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Filed pursuant to Rule 424(b)(1)
Registration No. 333-171474
 
PROSPECTUS
VOC Energy Trust
11,085,000 Trust Units
 
 
This is an initial public offering of units of beneficial interest in VOC Energy Trust, or the “trust.” VOC Sponsor (as defined in the “Prospectus Summary”) has formed the trust and, immediately prior to the closing of this offering, will convey, or cause to be conveyed, a term net profits interest in oil and natural gas properties (the “Net Profits Interest”) to the trust in exchange for 17,000,000 trust units. VOC Sponsor is offering 11,085,000 trust units to be sold in this offering and will receive all of the proceeds derived therefrom. The underwriters have been granted an option to purchase from VOC Sponsor up to 1,662,750 additional trust units at the initial public offering price. VOC Sponsor is a privately-held limited partnership engaged in the production and development of oil and natural gas from properties located in Kansas and Texas. VOC Sponsor is deemed to be an underwriter with respect to the trust units offered hereby.
 
There is currently no public market for the trust units. The trust units have been approved for listing on the New York Stock Exchange under the symbol “VOC.”
 
The trust units. Trust units are units of beneficial interest in the trust and represent undivided interests in the trust. They do not represent any interest in VOC Sponsor.
 
The trust. The trust will own the Net Profits Interest, which represents the right to receive during the term of the trust 80% of the net proceeds from the sale of production from oil and natural gas properties in Kansas and Texas, which are referred to as the “Underlying Properties,” held by VOC Sponsor as of the date of the conveyance of the Net Profits Interest to the trust.
 
The trust unitholders. As a trust unitholder, you will receive quarterly distributions of cash from the proceeds that the trust receives from VOC Sponsor pursuant to the Net Profits Interest. The trust’s ability to pay such quarterly cash distributions will depend on its receipt of net proceeds attributable to the Net Profits Interest, which will depend upon, among other things, volumes produced, wellhead prices, price differentials, production and development costs and potential reductions or suspensions of production.
 
Investing in the trust units involves a high degree of risk. Before buying any trust units, you should read the discussion of material risks of investing in the trust units in “Risk factors” beginning on page 23 of this prospectus.
 
These risks include the following:
  •   Prices of oil and natural gas fluctuate and lower prices could reduce proceeds to the trust and cash distributions to unitholders.
 
  •   An increase in the differential between the price realized by VOC Sponsor for oil or natural gas produced from the Underlying Properties and the NYMEX or other benchmark price of oil or natural gas could reduce the proceeds to the trust and therefore the cash distributions by the trust and the value of trust units.
 
  •   Estimates of future cash distributions to unitholders are based on assumptions that are inherently subjective.
 
  •   Actual reserves and future production may be less than current estimates, which could reduce cash distributions by the trust and the value of the trust units.
 
  •   The processes of drilling and completing wells are high risk activities.
 
  •   Neither the trust nor the trust’s unitholders will have the ability to influence VOC Sponsor or control the operations or development of the Underlying Properties.
 
  •   The trust is managed by a trustee who cannot be replaced except by a majority vote of the unitholders at a special meeting, which may make it difficult for unitholders to remove or replace the trustee.
 
  •   The tax treatment of an investment in trust units could be affected by recent and potential legislative changes, possibly on a retroactive basis.
 
  •   The trust has not requested a ruling from the IRS regarding the tax treatment of ownership of the trust units. If the IRS were to determine (and be sustained in that determination) that the trust is not a “grantor trust” for federal income tax purposes, or that the Net Profits Interest is not properly treated as a production payment (and thus would fail to qualify as a debt instrument) for federal income tax purposes, the trust unitholders may receive different and potentially less advantageous tax treatment from that described in this prospectus.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
 
 
                 
    Per
   
    Trust
   
    Unit   Total
 
Initial public offering price
  $ 21.000     $ 232,785,000  
Underwriting discounts and commissions (1)
  $ 1.365     $ 15,131,025  
Proceeds, before expenses, to VOC Sponsor
  $ 19.635     $ 217,653,975  
 
(1) Excludes a structuring fee of 0.50% of the gross proceeds of the offering payable to Raymond James & Associates, Inc. by VOC Sponsor for the evaluation, analysis and structuring of the trust.
 
 
The underwriters are offering the trust units as set forth under “Underwriting.” Delivery of the trust units will be made on or about May 10, 2011.
 
 
RAYMOND JAMES MORGAN STANLEY
 
 
OPPENHEIMER & CO.  
  RBC CAPITAL MARKETS  
       BAIRD  
  JANNEY MONTGOMERY SCOTT  
  MORGAN KEEGAN  
  WUNDERLICH SECURITIES
 
May 5, 2011


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Geographic Location of the Operating Areas
of the Underlying Properties in the States of Kansas and Texas
 
(MAP)


 

 
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Important Notice About Information in This Prospectus
 
You should rely only on the information contained in this prospectus or in any free writing prospectus we may authorize to be delivered to you. Until May 30, 2011 (25 days after the date of this prospectus), federal securities laws may require all dealers that effect transactions in the trust units, whether or not participating in this offering, to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
 
VOC Sponsor and the trust have not, and the underwriters have not, authorized anyone to provide you with additional or different information. If anyone provides you with additional, different or inconsistent information, you should not rely on it. This prospectus is not an offer to sell or a solicitation of an offer to buy the trust units in any jurisdiction where such offer and sale would be unlawful. You should not assume that the information contained in this prospectus is accurate as of any date other than the date on the front of this document. The trust’s business, financial condition, results of operations and prospects may have changed since such date.


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PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in this prospectus. To understand this offering fully, you should read the entire prospectus carefully, including the risk factors and the financial statements and notes to those statements. Unless otherwise indicated, all information in this prospectus assumes no exercise of the underwriters’ option to purchase additional trust units.
 
Unless the context otherwise requires, as used in this prospectus, (i) “VOC Brazos” refers to VOC Brazos Energy Partners, L.P. without giving pro forma effect to the KEP Acquisition (as defined below), (ii) “KEP” refers to VOC Kansas Energy Partners, LLC, (iii) the “Common Control Properties” include certain of the Underlying Properties (as defined below) held by KEP that are deemed to be under common control with VOC Brazos, (iv) the “Acquired Underlying Properties” include the Underlying Properties held by KEP that are not under common control with VOC Brazos, (v) “Predecessor” refers to VOC Brazos and the Common Control Properties on a combined basis, as described in “Selected historical and unaudited pro forma financial, operating and reserve data of VOC Sponsor,” (vi) when discussing the assets, operations or financial condition and results of operations of VOC Sponsor, unless otherwise indicated, “VOC Sponsor” refers to VOC Brazos and the Common Control Properties after giving effect to the acquisition of the Acquired Underlying Properties, and when discussing oil and natural gas reserve information of VOC Sponsor, refers to the combined amounts of estimated proved oil and natural gas reserves for VOC Brazos and KEP as reflected in the reserve reports (as defined below), (vii) when discussing the financial condition and results of operations relating to the Underlying Properties, “Underlying Properties” refers to the underlying oil and natural gas properties attributable to Predecessor after giving pro forma effect to the acquisition of the Acquired Underlying Properties and after deducting all royalties and other burdens on production thereon as of the date of the conveyance of the Net Profits Interest to the trust, and (viii) the “KEP Acquisition” refers to the acquisition by VOC Brazos of all of the membership interests in KEP in exchange for limited partner interests in VOC Brazos, resulting in KEP becoming a wholly-owned subsidiary of VOC Brazos. For more information on the KEP Acquisition and the acquisition of the Acquired Underlying Properties by Predecessor, please see “— Formation transactions” and “Information about VOC Brazos Energy Partners, L.P. (VOC Sponsor) — General,” respectively.
 
Cawley, Gillespie & Associates, Inc., an independent engineering firm, provided the estimates of proved oil and natural gas reserves for the underlying properties of each of VOC Brazos and KEP and the Net Profits Interest as of December 31, 2010, included in this prospectus. These estimates are contained in summaries prepared by Cawley, Gillespie & Associates, Inc. of its reserve reports as of December 31, 2010, for the Underlying Properties and the Net Profits Interest. These summaries are located at the back of this prospectus in Annexes A, B, and C and are collectively referred to in this prospectus as the “reserve reports.” You will find definitions for terms relating to the oil and natural gas business in the “Glossary” beginning on page 122.
 
VOC ENERGY TRUST
 
VOC Energy Trust is a Delaware statutory trust formed in November 2010 by VOC Sponsor to own a term net profits interest representing the right to receive 80% of the net proceeds (calculated as described below) from production from substantially all of the interests in oil and natural gas properties in the states of Kansas and Texas held by VOC Sponsor as of the date of the conveyance of the net profits interest to the trust. We refer to the conveyed interest as the “Net Profits Interest.” The Net Profits Interest will terminate on the later to occur of (1) December 31, 2030, or (2) the time from and after January 1, 2011 when 10.6 MMBoe (which is the equivalent of 8.5 MMBoe in respect of the Net Profits Interest) have been produced from the Underlying Properties and sold.


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As of December 31, 2010, the Underlying Properties produced predominantly oil from approximately 881 gross (545.7 net) wells located in 191 fields. As of December 31, 2010, the Underlying Properties had a weighted average age (calculated on a PV-10 basis) of approximately 38 years, and assuming an average price of $79.43 per Bbl (the average per Bbl price for 2010), the weighted average expected remaining reserve life (calculated on a PV-10 basis) of the reserves attributable to the Underlying Properties was approximately 39 years as of December 31, 2010. Substantially all of the Underlying Properties are located in mature oil fields that are characterized by long production histories and several additional development opportunities, which may help to diminish natural declines in production from the Underlying Properties. As of December 31, 2010, the total proved reserves attributable to the Underlying Properties were 13.7 MMBoe, of which approximately 84% were classified as proved developed producing reserves, and approximately 92% were oil and approximately 8% were natural gas. Based on the reserve reports, the Net Profits Interest would entitle the trust to receive net proceeds from the sale of production of 8.5 MMBoe of proved reserves during the term of the trust, calculated as 80% of the proved reserves attributable to the Underlying Properties expected to be produced during the term of the trust. During the year ended December 31, 2010, average net production from the Underlying Properties was approximately 2,547 Boe per day (or 2,038 Boe per day attributable to the trust) comprised of approximately 88% oil and approximately 12% natural gas.
 
As of December 31, 2010, approximately 98% of the total proved reserves relating to the Underlying Properties, based on pre-tax present value of estimated future net revenue using a discount rate of ten percent per annum (“PV-10”), were operated, or operated on a contract operator basis, by Vess Oil Corporation (which we refer to as “Vess Oil”), L. D. Drilling Inc. or Davis Petroleum, Inc. (which we refer to collectively with Vess Oil as the “VOC Operators”). See “— Planned development and workover program” for a summary of VOC Sponsor’s development plans.
 
For the years 2011, 2012 and 2013 and the six months ending June 30, 2014, VOC Sponsor has entered into swap contracts, which we refer to as the “hedge contracts,” at weighted average prices ranging from $94.90 to $102.15 per barrel of oil that hedge approximately 61% of expected oil production for such years from the proved developed producing reserves attributable to the Underlying Properties in the summary reserve reports. The hedge contracts should help mitigate the impact of any crude oil price volatility on distributions made on the trust units during the term of the hedge contracts. Upon expiration in June 2014, unitholder exposure to fluctuations in crude oil prices will increase significantly.
 
The trust will make quarterly cash distributions of substantially all of its quarterly cash receipts, after deduction of fees and expenses for the administration of the trust (which are estimated to be approximately $900,000 in 2011), to holders of its trust units during the term of the trust. The first quarterly distribution is expected to be made on or about August 15, 2011, to trust unitholders owning trust units on or about August 1, 2011. The trust’s first quarterly distribution will consist of an amount in cash paid by VOC Sponsor equal to the amount that would have been payable to the trust had the Net Profits Interest been in effect during the period from January 1, 2011 through the day prior to the close of this offering plus the amount payable under the Net Profits Interest for the period from the day of closing of the offering through June 30, 2011, less any general and administrative expenses and reserves of the trust. As a result of the extended period of time that will be included in the first quarterly distribution, subsequent quarterly distributions are likely to be less than the initial distribution. Because payments to the trust will be generated by depleting assets and the trust has a finite life with the production from the Underlying Properties diminishing over time, a portion of each distribution will represent, in effect, a return of your original investment.


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The trust will receive quarterly cash receipts from the net proceeds attributable to the Net Profits Interest, with such net proceeds generally being equal to 80% of the gross proceeds received from sales of oil and natural gas attributable to the Underlying Properties for each calendar quarter, less production and development costs and amounts that may be reserved for future development, maintenance or operating expenditures (which reserve amounts may not exceed $1.0 million in the aggregate at any given time), and after giving effect to the impact of the hedge contracts. See “Computation of net proceeds.” Net proceeds payable to the trust will generally depend upon, among other things, the impact of hedge contracts, volumes produced, wellhead prices, price differentials and production and development costs. If the trust does not receive net proceeds pursuant to the Net Profits Interest, or if such net proceeds are reduced, the trust will not be able to distribute cash to the trust unitholders, or such cash distributions will be reduced, respectively. For the year ended December 31, 2010, lease operating expenses were $14.76 per Boe and production and property taxes were $4.45 per Boe, for an aggregate production cost for the Underlying Properties of $19.21 per Boe. As substantially all of the Underlying Properties are located in mature fields, VOC Sponsor does not expect its total future production costs for the Underlying Properties to change significantly as compared to recent historical costs other than changes in costs due to any increases in the cost of general oilfield services in its operating areas.
 
The amount of cash available for distribution by the trust will be reduced by the general and administrative costs of the trust. The business and affairs of the trust will be managed by The Bank of New York Mellon Trust Company, N.A. as trustee, and VOC Sponsor and its affiliates will have no ability to manage or influence the operations of the trust.
 
FORMATION TRANSACTIONS
 
At or prior to the closing of this offering, the following transactions, which are referred to herein as the “formation transactions,” will occur:
 
  •   VOC Brazos will acquire all of the membership interests in KEP in exchange for newly issued limited partner interests in VOC Brazos pursuant to a Contribution and Exchange Agreement dated August 30, 2010, resulting in KEP becoming a wholly-owned subsidiary of VOC Brazos. KEP was formed in November 2009 to engage in the production and development of oil and natural gas primarily within the state of Kansas. KEP’s properties consist of oil and gas properties that have been acquired or developed by KEP’s members since 1979. KEP’s members contributed these properties to KEP in December 2010. The closing of the KEP Acquisition is conditioned solely upon the closing of this offering.
 
  •   VOC Sponsor will convey to the trust the Net Profits Interest in exchange for 17,000,000 trust units in the aggregate, representing all of the outstanding trust units of the trust.
 
  •   VOC Sponsor will sell the 11,085,000 trust units offered hereby, representing a 65.2% interest in the trust. VOC Sponsor will also make available during the 30-day option period up to 1,662,750 trust units for the underwriters to purchase at the initial offering price to cover over-allotments. VOC Sponsor intends to use the proceeds of the offering as disclosed under “Use of Proceeds.”
 
  •   Forty-five days following the closing of this offering, VOC Sponsor will sell the remaining trust units which it holds to VOC Partners, LLC, an affiliate of VOC Sponsor, at the initial offering price.


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  •   VOC Sponsor and the trust will enter into an administrative services agreement which will define the services VOC Sponsor will provide to the trust on an ongoing basis as well as its compensation therefor. Please see “The trust.”
 
STRUCTURE OF THE TRUST
 
The following chart shows the relationship of VOC Sponsor, VOC Partners, LLC, the trust and the public trust unitholders after the closing of this offering.
 
(PERFORMANCE GRAPH)
 
THE UNDERLYING PROPERTIES
 
The Underlying Properties consist of VOC Sponsor’s net interests in substantially all of its oil and natural gas properties after deduction of all royalties and other burdens on production thereon as of the date of conveyance of the Net Profits Interest to the trust. As of December 31, 2010, these oil and natural gas properties consisted of approximately 881 gross (545.7 net) producing oil and natural gas wells in 191 fields in VOC Sponsor’s two operating areas, Kansas and Texas. During the year ended December 31, 2010, average net production from the Underlying Properties was approximately 2,547 Boe per day (or 2,038 Boe per day attributable to the trust) comprised of approximately 88% oil and approximately 12% natural gas. VOC Sponsor’s interests in the properties comprising the Underlying Properties require VOC Sponsor to bear its proportionate share, along with the other working interest owners, of the costs of development and operation of such properties. As of December 31, 2010, VOC Sponsor held average working interests of 74.4% and 68.0% in the Underlying Properties located in the states of Kansas and Texas, respectively. As of December 31, 2010, the VOC Operators were the operators or contract operators of approximately 98% of the total proved reserves attributable to the Underlying Properties, based on PV-10 value and VOC Sponsor held an average net revenue interest of 61.8% and 56.1% for the Underlying Properties located in Kansas and Texas respectively. As of December 31, 2010, proved reserves attributable to the Underlying Properties, as estimated in the reserve reports, were approximately 13.7 MMBoe with a PV-10 value of $268.3 million.
 
Based on the reserve reports, the Net Profits Interest would entitle the trust to receive net proceeds from the sale of production of approximately 8.5 MMBoe of proved reserves over the term of the trust. The trust is entitled to receive 80% of the net proceeds from the sale of


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production of oil and natural gas attributable to the Underlying Properties that are produced during the term of the trust, whereas total reserves as reflected in the reserve reports and attributable to the Underlying Properties include all reserves expected to be economically produced during the economic life of the properties.
 
VOC Sponsor has agreed to use commercially reasonable efforts to cause the operators of the Underlying Properties to operate these properties as would a reasonably prudent operator acting with respect to its own properties (without regard to the existence of the Net Profits Interest). In addition, after giving effect to the conveyance of the Net Profits Interest to the trust, VOC Sponsor’s interest in the Underlying Properties will entitle it to 20% of the net proceeds from the sale of production of oil and natural gas attributable to the Underlying Properties during the term of the trust, and 100% thereafter. VOC Sponsor believes that its retained interests in the Underlying Properties combined with VOC Partners, LLC’s ownership of trust units representing a 34.8% beneficial interest in the trust, which collectively entitle VOC Sponsor and VOC Partners, LLC to receive an aggregate of approximately 48% of the net proceeds from the Underlying Properties, will provide sufficient incentive to operate and develop the oil and natural gas properties comprising the Underlying Properties in an efficient and cost-effective manner. Please see “Risk factors — Conflicts of interest could arise between VOC Sponsor and its affiliates, on the one hand, and the trust unitholders, on the other hand.”
 
OPERATING AREAS
 
The Underlying Properties are located in Kansas and Texas in areas characterized by long production histories and several additional development opportunities, which may help to diminish natural declines in production from the Underlying Properties. See “— Planned development and workover program” for a summary of VOC Sponsor’s development plans in each of the operating areas of the Underlying Properties. Based on the reserve reports, approximately 92% of the future production from the Underlying Properties is expected to be oil, and approximately 8% is expected to be natural gas.
 
The following table summarizes, by state, the number of gross producing wells, the estimated proved reserves attributable to the Underlying Properties, the corresponding PV-10 value as of December 31, 2010, the average working interest, the average net revenue interest and the average daily net production attributable to the Underlying Properties for the year ended December 31, 2010, in each case derived from the reserve reports. The reserve reports were prepared by Cawley, Gillespie & Associates, Inc. in accordance with criteria established by the Securities and Exchange Commission (the “SEC”). The summary reserve reports are included in Annexes A, B, and C to this prospectus.
 
                                                                                 
                                                          Year Ended
 
    Number
                                                    December 31,
 
    of
    Proved Reserves (1)     Average
    2010  
    Gross
          Natural
                            Average
    Net
    Average
 
    Producing
    Oil
    Gas
    Total
    % Oil
    % PDP
    PV-10
    Working
    Revenue
    Net Production
 
Operating Area   Wells     (MBbls)     (MMcf)     (MBoe) (2)     Reserves     Reserves     Value (3)     Interest     Interest     (Boe per day)  
                                        (In millions)                    
 
Kansas
    742       6,535       3,550       7,127       91.7 %     94.8 %   $ 134.8       74.4 %     61.8 %     1,536  
Texas
    139       6,007       3,399       6,573       91.4 %     72.6 %   $ 133.5       68.0 %     56.1 %     1,011  
                                                                                 
Total
    881       12,542       6,949       13,700       91.5 %     84.1 %   $ 268.3       71.2 %     58.9 %     2,547  
                                                                                 
 
 
(1) In accordance with the rules and regulations promulgated by the SEC, the proved reserves presented above were determined using the twelve month unweighted arithmetic average of the first-day-of-the-month price for the period from January 1, 2010 through December 1, 2010, without giving effect to any hedge transactions, and were held constant for the life of the properties. This yielded a price for oil of $79.43 per Bbl and a price for natural gas of $4.37 per MMBtu.


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(2) Oil equivalents in the table are the sum of the Bbls of oil and the Boe of the stated Mcfs of natural gas, calculated on the basis that six Mcfs of natural gas is the energy equivalent of one Bbl of oil.
 
(3) PV-10 is the present value of estimated future net revenue to be generated from the production of proved reserves, discounted using an annual discount rate of 10%, calculated without deducting future income taxes. Standardized measure of discounted net cash flows is calculated the same as PV-10 except that it deducts future income taxes. Because VOC Sponsor bears no federal income tax expense and taxable income is passed through to the unitholders of the trust, no provision for federal or state income taxes is included in the reserve reports and therefore the standardized measure of discounted future net cash flows attributable to the Underlying Properties is equal to the pre-tax PV-10 value. PV-10 may not be considered a generally accepted accounting principle (“GAAP”) financial measure as defined by the SEC and is derived from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. The pre-tax PV-10 value and the standardized measure of discounted future net cash flows do not purport to present the fair value of the oil and natural gas reserves attributable to Underlying Properties.
 
PLANNED DEVELOPMENT AND WORKOVER PROGRAM
 
The primary goals of VOC Sponsor’s development and workover program have been to develop proved undeveloped reserves, manage workovers and minimize the natural decline in production. No assurance can be given, however, that any development well will produce in commercially paying quantities or that the characteristics of any development well will match the characteristics of VOC Sponsor’s existing wells or VOC Sponsor’s historical drilling success rate. With respect to the Underlying Properties, VOC Sponsor expects, but is not obligated (subject to its reasonable discretion), to implement the following development strategies specific to each of its primary operating areas.
 
  •   Kansas. VOC Sponsor’s historical development and workover program for the Kansas Underlying Properties has included recompleting certain existing wells, drilling infill development wells, conducting 3-D seismic surveys, completing workovers and applying new production technologies. VOC Sponsor intends to continue this program with respect to the Kansas Underlying Properties, and expects to incur total development expenditures for these properties through December 31, 2015 of approximately $3.2 million. Of this total, VOC Sponsor contemplates spending approximately $2.5 million to drill and complete 13 vertical wells. The remaining approximate $0.7 million is expected to be used for recompletions and workovers of 12 wells.
 
  •   Texas. VOC Sponsor’s historical development and workover program for the Texas Underlying Properties has included recompleting certain existing wells, drilling infill development wells, completing workovers and applying new production technologies. In 2009, after an extensive review of horizontal development drilling in the area, VOC Sponsor commenced drilling horizontal wells in the Kurten Woodbine Unit in order to accelerate the development of proved undeveloped reserves. VOC Sponsor has successfully completed each of its first four horizontal wells to the Woodbine C sand in this area with average lateral lengths of approximately 3,000 feet. VOC Sponsor intends to continue developing the Woodbine C sand underlying the Kurten Woodbine Unit, utilizing horizontal wells completed with multiple fracture stimulations together with recompletions of existing vertical wellbores into additional pay intervals. VOC Sponsor expects total development expenditures for the Texas Underlying Properties through December 31, 2015 to be approximately $24.0 million. Of this total, VOC Sponsor contemplates spending approximately $22.5 million to drill and complete 11 horizontal wells in the Woodbine C sand. The remaining approximate $1.5 million is expected to be used for recompletions and workovers of 12 Woodbine vertical wells to additional Woodbine sands and seven existing wells in the Sand Flat Unit.


