revised rules require reserve estimates to be calculated
using an unweighted average of the first-day-of-the-month
price for the preceding 12-month period.
      32




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33




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Marketing Arrangements and Price Sharing
    34




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##### Table of Contents



Gathering, Treating and Transportation Arrangements
    Operator Overhead Fees
  Administrative Services Agreements
  35




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Compensation of the Trustee and Transfer Agent
        36




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See
   Oil and Gas Reporting
   .
 37




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Description
    
    2010
    
    
    2009
    
    
    2008Oil
    
    
    Natural Gas
    
    
    Oil
    
    
    Natural Gas
    
    
    Oil
    
    
    Natural Gas(Bbls)
    
    
    (Mcf)
    
    
    (Bbls)
    
    
    (Mcf)
    
    
    (Bbls)
    
    
    (Mcf)Proved reserves at beginning of year
    
    
    28
    
    
    
    4,531
    
    
    
    37
    
    
    
    7,491
    
    
    
    48
    
    
    
    10,202Revisions
    
    
    (6
    )
    
    
    (7
    )
    
    
    (2
    )
    
    
    (2,381
    )
    
    
    (3
    )
    
    
    (1,710
    )Extensions and discoveries
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Production
    
    
    (5
    )
    
    
    (607
    )
    
    
    (7
    )
    
    
    (579
    )
    
    
    (8
    )
    
    
    (1,001
    )Proved reserves at end of year
    
    
    17
    
    
    
    3,917
    
    
    
    28
    
    
    
    4,531
    
    
    
    37
    
    
    
    7,491Proved developed reserves at beginning
of year
    
    
    28
    
    
    
    4,531
    
    
    
    37
    
    
    
    7,491
    
    
    
    48
    
    
    
    10,202Proved developed reserves at end of year
    
    
    17
    
    
    
    3,917
    
    
    
    28
    
    
    
    4,531
    
    
    
    37
    
    
    
    7,491
   December 31,2010
    
    
    2009
    
    
    2008Future cash inflows
    
    $
    29,326
    
    
    $
    32,487
    
    
    $
    55,206Future costs and expenses
    
    
    (14,324
    )
    
    
    (16,344
    )
    
    
    (22,702
    )Net future cash flows
    
    
    15,002
    
    
    
    16,143
    
    
    
    32,504Discount at 10% for timing of cash flows
    
    
    (4,656
    )
    
    
    (5,205
    )
    
    
    (12,090
    )Present value of future net cash flows for proved reserves
    
    $
    10,346
    
    
    $
    10,938
    
    
    $
    20,414
  Year Ended December 31,2010
    
    
    2009
    
    
    2008Balance at beginning of year
    
    $
    10,938
    
    
    $
    20,414
    
    
    $
    30,878Sales of oil
and natural gas produced, net of production costs
    
    
    (1,301
    )
    
    
    (2,153
    )
    
    
    (6,286
    )Accretion of discount
    
    
    1,094
    
    
    
    2,041
    
    
    
    3,088Extensions and discoveries
    
    
    0
    
    
    
    0
    
    
    
    0Revision of prior-year estimates, change in prices
and other
    
    
    (385
    )
    
    
    (9,364
    )
    
    
    (7,266
    )Balance at end of year
    
    $
    10,346
    
    
    $
    10,938
    
    
    $
    20,414
  38




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##### Table of Contents



DistributableNet Profits
    
    
    Distributable
    
    
    IncomeIncome
    
    
    Income\(Loss)
    
    
    Per UnitQuarter ended March 31, 2010
    
    $
    450
    
    
    $
    381
    
    
    $
    0.044Quarter ended June 30, 2010
    
    
    60
    
    
    
    (167
    )
    
    
    (0.019
    )Quarter ended September 30, 2010
    
    
    337
    
    
    
    118
    
    
    
    0.014Quarter ended December 31, 2010
    
    
    438
    
    
    
    1,728
    
    
    
    0.201$
    1,285
    
    
    $
    2,060
    
    
    $
    0.24Quarter ended March 31, 2009
    
    $
    1,019
    
    
    $
    763
    
    
    $
    0.089Quarter ended June 30, 2009
    
    
    656
    
    
    
    264
    
    
    
    0.031Quarter ended September 30, 2009
    
    
    507
    
    
    
    189
    
    
    
    0.022Quarter ended December 31, 2009
    
    
    334
    
    
    
    20
    
    
    
    0.002$
    2,516
    
    
    $
    1,236
    
    
    $
    0.144
     39




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##### Table of Contents



Item 9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures.
  Changes in Internal Control over Financial Reporting.
  40




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Report on Internal Control Over Financial Reporting.
      
