Dear Victims, Creditors and Interested Parties:
I know it’s been awhile since we posted a newsletter. The activity related to items of ongoing concern are as follows:
1. Tax reporting status – some of you have inquired with respect to a “K-1”. There have been no K-1’s issued in this case, nor will there be. In accordance with the Internal Revenue Service Code, the establishment of the Liquidating Trust was in the form of a Grantor Trust under which no K-1’s are required. The annual tax return filed with the IRS includes a “Grantor’s Letter” for each Trust Beneficiary. The “Grantor’s Letter” outlines the proportionate share of activity for each of the beneficiaries of the Trust. For the past two years these letters were issued in mid-August. I would anticipate the same for this year.
Because of the complexities of the tax code, the reporting of losses, the status of the individual taxpayers and their prior reporting, it is dependent on the taxpayer to discuss the contents of that Grantor’s Letter with their tax advisors.
2. Silicon Valley Law Group – although we have attempted to reach a settlement with that individual firm, including by participating in two mediations, SVLG has made it impossible to reach a settlement. Accordingly, we are set for trial in October in the San Francisco federal court to pursue our claims against them. However, the current judge is retiring so the case has just been reassigned to a new judge. Thus, this date could change once we see the new judge.
3. Shreveport/Haynesville Shale activity – other than the proceeds, if any, which might be received from the Silicon Valley Law Group litigation, the last remaining asset of any substance is our interest in the sub-surface rights in Shreveport, Louisiana. You might recall that this represents approximately 200 acres located in Shreveport, Louisiana, in the area generally known as the Haynesville Shale Oil Field. Our 200 acres sits in four sections of property. Below is a schedule setting out the acreage in the various parcels.
| Section |
Well |
Acres
(+/-)
|
% of
Section
|
| 8 |
Taylor-Potter |
24 |
3.8% |
| 17 |
Taylor-Potter |
17 |
2.7% |
| 16 |
Sandford |
48 |
7.5% |
| 9 |
Sandford |
110 |
17.2% |
At the time of entering our agreement with Cordell, the owner of the surface rights, it was agreed that there would be a revenue-sharing arrangement on the royalties received from any sub-surface operations. In addition, Cordell was to receive reimbursement for real estate taxes during the holding period. At this point, we have received $144,000 in royalties from wells drilled in two of the four sections. These amounts have been paid over to Cordell, and we still have approximately $25,000 to pay on back property taxes before the funds will begin to flow to the Trust. When the funds do flow to the Trust, they will be shared with Cordell as follows:
|
Royalty
Revenue
|
To
Trustee
|
To
Cordell
|
| First $2,000,000 |
100% |
0% |
| Next $2,000,000 |
0% |
100% |
| Next $5,500,000 |
25% |
75% |
| Next $5,500,000 |
75% |
25% |
| Next $6,000,000 |
50% |
50% |
| Next $4,000,000 |
60% |
40% |
| Next $10,000,000 |
80% |
20% |
| All Additional |
90% |
10% |
On the first two sections (Nos. 8 & 17), which have been drilled, we have been receiving checks which in total range from $20,000 to $4,300 per month. The variation has been caused both by reductions in price and volume with the month of February generating $4,300, the lowest month to date.
We anticipate that the drilling costs by Chesapeake (the exploration and production driller) in the third section (No. 16) will be recovered within the next few months, and at that time, the third section will begin to produce revenue.
There are currently negotiations underway concerning the forth section (No. 9), where the bulk of the land is located, in order to obtain a drilling site which would allow production in the fourth quadrant and for a lease of the sub-surface rights. It is not possible to predict if there will be recovery in the fourth section, or what it may be, but we are hopeful.
We anticipate we will be entering a lease in that section, and revenues will begin to flow to us if and when production is achieved and if the production costs have been recovered.
4. Okun Supreme Court Review – In what is not quite routine, but also not that unusual, Ed Okun filed a brief with the Supreme Court requesting that they review the constitutionality of various issues that were raised in his trials. I’ve included that brief along with the Supreme Court's Notice of Denial of a “Writ of Certiatori”. In plain language, the Court did not feel there were any issues of constitutional importance here. I’ve included the pleading just so you could take a look at it.
Best regards,
1031 Debtors Liquidation Trust
Gerard A. McHale, Jr.
Gerard A. McHale, Jr.
Liquidating Trustee