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VOC SPONSOR
 
VOC Brazos is a privately-held limited partnership engaged in the production and development of oil and natural gas from properties located in Texas. VOC Brazos was formed in May 2003. Pursuant to the KEP Acquisition, VOC Brazos will acquire KEP, which was formed in November 2009 to develop and produce oil and natural gas from properties primarily located in Kansas along with a limited number of Texas properties. There are no conditions to the closing of the KEP Acquisition other than the closing of this offering. Members of KEP acquired interests in the properties owned by KEP through various acquisitions and drilling activities that have occurred since 1979. See “— Formation transactions” for a more detailed discussion of the KEP Acquisition.
 
As of December 31, 2010, VOC Sponsor held interests in approximately 881 gross (545.7 net) producing wells, and proved reserves of the Underlying Properties were approximately 13.7 MMBoe. As of December 31, 2010, based on PV-10 value, the VOC Operators were the operators or contract operators of approximately 98% of the total proved reserves attributable to the Underlying Properties, with Vess Oil operating approximately 91% of the total proved reserves and L.D. Drilling Inc. and Davis Petroleum, Inc. operating approximately 7% of the total proved reserves. Vess Oil has operated oil and natural gas properties in Kansas for more than 30 years and, according to statistics furnished by the Kansas Geological Survey, was the second largest operator of oil properties in Kansas measured by production during 2010. Vess Oil currently operates over 1,600 oil, natural gas and service wells located primarily in Kansas, with growing operations in Texas. As of December 31, 2010, Vess Oil employed 19 full-time employees, three contract professionals and 14 contract personnel in its Wichita office and in five field and satellite offices.
 
For the year ended December 31, 2010, VOC Sponsor had pro forma revenues and net earnings of $62.8 million and $30.6 million, respectively. As of December 31, 2010, VOC Sponsor had pro forma total assets of $202.2 million and total liabilities of $42.6 million, including indebtedness outstanding of $24.0 million. After giving further pro forma effect to the conveyance of the Net Profits Interest to the trust, the offering of the trust units contemplated by this prospectus and the application of the net proceeds as described in “Use of proceeds,” as of December 31, 2010, VOC Sponsor would have had total assets of $96.0 million and total liabilities of $128.4 million, with no indebtedness outstanding. For an explanation of the pro forma adjustments, please read “Financial statements of Predecessor — Unaudited pro forma statement of earnings.”
 
The address of VOC Sponsor is 1700 Waterfront Parkway, Building 500, Wichita, Kansas 67206, and its telephone number is (316) 682-1537.
 
KEY INVESTMENT CONSIDERATIONS
 
The following are some key investment considerations related to the Underlying Properties, the Net Profits Interest and the trust units:
 
  •   Long-lived oil-producing properties. Oil-producing properties in VOC Sponsor’s areas of operation have historically had stable production profiles and generally long-lived production. VOC Sponsor acquired interests in the Texas Underlying Properties through various acquisitions that have occurred since the inception of VOC Brazos in 2003 and in the Kansas Underlying Properties through the contribution to KEP by its members in December 2010 of properties obtained through various acquisitions and drilling activities since 1979. Proved reserves attributable to the Underlying Properties have remained relatively stable, with proved reserves of approximately 10.8 MMBoe as of December 31,


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  2008 (based on a year-end oil price of $44.60 per Bbl), 13.0 MMBoe as of December 31, 2009 (based on average oil prices of $61.18 per Bbl) and 13.7 MMBoe as of December 31, 2010 (based on average oil prices of $79.43 per Bbl). Based on the reserve reports and assuming for purposes of this calculation that no additional development drilling or other development expenditures are made on the Underlying Properties after 2014, production from the Underlying Properties is expected to decline at an average annual rate of approximately 6.2% over the next 20 years. VOC Sponsor may continue to drill beyond 2014, and such drilling may reduce the anticipated decline rate if successful.
 
  •   Substantial proved developed producing reserves. Proved developed producing reserves are the lowest risk category of reserves because production has already commenced, and VOC Sponsor does not expect the proved developed producing reserves attributable to the Underlying Properties to require significant future development costs. Proved developed producing reserves attributable to the Underlying Properties represented approximately 84% of the proved reserves attributable to the Underlying Properties as of December 31, 2010.
 
  •   Near term development activities. VOC Sponsor has identified multiple locations on the Underlying Properties on which it intends to drill new infill wells and recomplete existing wells into new horizons over the next several years. See “— Planned development and workover program” for a summary of VOC Sponsor’s development plans. These locations are currently classified as proved undeveloped reserves on the reserve reports. If these wells are successfully completed or recompleted, as the case may be, the additional production from these wells would partially offset the natural decline in production from the Underlying Properties. Any additional incremental revenue received by VOC Sponsor from this additional production could have the effect of increasing future distributions to the trust unitholders. No assurance can be given, however, that any development well will produce in commercially paying quantities or that the characteristics of any development well will match the characteristics of VOC Sponsor’s existing wells or VOC Sponsor’s historical drilling success rate.
 
  •   Operational control. The right to operate an oil and natural gas lease is important because the operator can control the timing and amount of discretionary expenditures for operational and development activities. As of December 31, 2010, the VOC Operators operated, or operated on a contract basis, approximately 98% of the proved reserves attributable to the Underlying Properties based on PV-10 value.
 
  •   Experienced Royalty Trust Sponsor. Certain members of VOC Sponsor’s management team were involved in the formation and initial public offering of MV Oil Trust (NYSE: MVO) (“MVO”) a publicly-traded trust that is similar to VOC Energy Trust. In connection with the formation of MVO, the sponsor conveyed an 80% term net profits interest in oil and natural gas properties in the Mid-Continent region in Kansas and Colorado to MVO in exchange for trust units, a portion of which were sold by the sponsor in MVO’s initial public offering in January 2007. The terms of the net profits interest being conveyed in connection with the formation of VOC Energy Trust are similar to those of the net profits interest which was conveyed to MVO. To offset the natural decline in production of the proved developed wells, the sponsor planned and executed a development and workover program. The results of this program have partially mitigated the decline, with average net production being approximately 2,859 Boe per day (or approximately 2,287 Boe per day attributable to MVO’s 80% net profit interest) at the time of the initial public offering and 2,621 Boe per day (or approximately 2,097 Boe per day attributable to MVO’s 80% net profit interest) for the year ended December 31, 2010. As a result of differences in pricing, well locations, costs, development schedule, development expenditures and


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  regulatory environment, among other things, the historical results of operations and performance of MVO should not be relied on as an indicator of how the trust will perform. The final prospectus relating to the initial public offering of MVO set forth a projection for the twelve months ended December 31, 2007 that totaled $3.02 per MVO trust unit. Actual distributions for each of the second, third and fourth quarters of 2007 and the twelve months ended December 31, 2007 (totaling $2.48 per MVO trust unit) were below the projected amounts outlined in such final prospectus. For a description of the prior performance of MVO, including a discussion of the reasons underlying why actual distributions for the twelve months ended December 31, 2007 were below certain estimated distributions as outlined in its prospectus relating to its initial public offering, please see “MV Oil Trust” on page 47.
 
  •   Strong oil fundamentals. Substantially all of the production from the Underlying Properties consists of crude oil. According to the US Energy Information Administration (“EIA”) projections, world oil prices are expected to rise gradually. These projections assume that global economic growth results in higher global oil demand, growth in supply from countries who are not members of the Organization of the Petroleum Exporting Countries (“OPEC”) slows in 2011, and members of OPEC continue to support world oil prices while commercial oil inventories in the Organization for Economic Cooperation and Development (“OECD”) countries begin to decline.
 
  •   Downside oil price protection. For the years 2011, 2012 and 2013 and the six months ending June 30, 2014, VOC Sponsor has entered into swap contracts, which we refer to as the “hedge contracts,” at weighted average prices ranging from $94.90 to $102.15 per barrel of oil that hedge approximately 61% of expected oil production for such years from the proved developed producing reserves attributable to the Underlying Properties in the summary reserve reports. The hedge contracts should help mitigate the impact of any crude oil price volatility on distributions made on the trust units during the term of the hedge contracts. Upon expiration in June 2014, unitholder exposure to fluctuations in crude oil prices will increase significantly. Under the terms of the conveyance, VOC Sponsor will be prohibited from entering into hedging arrangements for the benefit of the trust and, under the terms of the trust agreement, the trustee is not empowered to enter into hedge contracts with trust proceeds. For more information on VOC Sponsor’s hedge positions, please see “The Underlying Properties — Hedge contracts.”
 
  •   Aligned interests of sponsor. Following the closing of this offering, VOC Sponsor, together with VOC Partners, LLC, will be entitled to receive an aggregate of approximately 48% of the net proceeds attributable to the sale of oil and natural gas produced from the Underlying Properties. This 48% interest will consist of (1) the 20% of the net proceeds from the sale of production of oil and natural gas and attributable to the Underlying Properties that is retained by VOC Sponsor after transferring to the trust the Net Profits Interest and (2) the ownership by VOC Partners, LLC of approximately 35% of the trust units following the closing of this offering.
 
RISK FACTORS
 
An investment in the trust units involves risks, including those listed below. Please read carefully the risks described under “Risk Factors” on page 23 of this prospectus.
 
  •   Prices of oil and natural gas fluctuate, and lower prices could reduce proceeds to the trust and cash distributions to unitholders.


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  •   An increase in the differential between the price realized by VOC Sponsor for oil or natural gas produced from the Underlying Properties and the NYMEX or other benchmark price of oil or natural gas could reduce the proceeds to the trust and therefore the cash distributions by the trust and the value of trust units.
 
  •   Estimates of future cash distributions to unitholders are based on assumptions that are inherently subjective.
 
  •   Actual reserves and future production may be less than current estimates, which could reduce cash distributions by the trust and the value of the trust units.
 
  •   The processes of drilling and completing wells are high risk activities.
 
  •   Risks associated with the production, gathering, transportation and sale of oil and natural gas could adversely affect cash distributions by the trust.
 
  •   VOC Sponsor does not have any long term contracts related to the sale of production of oil and natural gas from the Underlying Properties and may be unable to find purchasers.
 
  •   Neither the trust nor the trust’s unitholders will have the ability to influence VOC Sponsor or control the operations or development of the Underlying Properties.
 
  •   Shortages or increases in costs of equipment, services and qualified personnel could result in a reduction in the amount of cash available for distribution to the trust unitholders.
 
  •   The trust units may lose value as a result of title deficiencies with respect to the Underlying Properties.
 
  •   VOC Sponsor may transfer all or a portion of the Underlying Properties at any time without trust unitholder consent, subject to specified limitations.
 
  •   The reserves attributable to the Underlying Properties are depleting assets and production from those properties will diminish over time.
 
  •   The amount of cash available for distribution by the trust will be reduced by the amount of any costs and expenses related to the Underlying Properties and other costs and expenses incurred by the trust.
 
  •   The trustee may, under certain circumstances, sell the Net Profits Interest and dissolve the trust prior to the expected termination of the trust. As a result, trust unitholders may not recover their investment.
 
  •   VOC Partners, LLC may sell trust units in the public or private markets, and such sales could have an adverse impact on the trading price of the trust units.
 
  •   There has been no public market for the trust units and no independent appraisal of the value of the Net Profits Interest has been performed.
 
  •   The trading price for the trust units may not reflect the value of the Net Profits Interest held by the trust.


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  •   Conflicts of interest could arise between VOC Sponsor and its affiliates, on the one hand, and the trust unitholders, on the other hand.
 
  •   The trust is managed by a trustee who cannot be replaced except by a majority vote of the unitholders at a special meeting, which may make it difficult for unitholders to remove or replace the trustee.
 
  •   Trust unitholders have limited ability to enforce provisions of the Net Profits Interest, and VOC Sponsor’s liability to the trust is limited.
 
  •   Courts outside of Delaware may not recognize the limited liability of the trust unitholders provided under Delaware law.
 
  •   The operations of the Underlying Properties are subject to environmental laws and regulations that may result in significant costs and liabilities, which could reduce the amount of cash available for distribution to trust unitholders.
 
  •   The operations of the Underlying Properties are subject to complex federal, state, local and other laws and regulations that could adversely affect the cost, manner or feasibility of conducting its operations or expose VOC Sponsor to significant liabilities, which could reduce the amount of cash available for distribution to trust unitholders.
 
  •   Climate change laws and regulations restricting emissions of “greenhouse gases” could result in increased operating costs and reduced demand for the oil and natural gas that VOC Sponsor produces while the physical effects of climate change could disrupt VOC Sponsor’s production and cause VOC Sponsor to incur significant costs in preparing for or responding to those effects.
 
  •   Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays as well as adversely affect VOC Sponsor’s services.
 
  •   The bankruptcy of VOC Sponsor or any of the VOC Operators could impede the operation of the wells and the development of the proved undeveloped reserves.
 
  •   The trust may be treated as an unsecured creditor with respect to the Net Profits Interest attributable to properties in Kansas in the event of the bankruptcy of VOC Sponsor if a court were to hold that the conveyance and recording of the Net Profits Interest was not a conveyance of a fully vested real property interest or an interest in hydrocarbons in place or to be produced.
 
  •   Due to lack of geographic diversification of the Underlying Properties, adverse developments in Kansas or Texas could adversely impact the results of operations and cash flows of the Underlying Properties and reduce the amount of cash available for distributions to trust unitholders.
 
  •   The receipt of payments by VOC Sponsor based on the hedge contracts depends upon the financial position of the hedge contract counterparties. A default by any of the hedge contract counterparties could reduce the amount of cash available for distribution to the trust unitholders.
 
  •   VOC Sponsor’s performance of its obligations to the trust and the financial results of the trust may differ from the drilling and financial results of MVO.


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  •   The tax treatment of an investment in trust units could be affected by recent and potential legislative changes, possibly on a retroactive basis.
 
  •   The trust has not requested a ruling from the IRS regarding the tax treatment of ownership of the trust units. If the IRS were to determine (and be sustained in that determination) that the trust is not a “grantor trust” for federal income tax purposes, or that the Net Profits Interest is not properly treated as a production payment (and thus would fail to qualify as a debt instrument) for federal income tax purposes, the trust unitholders may receive different and potentially less advantageous tax treatment from that described in this prospectus.
 
SUMMARY PROVED RESERVES
 
Summary proved reserves of Underlying Properties and Net Profits Interest. As of December 31, 2010, estimated proved reserves attributable to the Underlying Properties were approximately 92% oil and approximately 8% natural gas, based on the reserve reports. The following table sets forth, as of December 31, 2010, certain estimated proved oil and natural gas reserves, estimated future net revenues and the discounted present value thereof attributable to the Underlying Properties and the Net Profits Interest, in each case as derived from the reserve reports.
 
                                         
    Proved Reserves of the Underlying Properties   Undiscounted
   
    Oil
  Natural Gas
  Oil Equivalent
  Future Net
  PV-10
    (MBbls )   (MMcf)   (MBoe)   Revenues   Value (3)
                (In thousands)
 
Underlying Properties (total) (1)
    12,542       6,949       13,700     $ 569,829     $ 268,283  
Underlying Properties (attributable to the Net Profits Interest) (2)
    7,712       4,819       8,515     $ 379,296     $ 208,552  
 
(1) Reflects 100% of the proved reserves attributable to the Underlying Properties.
 
(2) Reflects 80% of proved reserves attributable to the Underlying Properties expected to be produced during the term of the trust.
 
(3) PV-10 is the present value of estimated future net revenue to be generated from the production of proved reserves, discounted using an annual discount rate of 10%, calculated without deducting future income taxes. Standardized measure of discounted net cash flows is calculated the same as PV-10 except that it deducts future income taxes. Because VOC Sponsor bears no federal income tax expense and taxable income is passed through to the unitholders of the trust, no provision for federal or state income taxes is included in the reserve reports and therefore the standardized measure of discounted future net cash flows attributable to the Underlying Properties is equal to the pre-tax PV-10 value. PV-10 may not be considered a generally accepted accounting principle (“GAAP”) financial measure as defined by the SEC and is derived from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. The pre-tax PV-10 value and the standardized measure of discounted future net cash flows do not purport to present the fair value of the oil and natural gas reserves attributable to Underlying Properties.


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Annual production attributable to Net Profits Interest. The following graph shows estimated monthly production of total proved reserves attributable to the Net Profits Interest based upon the pricing and other assumptions set forth in the reserve reports. This graph presents the total proved reserves as reflected in the reserve reports broken down by three reserve categories (proved developed producing, proved developed non-producing and proved undeveloped reserves) which demonstrate the impact of developmental drilling and well re-completion and workover activities that VOC Sponsor expects to undertake with respect to the Underlying Properties within the next five years. For a description of VOC Sponsor’s planned development, workover and recompletion programs over the next five years, see “The Underlying Properties — Planned development and workover program.”
 
Estimated Annual Production of Proved Reserves
Attributable to the Net Profits Interest
 
(PERFORMANCE GRAPH)


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SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA AND OPERATING DATA FOR THE UNDERLYING PROPERTIES OF VOC SPONSOR AND THE TRUST
 
Pro Forma Combined Financial Data of the Underlying Properties
 
The summary unaudited pro forma combined financial data presented below should be read in conjunction with “The Underlying Properties — Selected historical and unaudited pro forma financial and operating data of the Underlying Properties” and the accompanying financial statements and related notes included elsewhere in this prospectus. The following table sets forth revenues, direct operating expenses and the excess of revenues over direct operating expenses relating to the Predecessor Underlying Properties after giving pro forma effect to the acquisition of the Acquired Underlying Properties. The summary unaudited pro forma financial data for the year ended December 31, 2010 have been derived from the unaudited pro forma statements of historical revenues and direct operating expenses of the Underlying Properties included in this prospectus beginning on page F-18. The pro forma adjustments have been prepared as if the acquisition of the Acquired Underlying Properties by Predecessor had taken place as of January 1, 2010.
 
         
    Year Ended
 
    December 31, 2010  
    (In thousands)
 
    (Unaudited)  
 
Revenues:
       
Oil sales
  $ 60,187  
Natural gas sales
    3,239  
Hedge and other derivative activity
    (707 )
         
Total
    62,719  
         
Direct operating expenses:
       
Lease operating expenses
    13,727  
Production and property taxes
    4,137  
         
Total
    17,864  
         
Excess of revenues over direct operating expenses
  $ 44,855  
         


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Pro Forma Distributable Income of the Trust
 
The table below outlines the calculation of distributable income from Net Profits Interest derived from the excess of revenues over direct operating expenses of the Underlying Properties for the year ended December 31, 2010 and should be read in conjunction with the unaudited pro forma financial information of the Trust included in this prospectus beginning on page F-24. The pro forma amounts below do not purport to present cash available for distribution by the trust to trust unitholders had the formation transactions contemplated actually occurred on January 1, 2010. In addition, cash available for distribution by the trust will be calculated based upon actual cash receipts of the trust during the applicable quarter, while the unaudited pro forma available cash calculation has been prepared using a modified cash basis of accounting as described in more detail in Note B to the unaudited pro forma financial statements appearing on page F-27. As a result, you should view the amount of unaudited pro forma available cash only as a general indication of the amount of cash available for distribution by the trust for the year ended December 31, 2010 had the formation transactions described above actually occurred on January 1, 2010.
 
                 
    Year Ended
       
    December 31, 2010        
    (In thousands,
       
    except per unit data)
       
    (Unaudited)        
 
Excess of revenues over direct operating expenses
  $ 44,855          
Less development expenses
    10,492          
                 
Excess of revenues over direct operating expenses and development expenses
    34,363          
Times Net Profits Interest over the term of the trust
    80 %        
                 
Income from Net Profits Interest
    27,490          
                 
Pro forma adjustments:
               
Less estimated trust general and administrative expenses
    900          
                 
Distributable income (1)
  $ 26,590          
                 
Distributable income per trust unit (2)
  $ 1.56          
                 
 
(1) Per the terms of the Net Profits Interest, development costs are to be deducted when calculating the distributable income to the trust.
 
(2) Due to the timing of the payment of production proceeds to the trust, the production and costs attributable to the available distributions for the twelve months ended December 31, 2010 would have been for the eleven months ended November 30, 2010, if the pro forma available cash for distribution were calculated based on a modified cash basis. As a result, the pro forma distributable income per trust unit for the twelve months ended December 31, 2010 would have been $1.39.


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Operating Data of the Underlying Properties
 
The following table provides oil and natural gas sales volumes, average sales prices and capital expenditures relating to the Underlying Properties for the years ended December 31, 2008, 2009 and 2010. Average sales prices do not include the effect of hedge activity.
 
                         
    Year Ended December 31,  
Underlying Properties (1)   2008     2009     2010  
          (Unaudited)        
 
Operating data:
                       
Sales volumes:
                       
Oil (MBbls)
    704       732       817  
Natural gas (MMcf)
    750       693       679  
                         
Total sales (MBoe)
    829       847       930  
                         
Average sales prices:
                       
Oil (per Bbl)
  $ 93.67     $ 55.16     $ 73.71  
Natural gas (per Mcf)
  $ 7.46     $ 3.31     $ 4.77  
Capital expenditures (in thousands):
                       
Property acquisition
  $ 7,899     $ 4,134     $ 3,262  
Well development
    2,499       2,407       7,230  
                         
Total
  $ 10,398     $ 6,541     $ 10,492  
                         
 
(1) The operating data below includes the effect of the Acquired Underlying Properties for all periods presented.
 
                         
    Year Ended December 31,  
Predecessor Underlying Properties   2008     2009     2010  
          (Unaudited)        
 
Operating data:
                       
Sales volumes:
                       
Oil (MBbls)
    389       407       495  
Natural gas (MMcf)
    426       415       447  
                         
Total (MBoe)
    460       477       569  
                         
Average sales prices:
                       
Oil (per Bbl)
  $ 94.11     $ 55.86     $ 74.59  
Natural gas (per Mcf)
  $ 7.86     $ 3.64     $ 5.36  
Capital expenditures (in thousands):
                       
Property acquisition
  $ 6,715     $ 2,369     $ 2,606  
Well development
    1,063       1,955       6,766  
                         
Total
  $ 7,778     $ 4,324     $ 9,372  
                         
 


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    Year Ended December 31,  
Acquired Underlying Properties   2008     2009     2010  
          (Unaudited)        
 
Operating data:
                       
Sales volumes:
                       
Oil (MBbls)
    315       324       322  
Natural gas (MMcf)
    324       278       232  
                         
Total sales (MBoe)
    369       371       360  
                         
Average sales prices:
                       
Oil (per Bbl)
  $ 93.12     $ 54.27     $ 72.35  
Natural gas (per Mcf)
  $ 6.94     $ 2.81     $ 3.63  
Capital expenditures (in thousands):
                       
Property acquisition
  $ 1,184     $ 1,765     $ 655  
Well development
    1,436       452       464  
                         
Total
  $ 2,620     $ 2,217     $ 1,119  
                         
 
Historical and Pro Forma Financial Data of VOC Sponsor
 
The summary historical audited financial data of Predecessor as of and for the year ended December 31, 2010 have been derived from the audited financial statements of Predecessor beginning on page VOC F-2. The summary unaudited pro forma financial data as of and for the year ended December 31, 2010 set forth in the following table have been derived from the unaudited pro forma financial statements of Predecessor included in this prospectus beginning on page VOC F-24. The pro forma adjustments have been prepared as if the acquisition of the Acquired Underlying Properties and, with respect to pro forma as adjusted information, the conveyance of the Net Profits Interest, the offer and sale of the trust units and application of the net proceeds therefrom, had taken place (i) on December 31, 2010, in the case of the pro forma balance sheet information as of December 31, 2010, and (ii) as of January 1, 2010, in the case of the pro forma statement of earnings information for the year ended December 31, 2010.
 