 Item 9B. Other Information.
  41




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PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance .
    
 Item 11. Executive Compensation.
  Ongoing Administrative Expenses.
 Compensation of the Trustee and Transfer Agent.
  Fees to Torch.
 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Unitholders Matters.
  42




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##### Table of Contents



Name of Beneficial Owner and Address
    
    Shares Beneficially OwnedUnits
    
    
    Percent of Class5% Unitholder: (1)Trust Venture Company, LLC (2)Two Greenwich Plaza, First FloorGreenwich, CT 06830
    
    
    6,502,762
    
    
    
    75.6
    %Trust Acquisition Company, LLC (2)Two Greenwich Plaza, First FloorGreenwich, CT 06830Silver Point Capital, L.P. (2)Two Greenwich Plaza, First FloorGreenwich, CT 06830Edward A. Mulé (2)Two Greenwich Plaza, First FloorGreenwich, CT 06830Robert J. OShea (2)Two Greenwich Plaza, First FloorGreenwich Plaza, First FloorGreenwich, CT 06830
 
   
 Item 13. Certain Relationships and Related Transactions.
 Administrative Services Agreements
     43




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Marketing Arrangements and Price Sharing
    Gathering, Treating and Transportation Arrangements
   44




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Item 14. Principal Accountant Fees and Services.
   2010
    
    
    2009Audit Fees
    
    $
    110,000
    
    
    $
    100,000Audit Related Fees
    
    
    
    
    
    
    Tax Fees
    
    
    
    
    
    
    All Other Fees
    
    
    
    
    
    
    $
    110,000
    
    
    $
    100,000
 45




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PART IV
 
 Item 15. Exhibits, Financial Statement Schedules.
  1.
    
    Financial Statements
 Torch Energy Royalty Trust
 Report of Independent Registered Public Accounting FirmStatements of Assets, Liabilities and Trust Corpus at December 31, 2010 and 2009Statements of Distributable Income for the Years Ended December 31, 2010, 2009 and 2008Statements of Changes in Trust Corpus for the Years Ended December 31, 2010, 2009 and 2008Notes to Financial Statements
 2.
    
    Financial Statement SchedulesFinancial statement schedules are omitted because of the absence of conditions under which they
are required or because the required information is included in the financial statements and
notes thereto.3.
    
    Exhibits
 Exhibit
 Number Exhibit4.
    
    Instruments Defining the Rights of Security Holders, Including Indentures.4.1  
    
    Form of Torch Energy Royalty Trust Agreement.*4.2  
    
    Form of Louisiana Trust Agreement.*4.3  
    
    Specimen Trust Unit Certificate.*4.4  
    
    Designation of Ancillary Trustee.*10.
    
    Material Contracts.10.1 
    
    Purchase Agreement between TRC, Velasco and TEMI.*10.2 
    
    Gas Gathering Agreement between TEMI and Bahia Gas Gathering, Ltd.*10.3 
    
    Amendment to Gas Gathering Agreement.*10.4 
    
    Water Gathering and Disposal Agreement and First Amendment between TorchEnergy Associates, Ltd. and Velasco.*10.5 
    
    Form of Texas Conveyance.*10.6 
    
    Form of Louisiana Conveyance.*10.7 
    
    Form of Alabama Conveyance.*10.8 
    
    Standby Performance Agreement between Torch and the Trust.*10.9 
    
    Amendment to Water Gathering Contract.*10.10 
    
    First Amendment to Oil and Gas Purchase Contract (previously filed on form 10-Q forthe quarter ended September 30, 1994). *10.11 
    
    Second amendment to Water Gathering and Disposal Agreement (previously filed on Form8-K on February 11, 2008).**
 46




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23.
    
    Consents of Experts and Counsel.23.1  
    
    Consent of T.J. Smith & Company, Inc.23.2  
    
    Consent of Netherland, Sewell and Associates, Inc.23.3  
    
    Consent of Watkins Meegan LLC31.
    
    Rule 13a-14(a)/15d-14(a) Certifications.31.1  
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.
    
    Section 1350 Certifications.32.1  
    
    Certification of Wilmington Trust Company pursuant to 18 U.S.C. Section 1350,as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Incorporated by reference from Registration Statements on Form S-1 of Torch Energy
Advisors Incorporated (Registration No. 33-68688) dated November 16, 1993.**
    
    Incorporated by reference from Form 8-K dated February 11, 2008. 47




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SIGNATURES
  TORCH ENERGY ROYALTY TRUSTBy:
    Wilmington Trust Company,not in its individual capacity butsolely as Trustee for the TrustBy:
    /s/ Bruce L. BissonBruce L. Bisson, Vice President   48