                         
        Predecessor Pro Forma
  Predecessor Pro Forma As
        for the Acquisition
  Adjusted for the Offering
        of the Acquired
  (Including the conveyance
    Predecessor   Underlying Properties   of the Net Profits Interest)
    Year Ended
  Year Ended
  Year Ended
    December 31,
  December 31,
  December 31,
    2010   2010   2010
    (In thousands)
        (Unaudited)   (Unaudited)
 
Revenue
  $ 38,635     $ 62,750     $ 22,460  
Net earnings
  $ 20,911     $ 30,624     $ 14,482  
Total assets (at year end)
  $ 109,038     $ 202,171     $ 96,031  
Long-term liabilities, excluding current maturities (at year end)
  $ 26,241     $ 27,805     $ 104,237  
Partners’ capital/common control owners’ equity (deficit)
  $ 70,936     $ 159,559     $ (32,361 )
 
SUMMARY PROJECTED CASH DISTRIBUTIONS
 
The following table presents a calculation of projected cash distributions to holders of trust units who own trust units as of the record date for the distribution for the second quarter of 2011 and continue to own those trust units through the record date for the cash distribution payable

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with respect to oil and natural gas production for the last quarter of 2011. The cash distribution projections for the year ending December 31, 2011 were prepared by VOC Sponsor based on the hypothetical assumptions that are described below and in “Projected cash distributions — Significant assumptions used to prepare the projected cash distributions.” Production attributable to the Underlying Properties for the twelve months ending December 31, 2011 is estimated to be 878.4 MBoe. However, due to the timing of the payment of production proceeds to the trust, the production and costs attributable to the distributions for the twelve months ending December 31, 2011 will be for the eleven months ending November 30, 2011, which is estimated to be 800.9 MBoe. As a result, projected cash distributions for the year ending December 31, 2011 will only include proceeds attributable to production and costs for the eleven months ending November 30, 2011. Payments to trust unitholders will generally be made 45 days following each calendar quarter. Generally, the trust will make payments to the trust that will include cash from production from the first two months of the quarter just ended as well as the last month of the immediately preceding quarter. For the year ending December 31, 2011, the trust will not make its first payment to the unitholders pursuant to the Net Profits Interest until on or about August 15, 2011, which payment will cover the net proceeds attributable to the Net Profits Interest for the first five months of 2011, less any general and administrative expenses and cash reserves of the trust.
 
VOC Sponsor does not as a matter of course make public projections as to future sales, earnings or other results. However, the management of VOC Sponsor has prepared the projected financial information set forth below to present the projected cash distributions to the holders of the trust units based on the estimates and hypothetical assumptions described below. The accompanying projected financial information was not prepared with a view toward complying with the published guidelines of the SEC or guidelines established by the American Institute of Certified Public Accountants with respect to projected financial information.
 
Neither VOC Sponsor’s independent auditors nor any other independent accountants have compiled, examined or performed any procedures with respect to the projected financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the projected financial information.
 
The projections and the estimates and hypothetical assumptions on which they are based are subject to significant uncertainties, many of which are beyond the control of VOC Sponsor or the trust. Actual cash distributions to trust unitholders, therefore, could vary significantly based upon events or conditions occurring that are different from the events or conditions assumed to occur for purposes of these projections. Cash distributions to trust unitholders will be particularly sensitive to fluctuations in oil and natural gas prices. See “Risk factors — Prices of oil and natural gas fluctuate due to a number of factors that are beyond the control of the trust and VOC Sponsor, and lower prices could reduce proceeds to the trust and cash distributions to unitholders.”
 


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    Projection for Twelve Months
 
Projected Cash Distributions   Ending December 31, 2011 (1)  
    (Dollars in thousands, except
 
    per Bbl, Mcf, MMBtu and
 
    per unit
 
    amounts)  
 
Underlying Properties sales volumes:
       
Oil (MBbls)
    716.5  
Natural gas (MMcf)
    506.3  
         
Total sales (MBoe)
    800.9  
         
NYMEX futures price (2):
       
Oil (per Bbl)
  $ 104.66  
Natural gas (per MMBtu)
  $ 4.34  
Assumed realized sales price (3):
       
Oil (per Bbl)
  $ 99.01  
Natural gas (per Mcf)
  $ 5.12  
Calculation of net proceeds:
       
Gross proceeds:
       
Oil sales
  $ 70,945  
Natural gas sales
    2,590  
         
Total
  $ 73,535  
         
Costs:
       
Production and development costs:
       
Lease operating expenses
  $ 11,239  
Production and property taxes
    4,531  
Development expenses
    8,171  
         
Total
  $ 23,941  
         
Settlement of hedge contracts (payment received) (4)
  $ 2,710  
         
Net proceeds
  $ 46,885  
         
Percentage allocable to Net Profits Interest
    80 %
Net proceeds to trust from Net Profits Interest
  $ 37,508  
         
Trust general and administrative expenses (5)
    900  
         
Cash reserve
    1,000  
Cash available for distribution by the trust
  $ 35,608  
         
Cash distribution per trust unit
  $ 2.09  
         
 
(1) Only includes proceeds attributable from production from January 1, 2011 through November 30, 2011 as the trust will not receive a cash payment for December 2010 in January 2011, and the payment for December 2011 production will be received in 2012.
 
(2) The assumed oil and natural gas prices utilized for purposes of preparing the projections are based on average spot prices for January, February and March 2011 and NYMEX futures pricing for April through November 2011 as reported on April 19, 2011. For a description of the effect of lower NYMEX prices on projected cash distributions, please read “Projected cash distributions— Projected cash distributions for the year ending December 31, 2011 — Sensitivity of projected cash distributions to oil and natural gas production and prices.”
 
(3) Sales price net of forecasted gravity, quality, transportation, and marketing costs. For more information about the estimates and hypothetical assumptions made in preparing the table above, see “Projected cash distributions —

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Projected cash distributions— Projected cash distributions for the twelve months ending December 31, 2011 — Significant assumptions used to prepare the projected cash distributions.”
 
(4) Costs will be reduced by hedge payments received by VOC Sponsor under the hedge contracts. If the hedge payments received by VOC Sponsor under the hedge contracts exceed costs during a quarterly period, the ability to use such excess amounts to offset costs will be deferred, with interest accruing on such amounts at the prevailing money market rate, until the next quarterly period when the current and deferred hedge payments are less than such costs.
 
(5) Total general and administrative expenses of the trust on an annualized basis for 2011 are expected to be $900,000, which includes an annual administrative fee to VOC Sponsor in the amount of $75,000 in 2011, which fee will increase by 4% annually beginning in January 2012, the annual fee to the trustees, accounting fees, engineering fees, printing costs and other expenses properly chargeable to the trust.


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THE OFFERING
 
Trust units offered by VOC Sponsor 11,085,000 trust units, or 12,747,750 trust units if the underwriters exercise their option to purchase additional trust units in full
 
Trust units owned by VOC Partners, LLC after the offering 5,915,000 trust units, or 4,252,250 trust units if the underwriters exercise their option to purchase additional trust units in full
 
Trust units outstanding after the offering 17,000,000 trust units
 
Use of proceeds VOC Sponsor is offering all of the trust units to be sold in this offering including, the trust units to be sold upon any exercise of the underwriters’ over-allotment option. The estimated net proceeds of this offering to be received by VOC Sponsor will be approximately $214.2 million, after deducting underwriting discounts and commissions, structuring fees and expenses, and $246.7 million if the underwriters exercise their option to purchase additional trust units in full. VOC Sponsor intends to use the net proceeds from this offering, including any proceeds from the exercise of the underwriters’ option to purchase additional trust units and the sale of the trust units to VOC Partners, LLC to repay approximately $24.0 million of outstanding borrowings under its credit facility, to repurchase certain outstanding equity interests in VOC Sponsor for approximately $67.9 million and to make cash distributions to its remaining limited partners. VOC Sponsor is deemed to be an underwriter with respect to the trust units offered hereby. See “Use of proceeds.”
 
NYSE symbol “VOC”
 
Quarterly cash distributions It is expected that quarterly cash distributions during the term of the trust, other than the first quarterly cash distribution, will be made by the trustee on or about the 45th day following the end of each quarter to the trust unitholders of record on the 30th day following the end of each quarter (or the next succeeding business day). The first distribution from the trust to the trust unitholders will be made on or about August 15, 2011 to trust unitholders owning trust units on or about August 1, 2011. The trust’s first quarterly distribution will consist of an amount in cash paid by VOC Sponsor equal to the amount that would have been payable to the trust had the Net Profits Interest been in effect during the period from January 1, 2011 through the day prior to the close of this offering plus the amount payable under the Net Profits Interest for the period from the day of closing of the offering through


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June 30, 2011, less any general and administrative expenses and reserves of the trust.
 
Actual cash distributions to the trust unitholders will fluctuate quarterly based upon the quantity of oil and natural gas produced from the Underlying Properties, the prices received for oil and natural gas production and other factors. Because payments to the trust will be generated by depleting assets and the trust has a finite life with the production from the Underlying Properties diminishing over time, a portion of each distribution will represent, in effect, a return of your original investment. Oil and natural gas production from proved reserves attributable to the Underlying Properties is expected to decline over the term of the trust. See “Risk factors.”
 
Termination of the trust The Net Profits Interest will terminate on the later to occur of (1) December 31, 2030, or (2) the time from and after January 1, 2011 when 10.6 MMBoe have been produced from the Underlying Properties and sold (which amount is the equivalent of 8.5 MMBoe in respect of the trust’s right to receive 80% of the net proceeds from the Underlying Properties pursuant to the Net Profits Interest), and the trust will promptly wind up its affairs and terminate thereafter.
 
Summary of income tax consequences Trust unitholders will be taxed directly on the income from assets of the trust. The Net Profits Interest should be treated as a debt instrument for federal income tax purposes, and a trust unitholder in that event will be required to include in such trust unitholder’s income its share of the interest income on such debt instrument as it accrues in accordance with the rules applicable to contingent payment debt instruments contained in the Internal Revenue Code of 1986, as amended, and the corresponding regulations. If the Net Profits Interest is not treated as a debt instrument, then a trust unitholder should be allowed to recoup its basis in the Net Profits Interest on a schedule that is in proportion to production attributable to the Net Profits Interest and that may be more favorable to a trust unitholder than the schedule on which basis will be recovered if the Net Profits Interest is treated as a debt instrument for federal income tax purposes. See “Federal income tax consequences.”


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RISK FACTORS
 
Prices of oil and natural gas fluctuate, and lower prices could reduce proceeds to the trust and cash distributions to unitholders.
 
The trust’s reserves and quarterly cash distributions are highly dependent upon the prices realized from the sale of oil and natural gas. Prices of oil and natural gas can fluctuate widely on a quarter-to-quarter basis in response to a variety of factors that are beyond the control of the trust and VOC Sponsor. These factors include, among others:
 
  •   regional, domestic and foreign supply and perceptions of supply of oil and natural gas;
 
  •   the level of demand and perceptions of demand for oil and natural gas;
 
  •   political conditions or hostilities in oil and natural gas producing regions, such as the recent geopolitical turmoil in North Africa and the Middle East;
 
  •   anticipated future prices of oil and natural gas and other commodities;
 
  •   weather conditions and seasonal trends;
 
  •   technological advances affecting energy consumption and energy supply;
 
  •   U.S. and worldwide economic conditions;
 
  •   the price and availability of alternative fuels;
 
  •   the proximity, capacity, cost and availability of gathering and transportation facilities;
 
  •   the volatility and uncertainty of regional pricing differentials;
 
  •   governmental regulations and taxation;
 
  •   energy conservation and environmental measures; and
 
  •   acts of force majeure.
 
Crude oil prices declined from record high levels in early July 2008 of over $140 per Bbl to below $45 per Bbl in February 2009 before rebounding to over $110 per Bbl in April 2011. Natural gas prices declined from over $13 per MMBtu in mid-2008 to approximately $2.40 per MMBtu in August 2009 to approximately $4 per MMBtu in April 2011.
 
Lower prices of oil and natural gas will reduce proceeds to which the trust is entitled and may ultimately reduce the amount of oil and natural gas that is economic to produce from the Underlying Properties. As a result, the operator of any of the Underlying Properties could determine during periods of low commodity prices to shut in or curtail production from wells on the Underlying Properties. In addition, the operator of the Underlying Properties could determine during periods of low commodity prices to plug and abandon marginal wells that otherwise may have been allowed to continue to produce for a longer period under conditions of higher prices. Specifically, VOC Sponsor may abandon any well or property if it reasonably believes that the well or property can no longer produce oil or natural gas in commercially paying quantities. This could result in termination of the Net Profits Interest relating to the abandoned well or property. In making such decisions, VOC Sponsor and any transferee will be required under the applicable


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conveyance to operate, or to use commercially reasonable efforts to cause the operators of the Underlying Properties to operate, these properties as would a reasonably prudent operator, acting with respect to its own properties (without regard to the existence of the Net Profits Interest). Because substantially all the Underlying Properties are located in mature fields, decreases in commodity prices could have a more significant effect on the economic viability of these properties as compared to more recently discovered properties. The commodity price sensitivity of these mature wells is due to a variety of factors that vary from well-to-well, including the additional costs associated with water handling and disposal, chemicals, surface equipment maintenance, downhole casing repairs and reservoir pressure maintenance activities that are necessary to maintain production. As a result, the volatility of commodity prices may cause the amount of future cash distributions to trust unitholders to fluctuate, and a substantial decline in the price of oil or natural gas will reduce the amount of cash available for distribution to the trust unitholders. The volatility of commodity prices also reduces the accuracy of estimates of future cash distributions to trust unitholders.
 
For the years 2011, 2012 and 2013 and the six months ending June 30, 2014, VOC Sponsor has entered into swap contracts, which we refer to as the “hedge contracts,” at weighted average prices ranging from $94.90 to $102.15 per barrel of oil that hedge approximately 61% of expected oil production for such years from the proved developed producing reserves attributable to the Underlying Properties in the summary reserve reports. The effect of these hedging transactions may limit the trust’s ability to realize cash flow from crude oil price increases on the portion of the production attributable to the Net Profits Interest that is hedged during such period. The Net Profits Interest will bear its share of the hedge payments regardless of whether the corresponding quantities of oil are produced or sold. Furthermore, VOC Sponsor has not entered into any hedge contracts relating to oil and natural gas volumes expected to be produced after June 30, 2014, and the terms of the conveyance of the Net Profits Interests will prohibit VOC Sponsor from entering into new hedging arrangements following the completion of this offering. As a result, the amounts of the cash distributions may be subject to a greater fluctuation after June 30, 2014 because of changes in crude oil prices. In the event that any of the counterparties to the hedge contracts default on their obligations to make payments to VOC Sponsor under the hedge contracts, the cash distributions to the trust unitholders would likely be materially reduced. For a discussion of the hedge contracts, see “The Underlying Properties — Hedge contracts.”
 
An increase in the differential between the price realized by VOC Sponsor for oil or natural gas produced from the Underlying Properties and the NYMEX or other benchmark price of oil or natural gas could reduce the proceeds to the trust and therefore the cash distributions by the trust and the value of trust units.
 
The prices received for VOC Sponsor’s oil and natural gas production usually fall below the relevant benchmark prices, such as NYMEX, that are used for calculating hedge positions. The difference between the price received and the benchmark price is called a basis differential. The differential may vary significantly due to market conditions, the quality and location of production and other factors. VOC Sponsor cannot accurately predict natural gas or crude oil differentials. Increases in the differential between the realized price of oil and natural gas and the benchmark price for oil and natural gas could reduce the proceeds to the trust and therefore the cash distributions by the trust and the value of the trust units.
 
Estimates of future cash distributions to unitholders are based on assumptions that are inherently subjective.
 
The projected cash distributions to trust unitholders in 2011 contained elsewhere in this prospectus are based on VOC Sponsor’s calculations, and VOC Sponsor has not received an opinion or report on such calculations from any independent accountants. Such calculations are


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based on assumptions about drilling, production, crude oil and natural gas prices, hedging activities, development expenditures, expenses, and other matters that are inherently uncertain and are subject to significant business, economic, financial, legal, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those estimated. In particular, these estimates have assumed that crude oil and natural gas production is sold in 2011 at average prices of $104.66 per Bbl in the case of crude oil and $4.34 per MMBtu in the case of natural gas. However, actual sales prices may be significantly lower. Recent geopolitical turmoil in North Africa and the Middle East may have contributed to recent increases in crude oil sales prices. Additionally, these estimates assume the Underlying Properties will achieve production volumes set forth in the reserve reports; however, actual production volumes may be significantly lower. If prices or production are lower than expected, the amount of cash available for distribution to trust unitholders would be reduced.
 
Production income is includable in the computation of net profits only after the cash is received from purchasers by VOC Sponsor, which typically occurs approximately 30 days after accrual. Because the trust is only entitled to a net profits interest on production after January 1, 2011, it will not receive a cash payment for December 2010 production in January 2011 so in effect trust unitholders will receive cash distributions attributable to only 11 months in 2011.
 
Actual reserves and future production may be less than current estimates, which could reduce cash distributions by the trust and the value of the trust units.
 
The value of the trust units and the amount of future cash distributions to the trust unitholders will depend upon, among other things, the accuracy of the reserves and future production estimated to be attributable to the trust’s interest in the Underlying Properties. See “The Underlying Properties — Reserve reports” for a discussion of the method of allocating proved reserves to the Underlying Properties and the Net Profits Interest. It is not possible to measure underground accumulations of oil and natural gas in an exact way, and estimating reserves is inherently uncertain. Ultimately, actual production and revenues for the Underlying Properties could vary negatively and in material amounts from estimates. Furthermore, development expenditures and production costs relating to the Underlying Properties could be higher than current estimates. Petroleum engineers are required to make subjective estimates of underground accumulations of oil and natural gas based on factors and assumptions that include:
 
  •   historical production from the area compared with production rates from other producing areas;
 
  •   oil and natural gas prices, production levels, Btu content, production expenses, transportation costs, severance and excise taxes and development expenditures; and
 
  •   the effect of expected governmental regulation.
 
Changes in these assumptions and amounts of actual production and development costs could materially decrease reserve estimates.
 
The processes of drilling and completing wells are high risk activities.
 
The processes of drilling and completing wells are subject to numerous risks beyond the trust’s and VOC Sponsor’s control, including risks that could delay VOC Sponsor’s current drilling schedule and the risk that drilling will not result in commercially viable oil production. VOC Sponsor is not obligated to undertake any development activities, so any drilling and completion activities will be subject to the reasonable discretion of VOC Sponsor. Further, VOC Sponsor’s future business, financial condition, results of operations, liquidity or ability to finance


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its share of planned development expenditures could be materially and adversely affected by any factor that may curtail, delay or cancel drilling, including the following:
 
  •   delays imposed by or resulting from compliance with regulatory requirements, including permitting;
 
  •   unusual or unexpected geological formations;
 
  •   shortages of or delays in obtaining equipment and qualified personnel;
 
  •   equipment malfunctions, failures or accidents;
 
  •   unexpected operational events and drilling conditions;
 
  •   reductions in oil or natural gas prices;
 
  •   market limitations for oil or natural gas;
 
  •   pipe or cement failures;
 
  •   casing collapses;
 
  •   lost or damaged drilling and service tools;
 
  •   loss of drilling fluid circulation;
 
  •   uncontrollable flows of oil and natural gas;
 
  •   fires and natural disasters;
 
  •   environmental hazards, such as oil and natural gas leaks, pipeline ruptures and discharges of toxic gases;
 
  •   adverse weather conditions; and
 
  •   oil or natural gas property title problems.
 
In the event that drilling of development wells is delayed or cancelled, or development wells have lower than anticipated production, due to one or more of the factors above or for any other reason, estimated future distributions to unitholders may be reduced.
 
Risks associated with the production, gathering, transportation and sale of oil and natural gas could adversely affect cash distributions by the trust.
 
The amount of cash to be received by the trust from VOC Sponsor with respect to the Net Profits Interest, the value of the trust units and the amount of cash distributions to the trust unitholders will depend upon, among other things, oil and natural gas production and prices and the costs incurred by VOC Sponsor to develop and produce oil and natural gas reserves attributable to the Underlying Properties. Drilling, production or transportation accidents as well as adverse weather conditions that temporarily or permanently halt the production and sale of oil or natural gas at any of the Underlying Properties will reduce trust distributions by reducing the amount of net proceeds received by the trust and available for distribution. For example, accidents may occur that result in personal injuries, property damage, damage to productive


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formations or equipment and environmental damages. To the extent VOC Sponsor is not able to recover from insurance any costs incurred by VOC Sponsor in connection with any such accidents, the net proceeds available for distribution to the trust may be reduced or delayed. In addition, curtailments or damage to pipelines used by VOC Sponsor to transport oil and natural gas production to markets for sale could reduce the amount of net proceeds received by the trust and available for distribution. Any such curtailment or damage to the gathering systems used by VOC Sponsor could also require VOC Sponsor to find alternative means to transport the oil and natural gas production from the Underlying Properties, which could require VOC Sponsor to incur additional costs that will have the effect of reducing net proceeds received by the trust and available for distribution.
 
VOC Sponsor does not have any long term contracts related to the sale of production of oil and natural gas from the Underlying Properties and may be unable to find purchasers.
 
VOC Sponsor does not have any firm commitment contracts for the sale of any production nor has it received security or other guaranty of payment for the production it sells. Therefore, there can be no assurance that VOC Sponsor will be able to find buyers for its production, that buyers will pay the purchase price therefor or that the price at which the production is sold will be current market price for such hydrocarbons at the time of delivery. During the year ended December 31, 2010, VOC Sponsor sold approximately 32% of the oil produced from the Underlying Properties to MV Purchasing LLC, an affiliate of VOC Sponsor. Any nonpayment by a purchaser of production, including MV Purchasing LLC, or inability by VOC Sponsor to sell any production, could reduce cash available for distribution to trust unitholders.
 
Neither the trust nor the trust’s unitholders will have the ability to influence VOC Sponsor or control the operations or development of the Underlying Properties.
 
Trust unitholders have no voting rights with respect to VOC Sponsor and therefore will have no managerial, contractual or other ability to influence VOC Sponsor’s activities or the operations of the Underlying Properties. Oil and natural gas properties are typically managed pursuant to an operating agreement among the working interest owners of oil and natural gas properties. The VOC Operators operate, or operate on a contract basis, substantially all of the properties comprising the Underlying Properties. The typical operating agreement contains procedures whereby the owners of the working interests in the property designate one of the interest owners to be the operator of the property. Under these arrangements, the operator is typically responsible for making all decisions relating to drilling activities, sale of production, compliance with regulatory requirements and other matters that affect the property.
 
Shortages or increases in costs of equipment, services and qualified personnel could result in a reduction in the amount of cash available for distribution to the trust unitholders.
 
The demand for qualified and experienced personnel to conduct field operations, geologists, geophysicists, engineers and other professionals in the oil and natural gas industry can fluctuate significantly, often in correlation with oil and natural gas prices, causing periodic shortages. Historically, there have been shortages of drilling rigs and other equipment as demand for rigs and equipment has increased along with the number of wells being drilled. These factors also cause significant increases in costs for equipment, services and personnel. Higher oil and natural gas prices generally stimulate demand and result in increased prices for drilling rigs, crews and associated supplies, equipment and services. Shortages of field personnel and equipment or price increases could significantly decrease the amount of cash received by the trust and available for distribution to the trust unitholders or restrict the ability of VOC Sponsor to drill the development wells and conduct the operations which it currently has planned for the Underlying Properties.


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The trust units may lose value as a result of title deficiencies with respect to the Underlying Properties.
 
VOC Sponsor acquired the Underlying Properties over the past 30 years. The existence of a material title deficiency with respect to the Underlying Properties could reduce the value of a property or render it worthless, thus adversely affecting the Net Profits Interest and distributions to trust unitholders. VOC Sponsor does not obtain title insurance covering mineral leaseholds, and VOC Sponsor’s failure to cure any title defects may cause VOC Sponsor to lose its rights to production from the Underlying Properties. In the event of any such material title problem, proceeds available for distribution to trust unitholders and the value of the trust units may be reduced.
 
VOC Sponsor may transfer all or a portion of the Underlying Properties at any time without trust unitholder consent, subject to specified limitations.
 
VOC Sponsor may at any time transfer all or part of the Underlying Properties, subject to and burdened by the Net Profits Interest, and may abandon individual wells or properties that it reasonably believes would no longer produce oil or natural gas in commercially paying quantities. For the years ended December 31, 2008, 2009 and 2010, VOC Sponsor plugged and abandoned six, 15 and 27 wells, respectively, located on leases on the Underlying Properties. Trust unitholders will not be entitled to vote on any transfer of the Underlying Properties, and the trust will not receive any proceeds from any such transfer, except in certain limited circumstances when the Net Profits Interest is released in connection with such transfer, in which case the trust will receive an amount equal to the fair market value (net of sales costs) of the Net Profits Interest released. See “The Underlying Properties — Sale and abandonment of Underlying Properties.” Following any sale or transfer of any of the Underlying Properties, if the Net Profits Interest is not released in connection with such sale or transfer, the Net Profits Interest will continue to burden the transferred property and net proceeds attributable to such property will be calculated as part of the computation of net proceeds described in this prospectus. VOC Sponsor may delegate to the transferee responsibility for all of VOC Sponsor’s obligations relating to the Net Profits Interest on the portion of the Underlying Properties transferred.
 
In addition, VOC Sponsor may, without the consent of the trust unitholders, require the trust to release the Net Profits Interest associated with any lease that accounts for less than or equal to 0.25% of the total production from the Underlying Properties in the prior 12 months and provided that the Net Profits Interest covered by such releases cannot exceed, during any 12-month period, an aggregate fair market value to the trust of $500,000. These releases will be made only in connection with a sale by VOC Sponsor of the relevant Underlying Properties and are conditioned upon the trust’s receiving an amount equal to the fair market value to the trust of such Net Profits Interest. Any net sales proceeds paid to the trust will be distributable to trust unitholders for the quarter in which they are received. VOC Sponsor has not identified for sale any of the Underlying Properties.
 
The reserves attributable to the Underlying Properties are depleting assets and production from those properties will diminish over time.
 
The proceeds payable to the trust attributable to the Net Profits Interests are derived from the sale of production of oil and natural gas from the Underlying Properties. The reserves attributable to the Underlying Properties are depleting assets, which means that the reserves and the quantity of oil and natural gas produced from the Underlying Properties will decline over time. Furthermore, over approximately 87% of the estimated oil recovery attributable to the Underlying Properties has already been extracted from the producing wells located on the Underlying Properties. Based on the estimated production volumes in the reserve reports, the oil and natural gas production from proved reserves attributable to the Underlying Properties is projected to


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decline at an average rate of approximately 6.2% per year over the next 20 years, assuming the level of development drilling and development expenditures on the Underlying Properties disclosed elsewhere in this prospectus through 2014 and none thereafter. Actual decline rates may vary from this projected decline rate. In the event expected future development is delayed, reduced or cancelled, the average rate of decline will likely exceed 6.2% per year.
 
The trust agreement will provide that the trust’s activities will be limited to owning the Net Profits Interest and any activity reasonably related to such ownership, including activities required or permitted by the terms of the conveyance related to the Net Profits Interest. As a result, the trust will not be permitted to acquire other oil and natural gas properties or net profits interests to replace the depleting assets and production attributable to the Net Profits Interest.
 
Because the net proceeds payable to the trust are derived from the sale of depleting assets, the portion of the distributions to unitholders attributable to depletion may be considered to have the effect of a return of capital as opposed to a return on investment. Eventually, the Underlying Properties burdened by the Net Profits Interest may cease to produce in commercially paying quantities and the trust may, therefore, cease to receive any distributions of net proceeds therefrom.
 
The amount of cash available for distribution by the trust will be reduced by the amount of any costs and expenses related to the Underlying Properties and other costs and expenses incurred by the trust.
 
The Net Profits Interest will bear its share of all costs and expenses related to the Underlying Properties, such as lease operating expenses, production and property taxes, development expenses and hedge expenses, which will reduce the amount of cash received by the trust and thereafter distributable to trust unitholders. Accordingly, higher costs and expenses related to the Underlying Properties will directly decrease the amount of cash received by the trust in respect of its Net Profits Interest. Please read “The Underlying Properties — Selected historical and unaudited pro forma financial data and operating data of the Underlying Properties.” Historical costs may not be indicative of future costs. In addition, cash available for distribution by the trust will be further reduced by the trust’s general and administrative expenses, which are expected to be $900,000 in 2011. For details about these general and administrative expenses, please see “Description of the trust agreement — Fees and expenses.”
 
If production and development costs on the Underlying Properties together with the other costs exceed gross proceeds of production from the Underlying Properties, the trust will not receive net proceeds from those properties until future gross proceeds from production exceed the total of the excess costs, plus accrued interest. If the trust does not receive net proceeds pursuant to the Net Profits Interest, or if such net proceeds are reduced, the trust will not be able to distribute cash to the trust unitholders, or such cash distributions will be reduced, respectively. Development activities may not generate sufficient additional revenue to repay the costs.
 
The trustee may, under certain circumstances, sell the Net Profits Interest and dissolve the trust prior to the expected termination of the trust. As a result, trust unitholders may not recover their investment.
 
The trustee must sell the Net Profits Interest if the holders of a majority of the trust units approve the sale or vote to dissolve the trust. The trustee must also sell the Net Profits Interest if the annual gross proceeds from the Underlying Properties attributable to the Net Profits Interest are less than $1.0 million for each of any two consecutive years. The sale of the Net Profits


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Interest will result in the dissolution of the trust. The net proceeds of any such sale will be distributed to the trust unitholders.
 
VOC Partners, LLC may sell trust units in the public or private markets, and such sales could have an adverse impact on the trading price of the trust units.
 
After the closing of the offering, VOC Partners, LLC will hold an aggregate of 5,915,000 trust units, assuming no exercise of the underwriters’ over-allotment option. VOC Partners, LLC has agreed not to sell any trust units for a period of 180 days after the date of this prospectus without the consent of Raymond James & Associates, Inc. See “Underwriting.” After such period, VOC Partners, LLC may sell trust units in the public or private markets, and any such sales could have an adverse impact on the price of the trust units or on any trading market that may develop. The trust has granted registration rights to VOC Partners, LLC, which, if exercised, would facilitate sales of common units thereby.
 
There has been no public market for the trust units and no independent appraisal of the value of the Net Profits Interest has been performed.
 
Among the factors to be considered in determining the number of trust units offered hereby and the initial public offering price will be current and historical oil and natural gas prices, current and prospective conditions in the supply and demand for oil and natural gas, reserve and production quantities estimated for the Net Profits Interest, the trust’s cash distributions prospects and prevailing market conditions. None of VOC Sponsor, the trust or the underwriters will obtain any independent appraisal or other opinion of the value of the Net Profits Interest, other than the reserve report prepared by Cawley, Gillespie & Associates, Inc.
 
The trading price for the trust units may not reflect the value of the Net Profits Interest held by the trust.
 
The trading price for publicly traded securities similar to the trust units tends to be tied to recent and expected levels of cash distributions. The amounts available for distribution by the trust will vary in response to numerous factors outside the control of the trust, including prevailing prices for sales of oil and natural gas production from the Underlying Properties and the timing and amount of production and development costs. Consequently, the trading price for the trust units may not necessarily be indicative of the value that the trust would realize if it sold the Net Profits Interest to a third-party buyer. In addition, such market price may not necessarily reflect the fact that since the assets of the trust are depleting assets, a portion of each cash distribution paid on the trust units should be considered by investors as a return of capital, with the remainder being considered as a return on investment. As a result, distributions made to a unitholder over the life of these depleting assets may not equal or exceed the purchase price paid by the unitholder.
 
Conflicts of interest could arise between VOC Sponsor and its affiliates, on the one hand, and the trust and the trust unitholders, on the other hand.
 
As working interest owners in, and operators of substantially all the wells on, the Underlying Properties, VOC Sponsor and its affiliates could have interests that conflict with the interests of the trust and the trust unitholders. For example:
 
  •   VOC Sponsor’s interests may conflict with those of the trust and the trust unitholders in situations involving the development, maintenance, operation or abandonment of the Underlying Properties. VOC Sponsor may also make decisions with respect to development expenditures that adversely affect the Underlying Properties. These


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  decisions include reducing development expenditures on these properties, which could cause oil and natural gas production to decline at a faster rate and thereby result in lower cash distributions by the trust in the future.
 
  •   VOC Sponsor may sell some or all of the Underlying Properties without taking into consideration the interests of the trust unitholders. Such sales may not be in the best interests of the trust unitholders. These purchasers may lack VOC Sponsor’s experience or its credit worthiness. VOC Sponsor also has the right, under certain limited circumstances, to cause the trust to release all or a portion of the Net Profits Interest in connection with a sale of a portion of the Underlying Properties to which such Net Profits Interest relates. See “The Underlying Properties — Sale and abandonment of Underlying Properties.”
 
  •   MV Purchasing LLC, an affiliate of VOC Sponsor, is expected to market and/or purchase a substantial portion of the oil produced from the Underlying Properties, and it is expected to profit from this arrangement. Provisions in the Net Profits Interest conveyance, however, require that charges and other terms under contracts with affiliates of VOC Sponsor be comparable to prices and other terms prevailing in the area for similar services or sales. During the year ended December 31, 2010, VOC Sponsor sold approximately 32% of the oil produced from the Underlying Properties to MV Purchasing, LLC.
 
  •   VOC Partners, LLC has registration rights and can sell its units without considering the effects such sale may have on trust unit prices or on the trust itself. Additionally, VOC Partners, LLC can vote its trust units in its sole discretion without considering the interests of the other trust unitholders.
 
The trust is managed by a trustee who cannot be replaced except by a majority vote of the unitholders at a special meeting, which may make it difficult for unitholders to remove or replace the trustee.
 
The affairs of the trust will be managed by the trustee. Your voting rights as a trust unitholder are more limited than those of stockholders of most public corporations. For example, there is no requirement for annual meetings of trust unitholders or for an annual or other periodic re-election of the trustee. The trust agreement provides that the trustee may only be removed and replaced by the holders of a majority of the outstanding trust units, including trust units held by VOC Partners, LLC, at a special meeting of trust unitholders called by either the trustee or the holders of not less than 10% of the outstanding trust units. As a result, it will be difficult for public unitholders to remove or replace the trustee without the cooperation of VOC Partners, LLC so long as it holds a significant percentage of total trust units.
 
Trust unitholders have limited ability to enforce provisions of the Net Profits Interest, and VOC Sponsor’s liability to the trust is limited.
 
The trust agreement permits the trustee to sue VOC Sponsor or any other future owner of the Underlying Properties to enforce the terms of the conveyance creating the Net Profits Interest. If the trustee does not take appropriate action to enforce provisions of the conveyance, trust unitholders’ recourse would be limited to bringing a lawsuit against the trustee to compel the trustee to take specified actions. The trust agreement expressly limits a trust unitholder’s ability to directly sue VOC Sponsor or any other third party other than the trustee. As a result, trust unitholders will not be able to sue VOC Sponsor or any future owner of the Underlying Properties to enforce these rights. Furthermore, the Net Profits Interest conveyance provides that, except as set forth in the conveyance, VOC Sponsor will not be liable to the trust for the manner


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in which it performs its duties in operating the Underlying Properties as long as it acts without gross negligence or willful misconduct.
 
Courts outside of Delaware may not recognize the limited liability of the trust unitholders provided under Delaware law.
 
Under the Delaware Statutory Trust Act, trust unitholders will be entitled to the same limitation of personal liability extended to stockholders of corporations under the General Corporation Law of the state of Delaware. No assurance can be given, however, that the courts in jurisdictions outside of Delaware will give effect to such limitation.
 
The operations of the Underlying Properties are subject to environmental laws and regulations that may result in significant costs and liabilities, which could reduce the amount of cash available for distribution to trust unitholders.
 
The oil and natural gas exploration and production operations of VOC Sponsor are subject to stringent and comprehensive federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may impose numerous obligations that apply to VOC Sponsor’s operations, including the requirement to obtain a permit before conducting drilling, waste disposal or other regulated activities; the restriction of types, quantities and concentrations of materials that can be released into the environment; the incurrence of significant development expenditures to install pollution or safety-related controls at the operated facilities; the limitation or prohibition of drilling activities on certain lands lying within wilderness, wetlands and other protected areas; and the imposition of substantial liabilities for pollution resulting from operations. Numerous governmental authorities, such as the U.S. Environmental Protection Agency (“EPA”) and analogous state environmental and oil and gas agencies, have the power to enforce compliance with these laws and regulations and the permits issued under them, oftentimes requiring difficult and costly actions. Failure to comply with these laws and regulations may result in the assessment of administrative, civil or criminal penalties; the imposition of investigatory or remedial obligations; and the issuance of injunctions limiting or preventing some or all of VOC Sponsor’s operations. Furthermore, the inability to comply with environmental laws and regulations in a cost-effective manner, such as removal and disposal of produced water and other generated oil and gas wastes, could impair VOC Sponsor’s ability to produce oil and natural gas commercially from the Underlying Properties, which would reduce proceeds attributable to the Net Profits Interest.
 
There is inherent risk of incurring significant environmental costs and liabilities in the performance of VOC Sponsor’s operations as a result of its handling of petroleum hydrocarbons and wastes, air emissions and wastewater discharges related to its operations, and historical industry operations and waste disposal practices. Under certain environmental laws and regulations, VOC Sponsor could be subject to joint and several strict liability for the removal or remediation of previously released materials or property contamination regardless of whether VOC Sponsor was responsible for the release or contamination or whether the operations were in compliance with all applicable laws at the time those actions were taken. Private parties, including the owners of properties upon which VOC Sponsor’s wells are drilled and facilities where VOC Sponsor’s petroleum hydrocarbons or wastes are taken for reclamation or disposal, may also have the right to pursue legal actions to enforce compliance as well as to seek damages for non-compliance with environmental laws and regulations or for personal injury or property damage. In addition, the risk of accidental spills or releases could expose VOC Sponsor to significant liabilities that could have a material adverse effect on its financial condition or results of operations. Changes in environmental laws and regulations occur frequently, and any changes that result in more stringent or costly operational control requirements or waste handling, storage,


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transport, disposal or cleanup requirements could require VOC Sponsor to make significant expenditures to attain and maintain compliance and may otherwise have a material adverse effect on its results of operations, competitive position or financial condition. VOC Sponsor may be unable to recover some or any of these costs from insurance, in which case the amount of cash received by the trust may be decreased. The Net Profits Interest held by the trust will bear 80% of all costs and expenses incurred by VOC Sponsor in regard to environmental costs and liabilities associated with the Underlying Properties, including costs and liabilities resulting from conditions that existed prior to VOC Sponsor’s acquisition of the Underlying Properties unless such costs and expenses result from VOC Sponsor’s gross negligence or willful misconduct. In addition, as a result of the increased cost of compliance, VOC Sponsor may decide to discontinue drilling.
 
The operations of the Underlying Properties are subject to complex federal, state, local and other laws and regulations that could adversely affect the cost, manner or feasibility of conducting its operations or expose VOC Sponsor to significant liabilities, which could reduce the amount of cash available for distribution to trust unitholders.
 
The production and development operations on the Underlying Properties are subject to complex and stringent laws and regulations. In order to conduct its operations in compliance with these laws and regulations, VOC Sponsor must obtain and maintain numerous permits, drilling bonds, approvals and certificates from various federal, state and local governmental authorities and engage in extensive reporting. VOC Sponsor may incur substantial costs in order to maintain compliance with these existing laws and regulations, and the Net Profits Interest will bear its share of these costs. In addition, VOC Sponsor’s costs of compliance may increase if existing laws and regulations are revised or reinterpreted, or if new laws and regulations become applicable to VOC Sponsor’s operations. Such costs could have a material adverse effect on VOC Sponsor’s business, financial condition and results of operations and reduce the amount of cash received by the trust in respect of the Net Profits Interest, VOC Sponsor must also comply with laws and regulations prohibiting fraud and market manipulations in energy markets. To the extent VOC Sponsor is a shipper on interstate pipelines, it must comply with the tariffs of such pipelines and with federal policies related to the use of interstate capacity, and such compliance costs will be borne indirectly in part by the trust.
 
Laws and regulations governing exploration and production may also affect production levels. VOC Sponsor is required to comply with federal and state laws and regulations governing conservation matters, including: provisions related to the unitization or pooling of oil and natural gas properties; the establishment of maximum rates of production from wells; the spacing of wells; the plugging and abandonment of wells; and the removal of related production equipment. These and other laws and regulations can limit the amount of oil and natural gas VOC Sponsor can produce from its wells, limit the number of wells it can drill, or limit the locations at which it can conduct drilling operations, which in turn could negatively impact trust distributions, estimated and actual future net revenues to the trust and estimates of reserves attributable to the trust’s interests.
 
New laws or regulations, or changes to existing laws or regulations, may unfavorably impact VOC Sponsor, could result in increased operating costs or have a material adverse effect on VOC Sponsor’s financial condition and results of operations and reduce the amount of cash received by the trust. For example, Congress is currently considering legislation that, if adopted in its proposed form, would subject companies involved in oil and natural gas exploration and production activities to, among other items, additional regulation of and restrictions on hydraulic fracturing of wells, the elimination of certain U.S. federal tax incentives and deductions available to oil and natural gas exploration and production activities, and the prohibition or additional regulation of private energy commodity derivative and hedging activities. These and other


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potential regulations could increase the operating costs of the Underlying Properties, reduce VOC Sponsor’s liquidity, delay VOC Sponsor’s operations or otherwise alter the way VOC Sponsor conducts its business, any of which could have a material adverse effect on the Net Profits Interest and the trust’s cash flows.
 
Climate change laws and regulations restricting emissions of “greenhouse gases” could result in increased operating costs and reduced demand for the oil and natural gas that VOC Sponsor produces while the physical effects of climate change could disrupt VOC Sponsor’s production and cause VOC Sponsor to incur significant costs in preparing for or responding to those effects.
 
The oil and gas industry is a direct source of certain greenhouse gases (“GHG”) emissions, namely carbon dioxide and methane, and future restrictions on such emissions could impact our future operations. On December 15, 2009, the EPA published its findings that emissions of carbon dioxide, methane and other GHGs present an endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to the warming of the earth’s atmosphere and other climate changes. Based on these findings, the agency has begun adopting and implementing regulations that restrict emissions of GHGs under existing provisions of the federal Clean Air Act. During 2010, the EPA adopted two sets of rules regulating GHG emissions under the Clean Air Act, one of which requires a reduction in emissions of GHGs from motor vehicles and the other of which regulates emissions of GHGs from certain large stationary sources under the Prevention of Significant Deterioration (“PSD”) and Title V permitting programs, effective January 2, 2011. The stationary source rule “tailors” these permitting programs to apply to certain stationary sources in a multi-step process, with the largest sources first subject to permitting. Facilities required to obtain PSD permits for their GHG emissions also will be required to reduce those emissions according to “best available control technology” standards for GHGs that will be established by the states or, in some instances, by the EPA on a case-by-case basis. The EPA’s rules relating to emissions of GHGs from large stationary sources of emissions are currently subject to a number of legal challenges, but the federal courts have thus far declined to issue any injunctions to prevent EPA from implementing, or requiring state environmental agencies to implement, the rules. These EPA rulemakings could affect VOC Sponsor’s operations and its ability to obtain air permits for new or modified facilities. In addition, on November 30, 2010, the EPA published final regulations expanding the existing greenhouse gas monitoring and reporting rule to include onshore and offshore oil and natural gas production and onshore oil and natural gas processing, transmission storage and distribution facilities. Reporting of GHG emissions from such facilities will be required on an annual basis, with reporting beginning in 2012 for emissions occurring in 2011.
 
In addition, the U.S. Congress has from time to time considered legislation to reduce emissions of GHGs, and almost half of the states have already taken legal measures to reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade programs. Most of these cap and trade programs work by requiring either major sources of emissions or major producers of fuels to acquire and surrender emission allowances, with the number of allowances available for purchase reduced each year until the overall GHG emission reduction goal is achieved. These reductions would be expected to cause the cost of allowances to escalate significantly over time. The adoption of any legislation or regulations that requires reporting of GHGs or otherwise limits emissions of GHGs from VOC Sponsor’s equipment and operations could require VOC Sponsor to incur costs to monitor and report on GHG emissions or reduce emissions of GHGs associated with its operations, and such requirements also could adversely affect demand for the oil and natural gas produced, all of which could reduce proceeds attributable to the Net Profits Interest and, as a result, the trust’s cash available for distribution.


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Finally, it should be noted that some scientists have concluded that increasing concentrations of greenhouse gases in the Earth’s atmosphere may produce climate changes that have significant physical effects, such as increased frequency and severity of storms, droughts, and floods and other climatic events. If any such effects were to occur, they could have an adverse effect on VOC Sponsor’s assets and operations and, consequently, may reduce the proceeds attributable to the Net Profits Interest and, as a result, the trust’s cash available for distribution.
 
Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays as well as adversely affect VOC Sponsor’s services.
 
Hydraulic fracturing is an important and common practice that is used to stimulate production of hydrocarbons, particularly natural gas, from tight formations. The process involves the injection of water, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production. The process is typically regulated by state oil and gas commissions. However, the EPA recently asserted federal regulatory authority over hydraulic fracturing involving diesel additives under the Safe Drinking Water Act’s Underground Injection Control Program. While the EPA has yet to take any action to enforce or implement this newly asserted regulatory authority, industry groups have filed suit challenging the EPA’s recent decision. At the same time, the EPA has commenced a study of the potential environmental impacts of hydraulic fracturing activities, with initial results of the study anticipated to be available by late 2012, and final results in 2014. In addition, legislation that was introduced in the 111th session of Congress has been reintroduced in the 112th Congress and would provide for federal regulation of hydraulic fracturing and require both prefracturing and post-fracturing disclosure of the chemicals used in the fracturing process. Also, some states have adopted, and other states are considering adopting, regulations that could restrict or impose additional requirements relating to hydraulic fracturing in certain circumstances. For example, on March 1, 2011, a bill was introduced in the Texas Senate that, if adopted, would require written disclosure to the Railroad Commission of Texas of specific information about the fluids, proppants and additives used in hydraulic fracturing treatment operations, and on March 11, 2011, a bill was introduced in the Texas House of Representatives that would require service companies to submit “master lists” of base fluids, additives and chemical constituents to be used in hydraulic fracturing activities in Texas, subject to certain trade secret protections, to the Railroad Commission. Such federal or state legislation could require the disclosure of chemical constituents used in the fracturing process to state or federal regulatory authorities who could then make such information publicly available. Required disclosure without protection for trade secret or proprietary products could discourage service companies from using such products and as a result impact the degree to which some oil and gas wells may be efficiently and economically completed or brought into production. Disclosure of chemicals used in the fracturing process could also make it easier for third parties opposing hydraulic fracturing to initiate legal proceedings against producers and service providers based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. In addition, if hydraulic fracturing is regulated at the federal level, VOC Sponsor’s fracturing activities could become subject to additional permit requirements or operational restrictions and also to associated permitting delays and potential increases in costs. Further, some state and local governments in the Marcellus Shale region in Pennsylvania and New York have considered or imposed temporary moratoria on drilling operations using hydraulic fracturing until further study of the potential environmental and human health impacts by EPA or the relative state agencies are completed, and at least a couple of local governments in Texas have imposed temporary moratoria on drilling activities within city limits so that local ordinances may be reviewed to assess their adequacy to address such activities. No assurance can be given as to whether or not similar measures might be considered or implemented in the jurisdictions in which we operate. If


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new laws or regulations that significantly restrict or otherwise impact hydraulic fracturing are passed by Congress or adopted in Texas or Kansas such legal requirements could make it more difficult or costly for VOC Sponsor to perform hydraulic fracturing activities and thereby affect the determination of whether a well is commercially viable. In addition, restrictions on hydraulic fracturing could reduce the amount of oil and natural gas that VOC Sponsor is ultimately able to produce in commercially paying quantities from the Underlying Properties.
 
The bankruptcy of VOC Sponsor or any of the VOC Operators could impede the operation of the wells and the development of the proved undeveloped reserves.
 
VOC Sponsor is a privately-held limited partnership engaged in the production and development of oil and natural gas from properties located in Kansas and Texas. VOC Sponsor intends to implement a development and workover program, including the expenditure over the next five years of approximately $27.1 million to drill additional wells and recomplete and workover other wells. Without this development and workover program, the average decline rate over the life of the trust of the oil and natural gas production from the proved reserves attributable to the Underlying Properties will likely exceed the 6.2% per year projected in the reserve reports. The VOC Operators are privately-held limited partnerships or corporations engaged in the operation of oil and natural gas wells in Kansas and Texas that were the operators or contract operators of Underlying Properties having approximately 98% of the total proved reserves on the Underlying Properties, based on PV-10 value. Therefore, the value of the Net Profits Interest and the trust’s ultimate cash available for distribution will be highly dependent on the financial condition of VOC Sponsor and the VOC Operators. None of VOC Sponsor or the VOC Operators will be a reporting company following this offering or will file periodic reports with the SEC. Therefore, as a trust unitholder, you will not have access to financial information about VOC Sponsor or the VOC Operators. Furthermore, none of VOC Sponsor or the VOC Operators has agreed with the trust to maintain a certain net worth or to be restricted by other similar covenants and VOC Sponsor intends to distribute all of the net proceeds of this offering to its partners instead of retaining all or a portion for the development of the Underlying Properties.
 
The ability of VOC Sponsor to develop the Underlying Properties and the ability of the VOC Operators to operate the wells on the Underlying Properties depends on the future financial condition and economic performance and access to capital of VOC Sponsor and the VOC Operators, which in turn will depend upon the supply and demand for oil and natural gas, prevailing economic conditions and financial, business and other factors, many of which are beyond the control of VOC Sponsor and the VOC Operators. See “Information about VOC Brazos Energy Partners, L.P. (VOC Sponsor)” found on page VOC-1 for additional information relating to VOC Sponsor, including information relating to the business of VOC Sponsor, historical financial statements of VOC Sponsor and other financial information relating to VOC Sponsor. This prospectus contains no financial information about the VOC Operators.
 
In the event of the bankruptcy of VOC Sponsor or a VOC Operator, the trust would have to seek a new party to perform the development and workover program or the operations of the wells operated by such VOC Operator. The trust may not be able to find a replacement driller or operator, and it may not be able to enter into a new agreement with such replacement party on favorable terms within a reasonable period of time. As a result, such a bankruptcy may result in reduced production from the reserves and decreased distributions to trust unitholders.


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The trust may be treated as an unsecured creditor with respect to the Net Profits Interest attributable to properties in Kansas in the event of the bankruptcy of VOC Sponsor if a court were to hold that the conveyance and recording of the Net Profits Interest was not a conveyance of a fully vested real property interest or an interest in hydrocarbons in place or to be produced.
 
VOC Sponsor and the trust believe that the recording in the appropriate real property records in Kansas of the Net Profits Interest should constitute the conveyance of a fully vested real property interest, interests in hydrocarbons in place or to be produced or a production payment as such is defined under the United States Bankruptcy Code, but there is no dispositive Kansas Supreme Court case directly addressing these issues. In a bankruptcy of VOC Sponsor, creditors of VOC Sponsor would be able to claim the Net Profits Interest as an asset of the bankruptcy estate to satisfy obligations to them if the conveyance of the Net Profits Interest did not constitute the conveyance of a real property interest or interests in hydrocarbons in place or to be produced under applicable state law or a production payment, in which case the trust would be an unsecured creditor of VOC Sponsor at risk of losing the entire value of the Net Profit Interests to senior creditors.
 
Due to lack of geographic diversification of the Underlying Properties, adverse developments in Kansas or Texas could adversely impact the results of operations and cash flows of the Underlying Properties and reduce the amount of cash available for distributions to trust unitholders.
 
The operations of the Underlying Properties are focused on the production and development of oil and natural gas within the states of Kansas and Texas. As a result, the results of operations and cash flows of the Underlying Properties depend upon continuing operations in these areas. Due to the lack of diversification in geographic location, adverse developments in exploration and production of oil and natural gas in either of these areas of operation could have a significantly greater impact on the results of operations and cash flows of the Underlying Properties than if the operations were more diversified.
 
The receipt of payments by VOC Sponsor based on the hedge contracts depends upon the financial position of the hedge contract counterparties. A default by any of the hedge contract counterparties could reduce the amount of cash available for distribution to the trust unitholders.
 
Payments from hedge contract counterparties to VOC Sponsor are intended to offset costs and thus have the effect of providing additional cash to the trust during periods of lower crude oil prices. In the event that any of the counterparties to the hedge contracts default on their obligations to make payments to VOC Sponsor under the hedge contracts, the cash distributions to the trust unitholders could be materially reduced. VOC Sponsor does not have any security interest from its hedge counterparties against which it could recover in the event of a default by any such counterparty.
 
VOC Sponsor’s performance of its obligations to the trust and the financial results of the trust may differ from the drilling and financial results of MVO.
 
As disclosed in this prospectus, certain members of the management of VOC Sponsor previously participated in the formation and initial public offering of MVO. Given the differences in assets comprising the underlying properties, operators of the underlying properties and commodity price markets, the historical results of operations and performance of the MVO should not be relied on as an indicator of how this trust will perform. Please see “MV Oil Trust.”


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TAX RISKS RELATED TO THE TRUST’S TRUST UNITS
 
The tax treatment of an investment in trust units could be affected by recent and potential legislative changes, possibly on a retroactive basis.
 
The recently enacted Health Care and Education Affordability Reconciliation Act of 2010 includes a provision that, in taxable years beginning after December 31, 2012, subjects an individual having modified adjusted gross income in excess of $200,000 (or $250,000 for married taxpayers filing joint returns) to a “medicare tax” equal generally to 3.8% of the lesser of such excess or the individual’s net investment income, which appears to include interest income derived from investments such as the trust units as well as any net gain from the disposition of trust units. In addition, absent new legislation extending the current rates, beginning January 1, 2013, the highest marginal U.S. federal income tax rate applicable to ordinary income and long-term capital gains of individuals will increase to 39.6% and 20%, respectively. Moreover, these rates are subject to change by new legislation at any time.
 
The trust has not requested a ruling from the IRS regarding the tax treatment of ownership of the trust units. If the IRS were to determine (and be sustained in that determination) that the trust is not a “grantor trust” for federal income tax purposes, or that the Net Profits Interest is not properly treated as a production payment (and thus would fail to qualify as a debt instrument) for federal income tax purposes, the trust unitholders may receive different and potentially less advantageous tax treatment from that described in this prospectus.
 
If the trust were not treated as a grantor trust for federal income tax purposes, the trust should be treated as a partnership for such purposes. Although the trust would not become subject to federal income taxation at the entity level as a result of treatment as a partnership, and items of income, gain, loss and deduction would flow through to the trust unitholders, the trust’s tax reporting requirements would be more complex and costly to implement and maintain, and its distributions to unitholders could be reduced as a result.
 
If the Net Profits Interest were not treated as a production payment (and thus would fail to qualify as a debt instrument for federal income tax purposes) the amount, timing and character of income, gain, or loss in respect of an investment in the trust could be affected. See “Federal income tax consequences.”
 
Neither VOC Sponsor nor the trustee has requested a ruling from the IRS regarding these tax questions, and neither VOC Sponsor nor the trust can assure you that such a ruling would be granted if requested or that the IRS will not challenge these positions on audit.
 
Trust unitholders should be aware of the possible state tax implications of owning trust units. See “State tax considerations.”


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FORWARD-LOOKING STATEMENTS
 
This prospectus contains “forward-looking statements” about VOC Sponsor and the trust that are subject to risks and uncertainties. All statements other than statements of historical fact included in this prospectus, including, without limitation, statements under “Prospectus summary” and “Risk factors” regarding the financial position, business strategy, production and reserve growth, and other plans and objectives for the future operations of VOC Sponsor and the trust are forward-looking statements. Such statements may be influenced by factors that could cause actual outcomes and results to differ materially from those projected. Forward-looking statements are subject to risks and uncertainties and include statements made in this prospectus under “Projected cash distributions,” statements pertaining to future development activities and costs, and other statements in this prospectus that are prospective and constitute forward-looking statements.
 
When used in this document, the words “believes,” “expects,” “anticipates,” “intends” or similar expressions are intended to identify such forward-looking statements. The following important factors, in addition to those discussed elsewhere in this prospectus, could affect the future results of the energy industry in general, and VOC Sponsor and the trust in particular, and could cause actual results to differ materially from those expressed in such forward-looking statements:
 
  •   risks incident to the drilling and operation of oil and natural gas wells;
 
  •   future production and development costs and plans;
 
  •   the effect of existing and future laws and regulatory actions;
 
  •   the effect of changes in commodity prices, including changes as a result of political conditions or hostilities in oil and natural gas producing regions such as the recent geopolitical turmoil in North Africa and the Middle East;
 
  •   the impact of the hedge contracts;
 
  •   conditions in the capital markets;
 
  •   competition from others in the energy industry;
 
  •   uncertainty of estimates of oil and natural gas reserves and production; and
 
  •   inflation.
 
You should not place undue reliance on these forward-looking statements. All forward-looking statements speak only as of the date of this prospectus. VOC Sponsor does not undertake any obligation to release publicly any revisions to the forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events, unless the securities laws require us to do so.
 
This prospectus describes other important factors that could cause actual results to differ materially from expectations of VOC Sponsor and the trust, including under the heading “Risk factors.” All written and oral forward-looking statements attributable to VOC Sponsor or the trust or persons acting on behalf of VOC Sponsor or the trust are expressly qualified in their entirety by such factors.


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USE OF PROCEEDS
 
VOC Sponsor is offering all of the trust units to be sold in this offering, including the trust units to be sold upon the exercise of the underwriters’ over-allotment option. VOC Sponsor expects to receive net proceeds from the sale of 11,085,000 trust units offered by this prospectus of approximately $214.2 million, after deducting underwriting discounts and commissions, structuring fees and offering expenses, and an additional $32.5 million if the underwriters exercise their option to purchase additional trust units in full. Forty-five days following the closing of this offering, VOC Sponsor will sell any trust units not sold in this offering to VOC Partners, LLC at the initial public offering price.
 
VOC Sponsor intends to use the net proceeds from this offering, including any proceeds from the exercise of the underwriters’ option to purchase additional trust units and the sale of trust units to VOC Partners, LLC, to repay approximately $24.0 million of outstanding borrowings under its credit facility, to repurchase certain outstanding equity interests in VOC sponsor for approximately $67.9 million and to make cash distributions to its remaining limited partners. VOC Sponsor is deemed to be an underwriter with respect to the trust units offered hereby.


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VOC SPONSOR
 
VOC Brazos is a privately-held limited partnership engaged in the production and development of oil and natural gas from properties located in Texas. VOC Brazos was formed in May 2003. Pursuant to the KEP Acquisition, concurrent with the close of this offering, VOC Brazos will acquire KEP, which was formed in November 2009 to develop and produce oil and natural gas from properties primarily located in Kansas along with a limited number of Texas properties. There are no conditions to the closing of the KEP Acquisition other than the closing of this offering. Members of KEP acquired interests in the properties owned by KEP through various acquisitions and drilling activities that have occurred since 1979.
 
As of December 31, 2010, VOC Sponsor held interests in approximately 881 gross (545.7 net) producing wells, and proved reserves of the Underlying Properties were approximately 13.7 MMBoe. As of December 31, 2010, based on PV-10 value, the VOC Operators were the operators or contract operators of approximately 98% of the total proved reserves attributable to the Underlying Properties with Vess Oil operating, on behalf of VOC Sponsor, approximately 91% of the total proved reserves and L.D. Drilling Inc. and Davis Petroleum, Inc. operating approximately 7% of the total proved reserves. Vess Oil has operated oil and natural gas properties in Kansas for more than 30 years and, according to statistics furnished by the Kansas Geological Survey, during 2010, was the second largest operator of oil properties in Kansas measured by production during 2010. Vess Oil currently operates over 1,600 oil, natural gas and service wells located primarily in Kansas, with growing operations in Texas. As of December 31, 2010, Vess Oil employed 19 full-time employees, three contract professionals and 14 contract personnel in its Wichita office and in five field and satellite offices.
 
The trust units do not represent interests in, or obligations of, VOC Sponsor.


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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL,
OPERATING AND RESERVE DATA OF VOC SPONSOR
 
The summary combined financial data presented below should be read in conjunction with “VOC Sponsor — Selected historical and unaudited pro forma data of VOC Sponsor” and the accompanying financial statements and related notes of VOC Sponsor included elsewhere in this prospectus. In connection with the closing of this offering, VOC Brazos will acquire the membership interests in KEP in exchange for partnership interests in VOC Brazos, resulting in KEP becoming a wholly-owned subsidiary of VOC Brazos. As the Common Control Properties are deemed to be under common control with VOC Brazos, accounting rules specify that VOC Brazos and the Common Control Properties be combined from the earliest date they came under common control. The financial data and operations of such assets are referred to herein as “Predecessor,” and are described in more detail in “Information about VOC Brazos Energy Partners, L.P. (VOC Sponsor) — Management’s discussion and analysis of financial condition and results of operations of VOC Sponsor.” Accordingly, in order to give full effect to the acquisition by VOC Brazos of KEP, the following table includes pro forma financial and operating data of Predecessor giving effect to the acquisition of the Acquired Underlying Properties. Since the historical assets and operations of Predecessor will only represent a portion of the assets and operations to be held by VOC Sponsor at the closing of this offering, the future results of operations of VOC Sponsor will not be comparable to the historical results of Predecessor.
 
The summary combined historical financial data of Predecessor as of December 31, 2008, 2009 and 2010 and for each of the years in the three-year period ended December 31, 2010 have been derived from Predecessor’s audited financial statements.
 
The summary combined financial unaudited pro forma financial data as of and for the year ended December 31, 2010 set forth in the following table have been derived from the unaudited combined pro forma financial statements of Predecessor included in this prospectus beginning on page VOC F-24. The pro forma adjustments have been prepared as if the acquisition of the Acquired Underlying Properties and, with respect to pro forma as adjusted information, the conveyance of the Net Profits Interest and the offer and sale of the trust units and application of the net proceeds therefrom, had taken place (i) on December 31, 2010, in the case of the pro forma balance sheet information as of December 31, 2010, and (ii) as of January 1, 2010, in the case of the pro forma statement of earnings information for the year ended December 31, 2010.
 
                                         
        Predecessor
  Predecessor Pro Forma
        Pro Forma for the
  As Adjusted for the Offering
                Acquisition of the Acquired
  (including the conveyance of
                Underlying Properties   the Net Profits Interest)
    Predecessor   Year Ended
  Year Ended
    Year Ended December 31,   December 31,
  December 31,
    2008   2009   2010   2010   2010
    (In thousands)   (Unaudited)   (Unaudited)
 
Revenue
  $ 32,198     $ 25,750     $ 38,635     $ 62,750     $ 22,460  
Net earnings
  $ 12,839     $ 10,861     $ 20,911     $ 30,624     $ 14,482  
Total assets (at year end)
  $ 108,830     $ 101,280     $ 109,038     $ 202,171     $ 96,031  
Long-term liabilities, excluding current maturities (at year end)
  $ 37,018     $ 28,315     $ 26,241     $ 27,805     $ 104,237  


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The table below includes selected production and reserve information for VOC Sponsor for the periods presented.
 
                                 
    Year Ended December 31,  
Historical Results         2008     2009     2010  
 
Production (MBoe)
            829       847       930  
Net proved reserves (MBoe) (at year end)
            10,821       13,007       13,700  
Net proved developed reserves (MBoe) (at year end)
            10,046       11,536       11,945  
 
MANAGEMENT OF VOC SPONSOR
 
VOC Sponsor does not currently have any executive officers, directors or employees. Instead, VOC Sponsor is managed by an executive management team consisting of certain officers and employees of Vess Oil on behalf of the general partner, Vess Texas Partners, LLC. None of the members of the executive management team of Vess Oil who perform management functions for VOC Sponsor receive any compensation from the trust or from VOC Sponsor.
 
Set forth in the table below are the names, ages, and titles at Vess Oil of the members of the executive management team of Vess Oil who perform management functions on behalf of Vess Texas Partners, LLC, VOC Sponsor’s general partner:
 
             
Name   Age   Title
 
J. Michael Vess
    59     President and Chief Executive Officer
William R. Horigan
    61     Vice President of Operations
Brian Gaudreau
    55     Vice President of Land
Barry Hill
    35     Vice President and Chief Financial Officer
Alan Howarter
    55     Vice President of Financial Reporting
 
Pursuant to the administrative services agreement, VOC Sponsor is entitled to an annual administrative fee for services provided to the trust, which fee will total $75,000 in 2011 and will increase by 4% each year beginning in January 2012. For a description of certain overhead and related fees payable by VOC Sponsor to certain of its affiliates in connection with the operation of the Underlying Properties, please see “Certain relationships and related party transactions.”
 
EXECUTIVE MANAGEMENT FROM VESS OIL
 
J. Michael Vess is the President, Chief Executive Officer and principal owner of Vess Oil. Mr. Vess co-founded Vess Oil in 1979 and has continuously been responsible for the coordination and supervision of exploration and production and the acquisition of its oil and natural gas reserves. Mr. Vess has continuously served as the President and Chief Executive Officer of Vess Oil since 1987. Mr. Vess received a Bachelor of Business Administration degree from Wichita State University in 1973 and subsequently received his CPA certificate. Mr. Vess currently serves on the Board of Directors and Executive Committees for the Kansas Independent Oil and Gas Association (“KIOGA”) and is the current Chairman of the KIOGA Committee on Electricity. In addition, he is Past Chairman of the KIOGA Tax Committee and a current member of the Interstate Oil and Gas Compact Commission Outreach Committee.
 
William R. Horigan is the Vice President of Operations for Vess Oil where he is responsible for the engineering, enhancement and exploitation of its existing properties as well as the engineering analysis and evaluation of its future reserve acquisitions. Mr. Horigan has continuously served as the Vice President of Operations for Vess Oil since August 1998. Mr. Horigan joined Vess Oil in 1988 as Operations Manager. Prior to joining Vess Oil, Mr. Horigan


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served in various petroleum engineering capacities for Amoco Production Company beginning in 1975. Mr. Horigan later served as Division Operations Manager for Slawson Oil Company. Mr. Horigan graduated from the University of Kansas in 1974 with a Bachelor of Science degree in Chemical Engineering. Mr. Horigan is a member of the Society of Petroleum Engineers and has served on the Executive Board for the Wichita Section. He is also a member of the Producers Advisory Board of the KU Tertiary Oil Recovery Project and a member of the Petroleum Technology Transfer Council of the North Mid-Continent Region.
 
Brian Gaudreau is the Vice President of Land and Acquisitions for Vess Oil where he is responsible for land, contracts and acquisitions. Mr. Gaudreau has continuously held the position of Vice President of Land and Acquisitions since he joined Vess Oil in 2002. Prior to joining Vess Oil, he held the title of Manager, Land and Acquisitions for Stelbar Oil Corporation, Inc. beginning in 1989. Mr. Gaudreau graduated from the University of Kansas in 1977 with a Bachelors degree in Economics. Mr. Gaudreau belongs to the American Association of Professional Landmen, is a Director and serves on the Executive Committee of KIOGA, and belongs to the Dallas Acquisitions, Divestitures, and Mergers Energy Forum.
 
Barry Hill is the Vice President and Chief Financial Officer for Vess Oil responsible for planning, directing and coordinating finance activities. Mr. Hill has continuously served as the Vice President and Chief Financial Officer for Vess Oil since he joined Vess Oil in February 2010. Mr. Hill spent approximately ten years in the Energy Investment Banking group of Raymond James & Associates, Inc., completing numerous public equity offerings, advisory engagements and private securities assignments for a wide spectrum of energy industry clients, including many exploration and production companies, until his departure in January 2010. During the last five years of his employment with Raymond James & Associates, Inc., Mr. Hill held the positions of Senior Associate and Vice President. Mr. Hill earned his A.B. in Economics with honors from Harvard College in 1998 and an M.B.A. from the Darden Graduate School of Business at the University of Virginia in 2003.
 
Alan Howarter is the Vice President of Financial Reporting for Vess Oil responsible for the financial reporting aspects of Vess Oil and other related entities. Mr. Howarter has continuously served as the Vice President of Financial Reporting for Vess Oil since he joined Vess Oil in May 2007. Prior to joining Vess Oil, Mr. Howarter was a Manager at Regier Carr & Monroe, L.L.P. Mr. Howarter continuously held the position of Manager since the time he joined Regier Carr & Monroe, L.L.P. in January of 2005 through his departure in May of 2007. Previously, Mr. Howarter was a Partner and head of the Audit Department of the Wichita office of Grant Thornton, LLP. Mr. Howarter received his Bachelor of Business Administration degree in Accounting from Wichita State University in 1978. He is a licensed CPA in Kansas. Mr. Howarter is currently a member of the Accounting Advisory Board of Wichita State University, the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants and the Petroleum Accountants Society of Kansas. He is also a past president and treasurer of the Petroleum Accountants Society of Kansas.


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BENEFICIAL OWNERSHIP OF VOC SPONSOR
 
The following table sets forth, as of April 22, 2011, the beneficial ownership of limited partnership interests of VOC Sponsor that will be outstanding after giving effect to the consummation of this offering, including the KEP Acquisition, and the application of the net proceeds, including the repurchase of certain outstanding equity interests in VOC Sponsor as described in “Use of Proceeds”, and held by:
 
  •   each person who will then beneficially own 5% or more of the outstanding partner interests in VOC Sponsor;
 
  •   each member of Vess Oil’s executive management team, who perform management functions on behalf of VOC Sponsor; and
 
  •   all members of Vess Oil’s executive management team, who perform management functions on behalf of VOC Sponsor, as a group.
 
Except as indicated by footnote, the persons named in the table below have sole voting and investment power with respect to all partnership interests of VOC Sponsor shown as beneficially owned by them.
 
         
    Percentage of
    Partnership Interests
Name of Beneficial Owner   Beneficially Owned
 
L. D. Davis (1)
    31.8 %
J. Michael Vess (2)
    27.9 %
Will Price (3)
    11.8 %
C. J. Lett (4)
    10.7 %
William R. Horigan (5)
    7.2 %
Brian Gaudreau (6)
    2.6 %
Barry Hill (7)
    *  
Alan Howarter (8)
    *  
Executive Management as a Group (2)(5)(6)(7)(8)
    38.2 %
 
* less than 1%
 
(1) Includes interests indirectly beneficially owned in VOC Sponsor through several entities, including through interests in Davis Energy LLC, which entity beneficially owns a 13.7% interest in VOC Sponsor. The address of Mr. Davis is 7 SW 26th Ave., Great Bend, Kansas 67530.
 
(2) Includes 13.6% of Mr. Vess’ interests in VOC Sponsor indirectly beneficially owned through family trusts. Mr. Vess also has dispositive power over an additional 14.3% of VOC Sponsor. The address of Mr. Vess is 1700 Waterfront Parkway, Building 500, Wichita, Kansas 67206.
 
(3) Includes interests indirectly beneficially owned through several entities. The address of Mr. Price is 1700 Waterfront Parkway, Building 500, Wichita, KS 67206.
 
(4) Includes interests indirectly beneficially owned through several entities. The address of Mr. Lett is 9320 E. Central, Wichita, Kansas 67206.
 
(5) Includes interests indirectly beneficially owned through several entities. The address of Mr. Horigan is 1700 Waterfront Parkway, Building 500, Wichita, Kansas 67206.
 
(6) Includes interests indirectly beneficially owned through several entities. The address of Mr. Gaudreau is 1700 Waterfront Parkway, Building 500, Wichita, Kansas 67206.
 
(7) Mr. Hill beneficially owns less than 1% of VOC Brazos through his beneficial ownership of a 0.5% membership interest in VOC Acquisition Partners, LLC, an indirect subsidiary of VOC Sponsor. The address of Mr. Hill is 1700 Waterfront Parkway, Building 500, Wichita, Kansas 67206.


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(8) Mr. Howarter beneficially owns less than 1% of VOC Brazos through his beneficial ownership of 10% of the membership interests in Vess Oil Company, L.L.C., an indirect subsidiary of VOC Sponsor, and his beneficial ownership of a 0.5% membership interest in VOC Acquisition Partners, LLC, an indirect subsidiary of VOC Sponsor. The address of Mr. Howarter is 1700 Waterfront Parkway, Building 500, Wichita, Kansas 67206.
 
BENEFICIAL OWNERSHIP OF VOC ENERGY TRUST
 
The following table sets forth the beneficial ownership of the trust units of VOC Energy Trust that will be outstanding after giving effect to the consummation of this offering, assuming no exercise of the underwriters’ over-allotment option, and held, directly or indirectly, by each person who will then beneficially own 5% or more of the outstanding partner interests in VOC Energy Trust.
 
         
    Class of
  Percentage
Name of Beneficial Owner   Securities   of Ownership (1)
 
VOC Partners, LLC (2)
  Trust Units   34.8% (3)
 
(1) Does not include any trust units that may be purchased in the directed unit program. Please see “Underwriting — Directed Unit Program” on page 120.
 
(2) The parties who beneficially own VOC Sponsor as set forth in the table above own VOC Partners, LLC in the same proportion as they own VOC Sponsor. However, such ownership percentage described in the table above does not take into account Class B Units of VOC Partners, LLC. Such Class B Units are issuable to VOC Management Group at the discretion of VOC Partners, LLC, and these units may equal up to 1.5% of the outstanding units of VOC Partners, LLC. As of April 22, 2011, VOC Partners, LLC has not issued any Class B units and has no current plans to do so.
 
(3) VOC Partners, LLC has entered into an agreement to acquire from VOC Sponsor all trust units not sold by VOC Sponsor in this offering at the initial offering price. The closing of such transaction will occur forty-five days following the closing of this offering.
 


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MV OIL TRUST
 
Certain members of VOC Sponsor’s management team were involved in the formation and initial public offering of MV Oil Trust (NYSE: MVO) (“MVO”), a publicly-traded trust that is similar to VOC Energy Trust. In connection with the formation of MVO, the sponsor conveyed an 80% term net profits interest in oil and natural gas properties in the Mid-Continent region in Kansas and Colorado to MVO in exchange for trust units, a portion of which were sold by the sponsor in MVO’s initial public offering in January 2007. The terms of the net profits interest being conveyed in connection with the formation of VOC Energy Trust are similar to those of the net profits interest that was conveyed to MVO.
 
To offset the natural decline in production of the proved developed wells, the sponsor planned and executed a development and workover program. The results of this program have mitigated the decline, with daily production being approximately 2,859 Boe at the time of the initial public offering (or approximately 2,287 Boe attributable to MVO’s 80% net profits interest) and 2,621 Boe (or approximately 2,097 Boe attributable to MVO’s 80% net profits interest) for the year ended December 31, 2010. As a result of differences in pricing, wells, costs, development schedule, development expenditures and regulatory environment, among other things, the historical results of operations and performance of MVO should not be relied on as an indicator of how the trust will perform.
 
The final prospectus relating to the initial public offering of MVO set forth a projection for the twelve months ended December 31, 2007 that totaled $3.02 per MVO trust unit. Actual distributions for each of the second, third and fourth quarters of 2007 and the twelve months ended December 31, 2007 (totaling $2.48 per MVO trust unit for the twelve months ended December 31, 2007) were below the projected amounts outlined in such final prospectus. The net proceeds received by MVO during such periods were impacted by production curtailment during the first quarterly payment period affecting the underlying properties as the result of severe winter storms that impacted western Kansas and eastern Colorado. The snow and ice associated with these storms disabled electrical power to the affected underlying properties for an extended period of time and rendered some properties inaccessible. Significant snow accumulations, along with ice and subsequent melting, created difficult working conditions that extended the curtailment period and increased costs to operate the underlying properties.
 
As publicly reported, on July 22, 2008, MVO’s revenue intermediary/crude oil purchaser (Eaglwing L.P.) and its parent (SemGroup, L.P.) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. Eaglwing purchased substantially all of the crude oil production of MVO’s underlying properties for the month of June 2008 and for the first 18 days of July, after which date further sales to Eaglwing were terminated. Payment for approximately $9.5 million of the June sales to Eaglwing was due by July 20, 2008, and payment for approximately $5.9 million of the July sales to Eaglwing was due by August 20, 2008. The specified dollar amounts are associated with all production from the underlying properties, and not just the 80% portion attributable to the net profits interest held by MVO. Because of Eaglwing’s bankruptcy and failure to pay for such production, MVO did not make a fourth quarterly distribution in October 2008 and the first quarterly distribution in January 2009 was substantially impacted. On July 31, 2008, Vess Oil and Murfin Drilling recommenced general sales of production from the underlying properties to several purchasers other than Eaglwing, including an affiliated purchaser, under short-term arrangements using market sensitive pricing. As of August 7, 2008, field operations at the underlying properties returned to substantially


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normal operations, although it took until mid-August before the marketing of crude oil production normalized to the sales process and volumes that existed prior to July 18, 2008.
 
From the formation of MVO through April 22, 2011, MVO distributed approximately $9.65 per MVO trust unit in the aggregate. On April 7, 2011, MVO announced a quarterly distribution of $0.82, which will be distributed on April 25, 2011. As of April 21, 2011, the closing price of each MVO unit as reported by the New York Stock Exchange was $41.27. MVO is expected to terminate on the later to occur of (1) June 30, 2026, or (2) the time when 14.4 MMBoe have been produced and sold from the MVO underlying properties.


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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
 
RELATED PARTY TRANSACTIONS
 
As of December 31, 2010, the VOC Operators, which includes Vess Oil, L.D. Drilling, Inc. and Davis Petroleum, Inc., operated or operated on a contract basis, approximately 98% of the total proved reserves attributable to the Underlying Properties based on PV-10 value, with Vess Oil operating approximately 91% of the total proved reserves for which VOC Sponsor is the designated operator and L.D. Drilling Inc. and Davis Petroleum, Inc. operating approximately 7% of the total proved reserves. Vess Oil is controlled by J. Michael Vess, L.D. Drilling Inc. is controlled by L.D. Davis and Davis Petroleum, Inc. is controlled by both Mr. Vess and Mr. Davis. Under the terms of the operating arrangement among VOC Sponsor and Vess Oil, all expenses of Vess Oil incurred on behalf of VOC Sponsor are paid by VOC Sponsor at the cost incurred. Below is a summary of the transactions that occurred between VOC Sponsor and the VOC Operators:
 
                         
    Year Ended December 31,
    2008   2009   2010
        (In thousands)    
 
Lease operating expenses incurred:
                       
Vess Oil Corporation
  $ 10,314     $ 9,334     $ 10,053  
LD Drilling
    768       685       605  
Davis Petroleum
    652       704       756  
                         
Total
  $ 11,734     $ 10,723     $ 11,414  
                         
Overhead costs included in lease operating expenses incurred:
                       
Vess Oil Corporation
  $ 1,098     $ 1,232     $ 1,314  
LD Drilling
    91       97       100  
Davis Petroleum
    64       72       72  
                         
Total
  $ 1,253     $ 1,401     $ 1,486  
                         
Capitalized lease equipment and producing leasehold costs incurred:
                       
Vess Oil Corporation
  $ 1,402     $ 1,937     $ 3,246  
LD Drilling
    304       154       (8 )
Davis Petroleum
    220       3       14  
                         
Total
  $ 1,926     $ 2,094     $ 3,252  
                         
Payment of well development costs:
                       
Vess Oil Corporation
  $ 1,709     $ 2,269     $ 7,149  
LD Drilling
    509       137        
Davis Petroleum
    168             81  
                         
Total
  $ 2,386     $ 2,406     $ 7,230  
                         
Payment of management fees:
                       
Vess Oil Corporation
  $ 447     $ 447     $ 447  
LD Drilling
                 
Davis Petroleum
                 
                         
Total
  $ 447     $ 447     $ 447  
                         
 
VOC Sponsor pays the VOC Operators an overhead fee based on a monthly charge per active operated well to operate substantially all of the Underlying Properties located in Kansas on behalf of VOC Sponsor. The fee is adjusted annually and will increase or decrease each year based on changes in the Overhead Adjustment Index (“OAI”) published by the Council of Petroleum


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Accountants Society for that year. The operating activities include various maintenance, engineering, geological, accounting and administrative functions.
 
For the Underlying Properties located in Texas, VOC Sponsor reimburses Vess Texas Partners, LLC (“Vess LLC”) for certain corporate administrative and accounting services arranged by Vess LLC. This reimbursement amount is adjusted annually and will increase or decrease each year based on changes in the OAI for that year. Most of the services for which Vess LLC is reimbursed are performed on behalf of Vess LLC by Vess Oil. The fee is currently $37,250 per month.
 
Vess LLC pays a portion of this $37,250 as an overhead fee to Vess Oil to operate substantially all of the Underlying Properties located in Texas on behalf of VOC Sponsor. The operating activities include various maintenance, engineering, geological, accounting and administrative functions. The overhead fee includes (1) a fixed monthly charge of $13,500 per month, (2) reimbursement for certain geological and engineering services and (3) a monthly charge per active well brought on production after September 2009, which is adjusted annually and based on changes in the Overhead Adjustment Index.
 
Vess Oil is not contractually obligated to provide the corporate administrative and accounting services on behalf of VOC Sponsor or Vess LLC other than with respect to the operation of the Underlying Properties, and VOC Sponsor and Vess LLC may contract for the provision of the corporate administrative and accounting services from other parties at any time. None of the members of the executive management team are contractually obligated to continue performing services on behalf of VOC Sponsor, and Vess Oil is not contractually obligated to make its employees available to perform such services.
 
The fees described above are independent of the fees payable by the trust pursuant to the trust agreement and the Administrative Services Agreement. See “The trust” and “Description of the trust agreement — Fees and expenses.”
 
For the year ended December 31, 2010 VOC Sponsor sold approximately 32% of the oil produced from the Underlying Properties to MV Purchasing, LLC, (MV Purchasing), an affiliate of VOC Sponsor. A summary of sales and trade receivables with MV Purchasing follows:
 
                         
    Year Ended December 31,  
    2008     2009     2010  
 
Sales
  $ 1,207,358     $ 13,482,074     $ 19,125,260  
Trade Receivables
  $ 319,109     $ 1,359,842     $ 1,760,141  
 
MV Purchasing began operations on August 1, 2008.
 
Forty-five days following the closing of the initial public offering of trust units, VOC Partners, LLC will (1) purchase, at the initial offering price, trust units owned by VOC Sponsor and (2) issue a promissory note to VOC Sponsor having a face amount equal to 90% of the purchase price for the trust units and a cash payment equal to 10% of the purchase price for the trust units. This unsecured note that is fully recourse to VOC Partners, LLC will have a term of ten years with interest payable at 5% per year.
 
In connection with the closing of this offering, VOC Acquisition Partners, LLC, an affiliate of VOC Sponsor, will acquire 60 days after the closing of this offering all of the outstanding equity interests in VOC Sponsor held by Vess Holding Corporation and by affiliates of Carson Private Capital through CPC Brazos Energy, L.P. and CPC VEP, LLC for approximately $67.9 million. Vess Holding Corporation is the sole managing member of VOC Sponsor’s general partner. Before giving effect to this transaction, the affiliates of Carson Private Capital own approximately 19.86% of the equity interests in VOC Sponsor.


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THE TRUST
 
The trust is a statutory trust created under the Delaware Statutory Trust Act in November 2010. The business and affairs of the trust will be managed by The Bank of New York Mellon Trust Company, N.A., as trustee. VOC Sponsor has no ability to manage or influence the operations of the trust. In addition, Wilmington Trust Company will act as Delaware trustee of the trust. The Delaware trustee will have only minimal rights and duties as are necessary to satisfy the requirements of the Delaware Statutory Trust Act. In connection with the completion of this offering, VOC Sponsor will contribute the Net Profits Interest to the trust in exchange for 17,000,000 newly issued trust units. VOC Sponsor will make its first payment to the trust pursuant to the Net Profits Interest on or about August 1, 2011, which payment will cover the net proceeds attributable to the Net Profits Interest for the first two quarters of 2011 consisting of the period from January 1 to June 30. Subsequent distributions will only cover the net proceeds attributable to the Net Profits Interest for one quarter, and, as a result, will be smaller.
 
The trustee can authorize the trust to borrow money to pay trust administrative or incidental expenses that exceed cash held by the trust. The trustee may authorize the trust to borrow from the trustee as a lender provided the terms of the loan are fair to the trust unitholders. The trustee may also deposit funds awaiting distribution in an account with itself, if the interest paid to the trust at least equals amounts paid by the trustee on similar deposits, and make other short-term investments with the funds distributed to the trust. The trustee has no current plans to authorize the trust to borrow money. VOC Sponsor has also agreed to post a letter of credit in the amount of $1 million in favor of the trustee to protect the trustee against the risk that the trust does not have sufficient cash to pay its expenses.
 
The trust will pay the trustee an administrative fee of $150,000 per year. The trust will pay the Delaware trustee a fee of $2,500 per year. The trust will also incur legal, accounting, tax and engineering fees, printing costs and other expenses that are deducted by the trust before distributions are made to trust unitholders, including the $18,750 administrative services fee payable quarterly to VOC Sponsor pursuant to the administrative services agreement described below. The trust will also be responsible for paying other expenses incurred as a result of being a publicly traded entity, including costs associated with annual and quarterly reports to unitholders, tax return and Form 1099 preparation and distribution, NYSE listing fees, independent auditor fees and registrar and transfer agent fees. Total administrative expenses of the trust on an annualized basis for 2011 are initially expected to be approximately $900,000, including the administrative services fee payable to VOC Sponsor and the trustee. In connection with the closing of this offering, the trust will enter into an administrative services agreement with VOC Sponsor that obligates the trust, throughout the term of the trust, to pay to VOC Sponsor each quarter an administrative services fee for accounting, bookkeeping and informational services to be performed by VOC Sponsor on behalf of the trust relating to the Net Profits Interest. The annual fee, payable in equal quarterly installments, will total $75,000 in 2011 and will increase by 4% each year beginning in January 2012. The administrative services agreement will terminate upon the termination of the Net Profits Interest unless earlier terminated by mutual agreement of the trustee and VOC Sponsor.
 
The Net Profits Interest will terminate on the later to occur of (1) December 31, 2030, or (2) the time from and after January 1, 2011 when 10.6 MMBoe have been produced from the Underlying Properties and sold (which amount is the equivalent of 8.5 MMBoe in respect of the trust’s right to receive 80% of the net proceeds from the Underlying Properties pursuant to the Net Profits Interest), and the trust will wind up its affairs and terminate.


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PROJECTED CASH DISTRIBUTIONS
 
Immediately prior to the closing of this offering, VOC Sponsor will create the term Net Profits Interest through a conveyance to the trust of a Net Profits Interest carved from VOC Sponsor’s interests in substantially all of its oil and natural gas properties, which properties are located in Kansas and Texas. The Net Profits Interest will entitle the trust to receive 80% of the net proceeds from the sale of production of oil and natural gas attributable to the Underlying Properties until the later to occur of (1) December 31, 2030, or (2) the time from and after January 1, 2011 when 10.6 MMBoe have been produced from the Underlying Properties and sold (which amount is the equivalent of 8.5 MMBoe in respect of the trust’s right to receive 80% of the net proceeds from the Underlying Properties pursuant to the Net Profits Interest).
 
The amount of trust revenues and cash distributions to trust unitholders will depend on, among other things:
 
  •   oil sales prices and, to a lesser extent, natural gas sales prices;
 
  •   the volume of oil and natural gas produced and sold attributable to the Underlying Properties;
 
  •   the payments made or received by VOC Sponsor pursuant to the hedge contracts;
 
  •   property and production taxes;
 
  •   development expenses;
 
  •   lease operating expenses; and
 
  •   administrative expenses of the trust.
 
UNAUDITED PRO FORMA AVAILABLE CASH FOR THE YEAR ENDED DECEMBER 31, 2010
 
If VOC Sponsor and the trust had completed the transactions described under “Prospectus summary — Formation transactions” on January 1, 2010, the trust’s unaudited pro forma available cash for the year ended December 31, 2010 would have been approximately $26.6 million.
 
Unaudited pro forma available cash gives effect on a pro forma basis to assumed trust general and administrative expenses of $900,000, as described in more detail under “The trust.” The pro forma adjustments are based upon currently available information and specific estimates and assumptions. The pro forma amounts set forth in the table below do not purport to present cash available for distribution by the trust to trust unitholders had the formation transactions contemplated actually occurred on January 1, 2010. In addition, cash available for distribution by the trust will be calculated based upon actual cash receipts of the trust during the applicable quarter, while the unaudited pro forma available cash calculation has been prepared using a modified cash basis of accounting as described in more detail in Note B to the unaudited pro forma financial statements appearing on page F-27. As a result, you should view the amount of unaudited pro forma available cash only as a general indication of the amount of cash available for distribution by the trust for the year ended December 31, 2010 had the formation transactions described above actually occurred on January 1, 2010.
 


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    Quarter Ended     Year Ended
 
    March 31,
    June 30,
    September 30,
    December 31,
    December 31,
 
    2010     2010     2010     2010     2010  
    (Dollars in thousands, except per Bbl, Mcf, MMBtu and per unit amounts)  
 
Underlying Properties sales volumes:
                                       
Oil (MBbls)
    202       212       206       197       817  
Natural gas (MMcf)
    178       173       170       158       679  
Total sales (MBoe)
    232       241       234       223       930  
Average realized sales price(1):
                                       
Oil (per Bbl)
  $ 72.82     $ 72.75     $ 70.67     $ 78.65     $ 73.67  
Natural gas (per Mcf)
  $ 5.03     $ 4.76     $ 4.79     $ 4.46     $ 4.77  
Calculation of net proceeds:
                                       
Gross proceeds:
                                       
Oil sales
  $ 14,710     $ 15,423     $ 14,559     $ 15,495     $ 60,187  
Natural gas sales
    896       824       815       704       3,239  
                                         
Total
  $ 15,606     $ 16,247     $ 15,374     $ 16,199     $ 63,426  
                                         
Costs:
                                       
Production and development costs:
                                       
Lease operating expenses
  $ 3,217     $ 3,119     $ 3,612     $ 3,778     $ 13,726  
Production and property taxes
    1,015       994       1,037       1,091       4,137  
Development expenses
    2,788       2,671       3,285       1,748       10,492  
                                         
Total
  $ 7,020     $ 6,784     $ 7,934     $ 6,617     $ 28,355  
                                         
Settlement of hedge contracts (payment received)(2)
    252       107       (208 )     557       708  
                                         
Net proceeds
  $ 8,334     $ 9,356     $ 7,648     $ 9,025     $ 34,363  
                                         
Percentage allocable to Net Profits Interest
    80%       80%       80%       80%       80%  
Net proceeds to trust from Net Profits Interest
  $ 6,667     $ 7,485     $ 6,118     $ 7,220     $ 27,490  
                                         
Trust general and administrative expenses
    225       225       225       225       900  
                                         
Cash available for distribution by the trust
  $ 6,442     $ 7,260     $ 5,893     $ 6,995     $ 26,590  
                                         
Cash distribution per trust unit
  $ 0.38     $ 0.43     $ 0.34     $ 0.41     $ 1.56 (3)
                                         
 
 
(1) Sales price net of forecasted gravity, quality, transportation, and marketing costs.
 
(2) Costs are reduced by hedge payments received by VOC Sponsor under the hedge contracts in existence during the year ended December 31, 2010. If the hedge payments received by VOC Sponsor under the hedge contracts exceed costs during a quarterly period, the ability to use such excess amounts to offset costs will be deferred, with interest accruing on such amounts at the prevailing money market rate, until the next quarterly period when the hedge payments are less than such costs. During the year ended December 31, 2010, KEP was not a party to any hedge contracts.
 
(3) Due to the timing of the payment of production proceeds to the trust, the production and costs attributable to the available distributions for the twelve months ended December 31, 2010 would have been for the eleven months ended November 30, 2010, if the pro forma available cash for distribution were calculated based on a modified cash basis. As a result, the pro forma distributable income per trust unit for the twelve months ended December 31, 2010 would have been $1.39

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PROJECTED CASH DISTRIBUTIONS FOR THE YEAR ENDING
DECEMBER 31, 2011
 
The following table presents a calculation of projected cash distributions to holders of trust units who own trust units as of the record date for the distribution for the second quarter of 2011 and continue to own those trust units through the record date for the cash distribution payable with respect to oil and natural gas production for the last quarter of 2011. The cash distribution projections for the year ending December 31, 2011 were prepared by VOC Sponsor based on the hypothetical assumptions that are described below and in “— Significant assumptions used to prepare the projected cash distributions.” Production attributable to the Underlying Properties for the twelve months ending December 31, 2011 is estimated to be 878.4 MBoe. However, due to the timing of the payment of production proceeds to the trust, the production and costs attributable to the distributions for the twelve months ending December 31, 2011 will be for the eleven months ending November 30, 2011, which is estimated to be 800.9 MBoe. As a result, projected cash distributions for the year ending December 31, 2011 will only include proceeds attributable to production and costs for the eleven months ending November 30, 2011. Payments to trust unitholders will generally be made 45 days following each calendar quarter. Generally, VOC Sponsor will make payments to the trust that will include cash from production from the first two months of the quarter just ended as well as the last month of the immediately preceding quarter. For the year ending December 31, 2011, the trust will not make its first payment to the unitholders pursuant to the Net Profits Interest until on or about August 15, 2011, which payment will cover the net proceeds attributable to the Net Profits Interest for the first five months of 2011, less any general and administrative expenses and reserves of the trust.
 
VOC Sponsor does not as a matter of course make public projections as to future sales, earnings or other results. However, the management of VOC Sponsor has prepared the projected financial information set forth below to present the projected cash distributions to the holders of the trust units based on the estimates and hypothetical assumptions described below. The accompanying projected financial information was not prepared with a view toward complying with the published guidelines of the SEC or guidelines established by the American Institute of Certified Public Accountants with respect to projected financial information.
 
In the view of VOC Sponsor’s management, the accompanying unaudited projected financial information was prepared on a reasonable basis and reflects the best currently available estimates and judgments of VOC Sponsor related to oil and natural gas production, operating expenses and development expenditures, based on:
 
  •   preliminary estimates of realized oil and natural gas production for January and February 2011 and oil and natural gas production estimates for March through November 2011 contained in the reserve reports;
 
  •   estimated production and development costs for the year ending December 31, 2011, contained in the reserve reports; and
 
  •   projected payments made or received pursuant to the hedge contracts, if any, for the year ending December 31, 2011 assuming the hypothetical prices used in the following table and the hedge contracts to be entered into by VOC Sponsor as of the closing of this offering related to production for 2011.
 
The assumed oil and natural gas prices utilized for purposes of preparing the projections are based on average spot prices for January, February and March 2011 and NYMEX futures pricing for April through November 2011 as reported on April 19, 2011. These prices represent average prices of $104.66 per Bbl in the case of crude oil and $4.34 per MMBtu in the case of natural gas.


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These hypothetical prices are then adjusted to take into account VOC Sponsor’s estimate of the basis differential (based on location and quality of the production) between published prices and the prices actually received by VOC Sponsor. Actual prices paid for oil and natural gas expected to be produced from the Underlying Properties in 2011 will likely differ from these hypothetical prices due to fluctuations in the prices generally experienced with respect to the production of oil and natural gas and variations in basis differentials. For example, the published average monthly closing NYMEX crude oil spot price per Bbl was $79.51 for the year ended December 31, 2010, with the actual monthly closing prices ranging from $65.96 to $91.49 during such period. See “Significant assumptions used to prepare the projected cash distributions” and “Risk factors — Prices of oil and natural gas fluctuate due to a number of factors that are beyond the control of the trust and VOC Sponsor, and lower prices could reduce proceeds to the trust and cash distributions to unitholders.”
 
VOC Sponsor utilized these production estimates, hypothetical oil and natural gas prices and cost estimates in preparing the projected financial information. This methodology is consistent with the requirements of the SEC for estimating oil and natural gas reserves and discounted present value of future net revenues attributable to the Net Profits Interest, except that VOC Sponsor utilized average 2011 NYMEX futures prices rather than average historical monthly prices for oil and natural gas. The actual production amounts, commodity prices and costs for 2011 may vary from those VOC Sponsor has projected, and such variations could be material. Accordingly, the projected financial information should not be relied upon as being necessarily indicative of future results. Readers of this prospectus are cautioned not to place undue reliance on the projected financial information.
 
Neither VOC Sponsor’s independent auditors nor any other independent accountants have compiled, examined or performed any procedures with respect to the projected financial information contained herein, nor have they expressed any opinion or any other form of assurance on such information or its achievability, and assume no responsibility for, and disclaim any association with, the projected financial information.
 
The projections and the estimates and hypothetical assumptions on which they are based are subject to significant uncertainties, many of which are beyond the control of VOC Sponsor or the trust. Actual cash distributions to trust unitholders, therefore, could vary significantly based upon events or conditions occurring that are different from the events or conditions assumed to occur for purposes of these projections. Cash distributions to trust unitholders will be particularly sensitive to fluctuations in oil and natural gas prices. See “Risk factors — Prices of oil and natural gas fluctuate due to a number of factors that are beyond the control of the trust and VOC Sponsor, and lower prices could reduce proceeds to the trust and cash distributions to unitholders.” As a result of typical production declines for oil and natural gas properties, production estimates generally decrease from year to year, and the projected cash distributions shown in the following table are not necessarily indicative of distributions for future years. See “— Sensitivity of projected cash distributions to oil and natural gas production and prices” below, which shows projected effects on cash distributions from hypothetical changes in oil and natural gas production and prices. Because payments to the trust will be generated by depleting assets and the trust has a finite life with the production from the Underlying Properties diminishing over time, a portion of each distribution will represent a return of your original investment. See “Risk factors — The reserves attributable to the Underlying Properties are depleting assets and production from those reserves will diminish over time.”
 


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    Six
                Projection for
       
    Months
                Twelve Months
       
    Ending
    Three Months Ending     Ending
       
    June 30,
    September 30,
    December 31,
    December 31,
       
    2011 (1)     2011 (2)     2011 (3)     2011 (4)        
    (Dollars in thousands, except per Bbl,
 
    Mcf, MMBtu and per unit amounts)  
 
Underlying Properties sales volumes:
                                       
Oil (MBbls)
    307.2       198.5       210.9       716.5          
Natural gas (MMcf)
    207.5       146.8       152.0       506.3          
                                         
Total sales (MBoe)
    341.8       222.9       236.3       800.9          
                                         
NYMEX future prices (5):
                                       
Oil (per Bbl)
  $ 98.98     $ 108.66     $ 109.16     $ 104.66          
Natural gas (per MMBtu)
  $ 4.19     $ 4.37     $ 4.52     $ 4.34          
Assumed realized sales price (6):
                                       
Oil (per Bbl)
  $ 93.15     $ 103.11     $ 103.68     $ 99.01          
Natural gas (per Mcf)
  $ 4.73     $ 5.24     $ 5.52     $ 5.12          
Calculation of net proceeds:
                                       
Gross proceeds:
                                       
Oil sales
  $ 28,613     $ 20,464     $ 21,869     $ 70,945          
Natural gas sales
    982       769       839       2,590          
                                         
Total
  $ 29,595     $ 21,233     $ 22,708     $ 73,535          
                                         
Costs:
                                       
Production and development costs:
                                       
Lease operating expenses
  $ 5,159     $ 3,026     $ 3,054     $ 11,239          
Production and property taxes
    1,823       1,306       1,402       4,531          
Development expenses
    2,594       2,905       2,673       8,171          
                                         
Total
  $ 9,576     $ 7,236     $ 7,128     $ 23,941          
                                         
Settlement of hedge contracts (payment received) (7)
  $ 504     $ 1,090     $ 1,116     $ 2,710          
                                         
Net proceeds
  $ 19,514     $ 12,907     $ 14,464     $ 46,885          
                                         
Percentage allocable to Net Profits Interest
    80%       80%       80%       80%          
Net proceeds to trust from Net Profits Interest
  $ 15,611     $ 10,326     $ 11,571     $ 37,508          
                                         
Trust general and administrative expenses (8)
    450       225       225       900          
                                         
Cash reserve
    1,000                       1000          
Cash available for distribution by the trust
  $ 14,161     $ 10,101     $ 11,346     $ 35,608          
                                         
Cash distribution per trust unit
  $ 0.83     $ 0.59     $ 0.67     $ 2.09          
                                         
 
 
(1) Includes proceeds and costs attributable to production from January 1, 2011 through May 31, 2011.
 
(2) Includes proceeds and costs attributable to production from June 1, 2011 through August 31, 2011.
 
(3) Includes proceeds and costs attributable to production from September 1, 2011 through November 30, 2011.
 
(4) Includes proceeds and costs attributable to production from January 1, 2011 through November 30, 2011.

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(5) The assumed oil and natural gas prices utilized for purposes of preparing the projections are based on average spot prices for January, February and March 2011 and NYMEX futures pricing for April through November 2011 as reported on April 19, 2011. For a description of the effect of lower NYMEX prices on projected cash distributions, please read “— Sensitivity of projected cash distributions to oil and natural gas production and prices.”
 
(6) Assumed realized sales price net of forecasted gravity, quality, transportation, and marketing costs. For more information about the estimates and hypothetical assumptions made in preparing the table above, see “— Significant assumptions used to prepare the projected cash distributions.”
 
(7) Costs will be reduced by hedge payments received by VOC Sponsor under the hedge contracts. If the hedge payments received by VOC Sponsor under the hedge contracts exceed costs during a quarterly period, the ability to use such excess amounts to offset costs will be deferred, with interest accruing on such amounts at the prevailing money market rate, until the next quarterly period when the hedge payments are less than such costs.
 
(8) Total general and administrative expenses of the trust on an annualized basis for 2011 are expected to be $900,000, which includes an annual administrative fee to VOC Sponsor in the amount of $75,000 in 2011, which fee will increase by 4% annually beginning in January 2012, the annual fee to the trustees, accounting fees, engineering fees, printing costs and other expenses properly chargeable to the trust.
 
SIGNIFICANT ASSUMPTIONS USED TO PREPARE THE PROJECTED CASH DISTRIBUTIONS
 
Timing of distributions.   In preparing the projected cash distributions and sensitivity analysis above, the revenues and expenses of the trust were calculated based on the terms of the conveyance creating the trust’s Net Profits Interest. These calculations are described under “Computation of net proceeds — Net Profits Interest.” Quarterly cash distributions will be made on or about the 45th day following the end of each calendar quarter to trust unitholders of record on or about the 30th day following each calendar quarter. Due to the timing of VOC Sponsor’s receipt of cash for production, it has been assumed that cash distributions for each quarter will include production from the first two months of the quarter just ended as well as the last month of the immediately preceding quarter. The first distribution, which will cover the first and second quarters of 2011, is expected to be made on or about August 15, 2011 to record trust unitholders as of August 1, 2011, and will include sales for oil and natural gas for the months January through May 2011. Thereafter, quarterly distributions will generally relate to production of oil and natural gas for a three month period, including one month of the prior quarter.
 
Production estimates and development expenses.   Production estimates for 2011 are based on the reserve reports for March through November 2011 and preliminary estimates of realized production for January and February 2011. Production from the Underlying Properties for the first 11 months of 2011 is estimated to be 717 MBbls of oil and 506 MMcf of natural gas. Net sales for the year ended December 31, 2010 were 817 MBbls of oil and 679 MMcf of natural gas. Reductions in projected production volumes in the forecasted period are primarily attributable to the natural production decline of the Underlying Properties. Although VOC Sponsor expects annual production from the Underlying Properties to decline at an average annual rate of 6.2% over the next 20 years, VOC Sponsor expects the actual annual decline rate to be smaller during the beginning of that period and to increase over the course of that period. The expected increase in the annual decline rate over the course of this 20-year period is primarily a result of the assumption that no additional development drilling or other development expenditures will be made after 2014 on the Underlying Properties.
 
Oil and natural gas prices.   The assumed oil and natural gas prices utilized for purposes of preparing the projections are based on average spot prices for January, February and March 2011 and NYMEX futures pricing for April through November 2011 as reported on April 19, 2011. Published NYMEX benchmark prices for crude oil are based upon an assumed light, sweet crude oil of a particular gravity that is stored in Cushing, Oklahoma while published NYMEX benchmark prices for natural gas are based upon delivery at the Henry Hub in Louisiana. These prices differ from the average or actual price received for production attributable to the


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Underlying Properties. Differentials between published oil and natural gas prices and the prices actually received for the oil and natural gas production may vary significantly due to market conditions, transportation costs, quality of production and other factors.
 
In the above table, $5.65 per barrel is deducted from the average 2011 NYMEX futures price for crude oil to reflect these differentials. This deduction is based on VOC Sponsor’s estimate of the average difference between the NYMEX published price of crude oil and the price to be received by VOC Sponsor for production attributable to the Underlying Properties during 2011. These projections are based on the historical price differentials as of December 31, 2010. Projected average oil prices appearing in this prospectus have been adjusted for these differentials.
 
In the above table, $0.78 per Mcf is the average 2011 NYMEX price adjustment for natural gas in 2011 to reflect these differentials. This adjustment is based on VOC Sponsor’s estimate of the average difference between the NYMEX published price of natural gas and the price to be received by VOC Sponsor for production attributable to the Underlying Properties during 2011. These projections are based on the historical price differentials as of December 31, 2010. Projected average natural gas prices appearing in this prospectus have been adjusted for these differentials.
 
The differentials to published oil and natural gas prices applied in the above projected cash distribution estimate are based upon an analysis by VOC Sponsor of the historic price differentials for production from the Underlying Properties with consideration given to historic gravity, quality and transportation and marketing costs that may affect these differentials in 2011. Historic variability of the impact of gravity, quality and transportation and marketing costs have been minimal on an aggregate basis, with historical variances from these costs impacting crude oil prices by approximately $2 per Bbl. Accordingly, VOC Sponsor has assumed for purposes of the projected cash distributions that the impact of gravity, quality and transportation and marketing costs will remain consistent with the impact thereof for the year ended December 31, 2010. There is no assurance that these assumed differentials will occur in 2011.
 
When oil and natural gas prices decline, the operators of the properties comprising the Underlying Properties may elect to reduce or completely suspend production. No adjustments have been made to estimated 2011 production to reflect potential reductions or suspensions of production.
 
Settlement of Hedge Contracts.   VOC Sponsor has entered into fixed price swap contracts for the first 11 months of 2011 with respect to 379,912 Bbls of oil expected to be produced from the Underlying Properties at a weighted average price per Bbl of $99.43 that hedge approximately 57% of the expected oil production from the proved developed producing reserves attributable to the Underlying Properties for 2011 in the reserve reports. The crude oil swap contracts will settle based on the average of the settlement price for each commodity business day in the contract month. In a swap transaction, the counterparty is required to make a payment to VOC Sponsor for the difference between the fixed price and the settlement price if the settlement price is below the fixed price. VOC Sponsor is required to make a payment to the counterparty for the difference between the fixed price and the settlement price if the settlement price is above the fixed price.
 
Costs.   For the first 11 months of 2011, VOC Sponsor estimates lease operating expenses to be $11.2 million, production and property taxes to be $4.5 million and development expenses to be $8.2 million. For the year ended December 31, 2010, lease operating expenses were $13.7 million, production and property taxes were $4.1 million and development expenses were $10.5 million. The lower anticipated costs for the first 11 months of 2011 are the result of costs associated with production which is not included in the forecast period and litigation costs incurred in 2010 which are no longer being incurred. For a description of production expenses


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and development costs, see “Computation of net proceeds — Net Profits Interest.” VOC Sponsor expects its costs in 2011 to be substantially the same as its costs in 2010.
 
Administrative expense.   The trust will be responsible for paying all legal, accounting, tax advisory, engineering and stock exchange fees, printing costs and other administrative and out-of-pocket expenses incurred by or at the direction of the trustee or the Delaware trustee. The trust will also be responsible for paying other expenses incurred as a result of being a publicly traded entity, including costs associated with annual and quarterly reports to unitholders, preparation and distribution of tax information material, independent auditor fees and registrar and transfer agent fees. These trust administrative expenses are anticipated to aggregate approximately $900,000 for the full year 2011. Administrative expenses for subsequent years could be greater or less depending on future events that cannot be predicted. Included in the $900,000 annual estimate is an annual administrative fee of $150,000 for the trustee and an annual administrative fee of $2,500 for the Delaware trustee as well as an annual administrative fee payable to VOC Sponsor, which fee will total $75,000 in 2011 and will increase by 4% each year beginning in January 2012. The trust will pay, out of the first cash payment received by the trust, the trustee’s and Delaware trustee’s legal expenses incurred in forming the trust as well as the Delaware trustee’s acceptance fee in the amount of $5,000. These costs will be deducted by the trust before distributions are made to trust unitholders. See “The trust.”
 
SENSITIVITY OF PROJECTED CASH DISTRIBUTIONS TO OIL AND NATURAL GAS PRODUCTION AND PRICES
 
The amount of revenues of the trust and cash distributions to the trust unitholders will be directly dependent on the sales price for oil and natural gas production sold from the Underlying Properties, the volumes of oil and natural gas produced attributable to the Underlying Properties, payments made or received under the hedge contracts and variations in lease operating expenses, production and property taxes and development costs.
 
The table and discussion below sets forth sensitivity analyses of annual cash distributions per trust unit for the year ending December 31, 2011, on the assumption that a trust unitholder purchased a trust unit in the initial public offering and held such trust unit until the quarterly record date for distributions made with respect to oil and natural gas production in the last quarter of 2011, based upon: (1) the assumption that a total of 17,000,000 trust units are issued and outstanding after the closing of the offering made hereby; (2) various realizations of the production levels estimated in the summary reserve report; (3) various hypothetical commodity prices based upon NYMEX futures prices; (4) the impact of the hedge contracts entered into by VOC Sponsor that relate to production from the Underlying Properties; and (5) other assumptions described under “— Significant assumptions used to prepare the projected cash distributions.” The hypothetical commodity prices of oil and natural gas production shown have been chosen solely for illustrative purposes. For a description of the effect of calculating annual cash distributions on an accrual basis rather than on a cash basis as prescribed in the conveyance of the Net Profits Interest, see “— Significant assumptions used to prepare the projected cash distributions — Timing of actual distributions.”


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The table below is not a projection or forecast of the actual or estimated results from an investment in the trust units. The purpose of the table below is to illustrate the sensitivity of cash distributions to changes in oil and natural gas production levels and oil and natural gas pricing (giving effect to the hedge contracts that are in place in 2011). There is no assurance that the hypothetical assumptions described below will actually occur or that production levels or NYMEX futures prices will not change by amounts different from those shown in the tables.
 
The trust’s crude oil hedging contracts will be in effect only through June 30, 2014, and thus there is likely to be greater fluctuation in cash distributions resulting from fluctuations in realized crude oil prices in periods subsequent to the expiration of those contracts. See “Risk factors” for a discussion of various items that could impact production levels and the price of crude oil.
 
Sensitivity of Total 2011 Projected Cash Distribution Per Trust Unit
to Changes in Estimated Oil and Natural Gas Production and NYMEX Futures Pricing
 
(CHART)
 
(1) Estimated oil and natural gas production is based on the reserve reports, and the sensitivity analysis assumes there will be no variation by location and that oil and natural gas production will continue to represent the same percentage of total production as estimated for the first 11 months of 2011 in the reserve report.
 
(2) Based on NYMEX futures pricing of $104.66 per Bbl in the case of crude oil and $4.34 per MMBtu in the case of natural gas for April through November 2011 as reported on April 19, 2011.


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THE UNDERLYING PROPERTIES
 
The Underlying Properties consist of VOC Sponsor’s net interests in substantially all of its oil and natural gas properties after deduction of all royalties and other burdens on production thereon as of the date of conveyance of the Net Profits Interest to the trust. As of December 31, 2010, these oil and natural gas properties consisted of approximately 881 gross (545.7 net) producing oil and natural gas wells in 191 fields in VOC Sponsor’s two operating areas, Kansas and Texas. During the year ended December 31, 2010, average net production from the Underlying Properties was approximately 2,547 Boe per day (or 2,038 Boe per day attributable to the trust) comprised of approximately 88% oil and 12% natural gas. As of December 31, 2010, proved reserves attributable to the Underlying Properties, as estimated in the reserve reports, were approximately 13.7 MMBoe with a PV-10 value of $268.3 million.
 
VOC Sponsor’s interests in the properties comprising the Underlying Properties require VOC Sponsor to bear its proportionate share along with the other working interest owners of the costs of development and operation of such properties. The properties comprising the Underlying Properties are burdened by non-working interests owned by third parties consisting primarily of overriding royalty and royalty interests retained by the owners of the land subject to the working interests. These landowners’ royalty interests typically entitle the landowner to receive 12.5% of the revenue derived from oil and natural gas production resulting from wells drilled on the landowner’s land, without any deduction for drilling costs or other costs related to production of oil and natural gas. A working interest percentage represents a working interest owner’s proportionate ownership interest in a property in relation to all other working interest owners in that property, whereas a net revenue interest percentage is a working interest owner’s percentage of production after reducing such percentage by the percentage of burdens on such production such as royalties and overriding royalties. As of December 31, 2010, VOC Sponsor held average working interests of 74.4% and 68.0% in the Underlying Properties located in the States of Kansas and Texas, respectively. As of December 31, 2010, the VOC Operators were the operators or contract operators of 98% of the proved reserves attributable to the Underlying Properties, based on PV-10 value, and VOC Sponsor held an average net revenue interest of 61.8% and 56.1% for the Underlying Properties located in Kansas and Texas, respectively.
 
Based on the reserve reports, the Net Profits Interest would entitle the trust to receive net proceeds from the sale of production of not less than 8.5 MMBoe of proved reserves attributable to the Underlying Properties expected to be produced over the term of the trust. The trust is entitled to receive 80% of the net proceeds from the sale of production of oil and natural gas attributable to the Underlying Properties that are produced during the term of the trust, whereas total reserves as reflected on the summary reserve reports and attributable to the Underlying Properties include all reserves expected to be economically produced during the economic life of the properties.
 
VOC Sponsor has agreed to use commercially reasonable efforts to cause the operators of the Underlying Properties to operate these properties as would a reasonably prudent operator acting with respect to its own properties (without regard to the existence of the Net Profit Interest). In addition, after giving effect to the conveyance of the Net Profits Interest to the trust, VOC Sponsor’s interest in the Underlying Properties entitles it to 20% of the net proceeds from the sale of production of oil and natural gas attributable to VOC Sponsor’s interest in the Underlying Properties during the term of the trust, and 100% thereafter. VOC Sponsor believes that its retained interests in the Underlying Properties combined with VOC Partners, LLC’s ownership of trust units representing a 34.8% beneficial interest in the trust, which collectively entitle VOC Sponsor and VOC Partners, LLC to receive approximately 48% of the net proceeds from the Underlying Properties, will provide sufficient incentive to operate and develop the oil and


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natural gas properties comprising the Underlying Properties in an efficient and cost-effective manner.
 
In general, the producing wells included in the Underlying Properties have stable production profiles and their production is long-lived. Based on the reserve report, annual production from the Underlying Properties is expected to decline at an average annual rate of 6.2% over the next 20 years assuming no additional development drilling or other development expenditures are made on the Underlying Properties after 2015. VOC Sponsor expects total development expenditures for the Underlying Properties through December 31, 2015 will be approximately $27.1 million, which it expects will partially offset the natural decline in production otherwise expected to occur with respect to the Underlying Properties as described in more detail below.
 
SELECTED HISTORICAL AND UNAUDITED PRO FORMA FINANCIAL AND OPERATING DATA OF THE UNDERLYING PROPERTIES
 
The following table sets forth revenues, direct operating expenses and the excess of revenues over direct operating expenses relating to the Predecessor Underlying Properties and the Acquired Underlying Properties for the three years in the period ended December 31, 2010 derived from the audited statements of historical revenues and direct operating expenses of each of the Predecessor Underlying Properties and the Acquired Underlying Properties included elsewhere in this prospectus.
 
The following table also sets forth revenues, direct operating expenses and the excess of revenues over direct operating expenses relating to the Predecessor Underlying Properties after giving pro forma effect to the acquisition of the Acquired Underlying Properties for the year ended December 31, 2010. The information included in this table is derived from the unaudited pro forma statements of historical revenues and direct operating expenses of the Predecessor Underlying Properties included in this prospectus beginning on page F-18. The pro forma adjustments have been prepared as if the acquisition of the Acquired Underlying Properties by Predecessor had taken place (1) on December 31, 2010, in the case of the pro forma balance sheet


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information, and (2) as of January 1, 2010, in the case of the pro forma statement of earnings information for the year ended December 31, 2010
 
                         
    Year Ended December 31,  
    2008     2009     2010  
    (In thousands)  
 
Predecessor Underlying Properties:
                       
Revenues:
                       
Oil sales
  $ 36,632     $ 22,758     $ 36,914  
Natural gas sales
    3,350       1,511       2,396  
Hedge and other derivative income (expense)
    (7,784 )     1,477       (707 )
                         
Total
  $ 32,198     $ 25,746     $ 38,603  
                         
Bad debt expense (recovery)
  $ 1,727     $ (719 )      
Direct operating expenses:
                       
Lease operating expenses
    7,667       6,788       7,325  
Production and property taxes
    2,532       1,646       2,720  
                         
Total
    10,199       8,434       10,045  
                         
Excess of revenues over direct operating expenses
  $ 20,272     $ 18,031     $ 28,558  
                         
Acquired Underlying Properties:
                       
Revenues:
                       
Oil sales
  $ 29,297     $ 17,602     $ 23,273  
Natural gas sales
    2,248       781       842  
                         
Total
  $ 31,545     $ 18,383     $ 24,115  
                         
Bad debt expense
  $ 2,166     $     $  
Direct operating expenses:
                       
Lease operating expenses
    6,046       5,969       6,402  
Production and property taxes
    1,614       1,170       1,417  
                         
Total
    7,660       7,139       7,819  
                         
Excess of revenues over direct operating expenses
  $ 21,719     $ 11,244     $ 16,296  
                         
 
         
    Year Ended
 
    December 31,  
    2010  
    (In thousands)  
 
Predecessor Pro Forma (unaudited)
       
Revenues:
       
Oil sales
  $ 60,187  
Natural gas sales
    3,239  
Hedge and other derivative income (expense)
    (707 )
         
Total
  $ 62,719  
         
Direct operating expenses:
       
Lease operating expenses
  $ 13,727  
Production and property taxes
    4,137  
         
Total
    17,864  
         
Excess of revenues over direct operating expenses
  $ 44,855  
         


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The following table provides oil and natural gas sales volumes, average sales prices and capital expenditures relating to the Underlying Properties for the three years in the period ended December 31, 2010. Average sales prices do not include the effect of hedge activity.
 
                         
    Year Ended December 31,  
Underlying Properties (1)   2008     2009     2010  
    (Unaudited)  
 
Operating data:
                       
Sales volumes:
                       
Oil (MBbls)
    704       732       817  
Natural gas (MMcf)
    750       693       679  
                         
Total sales (MBoe)
    829       847       930  
                         
Average sales prices:
                       
Oil (per Bbl)
  $ 93.67     $ 55.16     $ 73.71  
Natural gas (per Mcf)
  $ 7.46     $ 3.31     $ 4.77  
Capital expenditures (in thousands):
                       
Property acquisition
  $ 7,899     $ 4,134     $ 3,262  
Well development
    2,499       2,407       7,230  
                         
Total
  $ 10,398     $ 6,541     $ 10,492  
                         
 
(1) The operating data includes the effect of the Acquired Underlying Properties for all periods presented.
 
                         
    Year Ended December 31,  
Predecessor Underlying Properties   2008     2009     2010  
    (Unaudited)        
 
Operating data:
                       
Sales volumes:
                       
Oil (MBbls)
    389       407       495  
Natural gas (MMcf)
    426       415       447  
                         
Total (MBoe)
    460       477       569  
                         
Average sales prices:
                       
Oil (per Bbl)
  $ 94.11     $ 55.86     $ 74.59  
Natural gas (per Mcf)
  $ 7.86     $ 3.64     $ 5.36  
Capital expenditures (in thousands):
                       
Property acquisition
  $ 6,715     $ 2,369     $ 2,606  
Well development
    1,063       1,955       6,766  
                         
Total
  $ 7,778     $ 4,324     $ 9,372  
                         
 


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    Year Ended December 31,  
Acquired Underlying Properties   2008     2009     2010  
    (Unaudited)  
 
Operating data:
                       
Sales volumes:
                       
Oil (MBbls)
    315       324       322  
Natural gas (MMcf)
    324       278       232  
                         
Total (MBoe)
    369       371       360  
                         
Average sales prices:
                       
Oil (per Bbl)
  $ 93.12     $ 54.27     $ 72.35  
Natural gas (per Mcf)
  $ 6.94     $ 2.81     $ 3.63  
Capital expenditures (in thousands):
                       
Property acquisition
  $ 1,184     $ 1,765     $ 655  
Well development
    1,436       452       464  
                         
Total
  $ 2,620     $ 2,217     $ 1,119  
                         
 
DISCUSSION AND ANALYSIS OF HISTORICAL RESULTS OF THE UNDERLYING PROPERTIES
 
Predecessor Underlying Properties
 
Comparison of Results of the Predecessor Underlying Properties for the Years Ended December 31, 2010 and 2009
 
Excess of revenues over direct operating expenses for the Predecessor Underlying Properties was $28.6 million for the year ended December 31, 2010, compared to $18.0 million for the year ended December 31, 2009. The increase was primarily a result of increases in oil production and in the average price received for the oil and natural gas sold. This was partially offset by an increase in direct operating expenses and an increase in hedge expense.
 
Revenues. Revenues from oil and natural gas sales increased $15.0 million between the periods. This increase in revenues was primarily the result of an increase in the average price received for crude oil sold from $55.86 per Bbl for the year ended December 31, 2009 to $74.59 per Bbl for the year ended December 31, 2010 and a 87.5 MBbl increase in oil volumes sold. The increase in revenues was also the result of an increase in the average price received for natural gas sold from $3.64 per Mcf for the year ended December 31, 2009 to $5.36 per Mcf for the year ended December 31, 2010, and a 32.2 MMcf increase in natural gas volumes sold.
 
Hedge activity. Hedge activity income was $1.5 million for the year ended December 31, 2009 compared to hedge activity expense of $0.7 million for the year ended December 31, 2010. This decrease in income and increase in expense was due to an increase in realized hedge losses for the period and the recording of the change in market value of some of the hedges to the income statement.
 
The increase in hedge expense was due to the higher average NYMEX price per Bbl of crude oil for the year ended December 31, 2010 of $79.53 compared to $61.80 for the year ended December 31, 2009. The weighted average settlement price of hedges for the year ended December 31, 2010 was $74.40 compared to $68.51 for the year ended December 31, 2009.

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Bad debt expense (recovery). Bad debt recovery was $0.7 million for the year ended December 31, 2009 reflecting the reversal of the bad debt expense recorded in 2008 with respect to the Texas Underlying Properties as described below. There was no bad debt expense or recovery during the year ended December 31, 2010.
 
As publicly reported on July 22, 2008, the revenue intermediary/crude oil purchaser (Eaglwing L.P.) and its parent (SemGroup, L.P.) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. During this process, the monies that had been transferred to the revenue intermediary by certain of Predecessor’s oil and gas purchasers for distribution to Predecessor and other working interest, royalty interest and overriding royalty interest owners were erroneously retained by the revenue intermediary. Vess Oil, as primary operator of Predecessor’s oil and gas leases, filed suit to recover these funds which were estimated to be $1.4 million for Predecessor’s ownership of the Texas Underlying Properties. In addition, Vess Oil filed a proof of claim for a statutory lien claim with the bankruptcy court on behalf of the working interest owners (inclusive of Predecessor interests), overriding royalty owners and royalty owners. In 2008, as there was no assurance as to the dollar amount, if any, that would be recovered or the timing of such recovery, an allowance for doubtful accounts of $0.7 million or 50% of the total estimated amount owed from Eaglwing, L.P. to Predecessor for the Texas Underlying Properties, was established as of December 31, 2008. In addition, an allowance was set up for the oil purchased from the Kansas Underlying Properties in the amount of $1.0 million which represents approximately 87% of June 2008 sales made to Eaglwing, L.P.
 
Prices. The average price received for the crude oil sold increased primarily as a result of an increase in the oil price index on which the sales prices for a majority of the oil production were based. The average price for natural gas sold increased as a result of an increase in the natural gas price index on which the sales prices for a majority of the natural gas production were based.
 
Volumes. The increase in overall production sales volumes during the year ended December 31, 2010 compared to the year ended December 31, 2009 is primarily attributable to the drilling of horizontal wells in the Texas Underlying Properties during the last quarter of 2009 and the year ended December 31, 2010. One well was drilled in the fourth quarter of 2009 and four were drilled in year ended December 31, 2010.
 
Lease operating expenses. Lease operating expenses increased from $6.8 million for the year ended December 31, 2009 to $7.3 million for the year ended December 31, 2010. This increase was primarily a result of an increase in general operating expenses and increased costs due to additional wells being added which was partially offset by the cost of electronification of wells in the Texas Underlying Properties. The VOC Operators are replacing the gas pumping motors in the Texas Underlying Properties with electronic motors which can be shut off and restarted during the day as needed. This process also reduces wear on the moving parts of the well thereby reducing repairs and maintenance costs.
 
Production and property taxes. Production and property taxes increased $1.1 million as a result of the increases in the price of crude oil and in revenues from oil and natural gas sales, on which these taxes are based.
 
Comparison of Results of the Predecessor Underlying Properties for the Years Ended December 31, 2009 and 2008
 
Excess of revenues over direct operating expenses for the Predecessor Underlying Properties was $18.0 million for the year ended December 31, 2009, compared to $20.3 million for the year ended December 31, 2008. The decrease was primarily a result of a decrease in the average price


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received for the oil and natural gas sold. This was partially offset by an increase in production and a decrease in direct operating expenses.
 
Revenues. Revenues from oil and natural gas sales decreased $15.7 million between the periods. This decrease in revenues was primarily the result of a decrease in the average price received for crude oil sold from $94.11 per Bbl for the year ended December 31, 2008 to $55.88 per Bbl for the year ended December 31, 2009, partially offset by an 18.1 MBbl increase in oil volumes sold. The decrease in revenues was also the result of a decrease in the average price received for natural gas sold from $7.86 per Mcf for the year ended December 31, 2008 to $3.64 per Mcf for the year ended December 31, 2009, and an 11.6 MMcf decrease in natural gas volumes sold.
 
Bad debt expense (recovery).  Bad debt expense was $1.7 million for the year ended December 31, 2008 and bad debt recovery was $0.7 million for the year ended December 31, 2009. During the year ended December 31, 2009, recovery was made of the $1.4 million due for the Texas Underlying Properties. As a result of the recovery, VOC Sponsor recorded bad debt recovery of $0.7 million, which reverses the bad debt expense which was recorded for the Texas properties in 2008.
 
As publicly reported on July 22, 2008, the revenue intermediary/crude oil purchaser (Eaglwing L.P.) and its parent (SemGroup, L.P.) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. During this process, the monies that had been transferred to the revenue intermediary by certain of Predecessor’s oil and gas purchasers for distribution to Predecessor and other working interest, royalty interest and overriding royalty interest owners was erroneously retained by the revenue intermediary. Vess Oil, as primary operator of Predecessor’s oil and gas leases, filed suit to recover these funds which were estimated to be $1.4 million for Predecessor’s ownership of the Texas properties. In addition, Vess Oil filed a proof of claim for a statutory lien claim with the bankruptcy court on behalf of the working interest owners (inclusive of Predecessor interests), overriding royalty owners and royalty owners. In 2008, as there was no assurance as to the dollar amount, if any, that would be recovered or the timing of such recovery, an allowance for doubtful accounts of $0.7 million, or 50% of the total estimated amount owed from Eaglwing, L.P. to Predecessor for the Texas Underlying Properties was established as of December 31, 2008. In addition, an allowance was set up for the oil purchased from the Kansas Underlying Properties in the amount of $1.0 million which represents approximately 87% of June 2008 sales made to Eaglwing, L.P.
 
Hedge activity. Hedge activity expense was $7.8 million for the year ended December 31, 2008 compared to hedge activity income of $1.5 million for the year ended December 31, 2009. This change was due primarily to the lower average NYMEX settlement price for the year ended December 31, 2009 of $61.80 compared to $99.65 for the year ended December 31, 2008. The weighted average hedge price for 2009 was $68.51 compared to $70.03 for 2008.
 
Prices. The average price received for crude oil and natural gas sold decreased primarily as a result of a decrease in the oil price and natural gas price indices on which the sales prices for a majority of the production were based.
 
Volumes. The increase in oil and natural gas sales volumes was primarily attributable to the acquisition of various oil and gas working interests during August 2008. Production during 2008 reflects 4 months production from the purchase and production during 2009 includes 12 months production.
 
Lease operating expenses. Lease operating expenses decreased from $7.7 million for the year ended December 31, 2008 to $6.8 million for the year ended December 31, 2009. This decrease


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was the result of the decline in oil prices and the electronification of wells in the Texas properties.
 
Production and property taxes. Production and property taxes decreased $0.9 million as a result of the decrease in revenues from oil and natural gas sales and decreased property value on which these taxes are based.
 
Acquired Underlying Properties
 
Comparison of Results of the Acquired Underlying Properties for the Years Ended December 31, 2010 and 2009
 
Excess of revenues over direct operating expenses for the Acquired Underlying Properties was $16.3 million for the year ended December 31, 2010, compared to $11.2 million for the year ended December 31, 2009. The increase was primarily a result of an increase in the average price received for the oil and natural gas sold. This was partially offset by a decrease in oil and natural gas volumes and an increase in direct operating expenses.
 
Revenues. Revenues from oil and natural gas sales increased $5.7 million between the periods. This increase in revenues was primarily the result of an increase in the average price received for crude oil sold from $54.27 per Bbl for the year ended December 31, 2009 to $72.35 per Bbl for the year ended December 31, 2010, partially offset by a 2.7 MBbl decrease in oil volumes sold. The increase in revenues was also the result of an increase in the average price received for natural gas sold from $2.81 per Mcf for the year ended December 31, 2009 to $3.63 per Mcf for the year ended December 31, 2010, partially offset by a 45.8 MMcf decrease in natural gas volumes sold.
 
Prices. The average price received for the crude oil sold increased primarily as a result of an increase in the oil price index on which the sales prices for a majority of the oil production were based. The average price for natural gas sold increased as a result of an increase in the natural gas price index on which the sales prices for a majority of the natural gas production were based.
 
Volumes. The decrease in overall production sales volumes during the year ended December 31, 2010 compared to the year ended December 31, 2009 is primarily attributable to the natural decline of the producing properties.
 
Lease operating expenses. Lease operating expenses increased from $6.0 million for the year ended December 31, 2009 to $6.4 million for the year ended December 31, 2010. This increase was primarily a result of an increase in general operating expenses.
 
Production and property taxes. Production and property taxes increased $0.2 million as a result of the increases in the price of crude oil and in revenues from oil and natural gas sales, on which these taxes are based.
 
Comparison of Results of the Acquired Underlying Properties for the Years Ended December 31, 2009 and 2008
 
Excess of revenues over direct operating expenses for the Acquired Underlying Properties was $11.2 million for the year ended December 31, 2009, compared to $21.7 million for the year ended December 31, 2008. The decrease was primarily a result of a decrease in the average price received for the oil and natural gas sold. This was partially offset by an increase in production and a decrease in direct operating expenses.


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Revenues. Revenues from oil and natural gas sales decreased $13.2 million between the periods. This decrease in revenues was primarily the result of a decrease in the average price received for crude oil sold from $93.12 per Bbl for the year ended December 31, 2008 to $54.27 per Bbl for the year ended December 31, 2009, partially offset by a 9.7 MBbl increase in oil volumes sold. The decrease in revenues was also the result of a decrease in the average price received for natural gas sold from $6.94 per Mcf for the year ended December 31, 2008 to $2.81 per Mcf for the year ended December 31, 2009, and a 45.9 MMcf decrease in natural gas volumes sold.
 
Bad debt expense (recovery). Bad debt expense was $2.2 million for the year ended December 31, 2008. During the year ended December 31, 2009 there was no bad debt expense or recovery.
 
As publicly reported on July 22, 2008, the crude oil purchaser (Eaglwing L.P.) and its parent (SemGroup, L.P.) filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code. An allowance was set up for the oil purchased from the Acquired Underlying Properties in the amount of $2.2 million, which represents approximately 87% of June 2008 sales made to Eaglwing, L.P.
 
Prices. The average price received for crude oil and natural gas sold decreased primarily as a result of a decrease in the oil price and natural gas price indices on which the sales prices for a majority of the production were based.
 
Volumes. The small increase in oil and natural gas sales volumes is primarily attributable to the development program which was partially offset by the natural decline of the proved producing properties.
 
Lease operating expenses. Lease operating expenses remained stable at $6.0 million for the years ended December 31, 2008 and 2009.
 
Production and property taxes. Production and property taxes decreased $0.4 million as a result of the decrease in revenues from oil and natural gas sales and decreased property value on which these taxes are based.
 
HEDGE CONTRACTS
 
The revenues derived from the Underlying Properties depend substantially on prevailing crude oil prices and, to a lesser extent, natural gas prices. As a result, commodity prices also affect the amount of cash flow available for distribution to the trust unitholders. Lower prices may also reduce the amount of oil and natural gas that VOC Sponsor can economically produce. VOC Sponsor sells the oil and natural gas production from the Underlying Properties under floating market price contracts each month. VOC Sponsor has entered into the hedge contracts for 2011, 2012 and 2013 and for the six months ending June 30, 2014 to reduce the exposure of the revenues from oil production from the Underlying Properties to fluctuations in crude oil prices and to achieve more predictable cash flow. However, these contracts limit the amount of cash available for distribution if prices increase above the fixed hedge price. The hedge contracts consist of fixed price swap contracts that have been placed with major trading counterparties in whom VOC Sponsor believes represent minimal credit risks. VOC Sponsor cannot provide assurance, however, that these trading counterparties will not become credit risks in the future.
 
The crude oil swap contracts will settle based on the average of the settlement price for each commodity business day in the contract month. In a swap transaction, the counterparty is required to make a payment to VOC Sponsor for the difference between the fixed price and the


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settlement price if the settlement price is below the fixed price. VOC Sponsor is required to make a payment to the counterparty for the difference between the fixed price and the settlement price if the settlement price is above the fixed price. From January 1, 2011 through June 30, 2014, VOC Sponsor’s crude oil price risk management positions in swap contracts are as follows:
 
                         
        Fixed Price Swaps
        Weighted
    Volumes
  Average Price
Month   (Bbls)   (Per Bbl)
 
January 2011
            13,689     $ 94.90  
February 2011
            13,621     $ 94.90  
March 2011
            20,014     $ 96.77  
April 2011
            43,407     $ 99.99  
May 2011
            42,828     $ 99.98  
June 2011
            42,285     $ 99.98  
July 2011
            41,766     $ 99.97  
August 2011
            41,271     $ 99.96  
September 2011
            40,796     $ 99.95  
October 2011
            40,337     $ 99.94  
November 2011
            39,898     $ 99.94  
December 2011
            39,476     $ 99.93  
January 2012
            39,038     $ 100.84  
February 2012
            38,631     $ 100.84  
March 2012
            38,251     $ 100.85  
April 2012
            37,882     $ 100.85  
May 2012
            37,523     $ 100.85  
June 2012
            37,176     $ 100.85  
July 2012
            36,839     $ 100.86  
August 2012
            36,513     $ 100.86  
September 2012
            36,194     $ 100.86  
October 2012
            35,883     $ 100.86  
November 2012
            35,562     $ 100.87  
December 2012
            35,268     $ 100.87  
January 2013
            34,975     $ 99.01  
February 2013
            34,686     $ 99.01  
March 2013
            34,406     $ 99.01  
April 2013
            34,166     $ 99.01  
May 2013
            33,959     $ 99.01  
June 2013
            33,727     $ 99.01  
July 2013
            33,526     $ 99.01  
August 2013
            33,317     $ 99.01  
September 2013
            33,122     $ 99.01  
October 2013
            32,929     $ 99.01  
November 2013
            32,741     $ 99.01  
December 2013
            32,554     $ 99.01  
January 2014
            13,220     $ 102.15  
February 2014
            13,149     $ 102.15  
March 2014
            13,078     $ 102.15  
April 2014
            13,008     $ 102.15  
May 2014
            12,939     $ 102.15  
June 2014
            12,870     $ 102.15  
 
The amounts received by VOC Sponsor from the hedge contract counterparty upon settlement of the hedge contracts will reduce the operating expenses related to the Underlying Properties in calculating the net proceeds. However, if the hedge payments received by VOC Sponsor under the hedge contracts and other non-production revenue exceed operating expenses during a quarterly period, the ability to use such excess amounts to offset operating expenses will


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be deferred, with interest accruing on such amounts at the prevailing prime rate, until the next quarterly period where the hedge payments and the other non-production revenue are less than such expenses. In addition, the aggregate amounts paid by VOC Sponsor on settlement of the hedge contracts will reduce the amount of net proceeds paid to the trust. See “Computation of net proceeds — Net Profits Interest.”
 
PRODUCING ACREAGE AND WELL COUNTS
 
For the following data, “gross” refers to the total number of wells or acres in which VOC Sponsor owns a working interest and “net” refers to gross wells or acres multiplied by the percentage working interest owned by VOC Sponsor. Although many of VOC Sponsor’s wells produce both oil and natural gas, a well is categorized as an oil well or a natural gas well based upon the ratio of oil to natural gas production. The Underlying Properties are interests in properties located in oil and natural gas producing regions of Kansas and Texas. The following is a summary of the approximate acreage of the Underlying Properties at December 31, 2010.
 
                 
    Gross     Net  
    (Acres)  
 
Kansas
    76,217       45,326.1  
Texas
    23,693       16,841.3  
                 
Total
    99,910       62,167.4  
                 
 
The following is a summary of the producing wells on the Underlying Properties as of December 31, 2010:
 
                                                 
    Operated Wells     Non-Operated Wells     Total  
    Gross     Net     Gross     Net     Gross     Net  
 
Oil
    805       512.7       31       7.3       836       520.0  
Natural gas
    31       21.1       14       4.6       45       25.7  
                                                 
Total
    836       533.8       45       11.9       881       545.7  
                                                 
 
The following is a summary of the number of developmental and exploratory wells drilled by VOC Sponsor on the Underlying Properties during the last three years. VOC Sponsor drilled two exploratory wells during the periods presented.
 
                                                 
    Year Ended December 31,  
    2008     2009     2010  
    Gross     Net     Gross     Net     Gross     Net  
 
Completed:
                                               
Oil wells
    13       8.3       6       4.6       7       5.3  
Natural gas wells
                                   
Non-productive
    4       2.4                   2       1.3  
                                                 
Total
    17       10.7       6       4.6       9       6.6  
                                                 


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The following table shows the average sales prices per Bbl of oil and Mcf of natural gas produced and the production costs and production and property taxes per Boe for the Underlying Properties. Average prices do not include the effect of hedge activity.
 
                         
    Year Ended December 31,  
    2008     2009     2010  
 
Sales prices:
                       
Oil (per Bbl)
  $ 93.67     $ 55.16     $ 73.71  
Natural gas (per Mcf)
  $ 7.46     $ 3.31     $ 4.77  
Lease operating expense (per Boe)
  $ 16.54     $ 15.06     $ 14.76  
Production and property taxes (per Boe)
  $ 5.00     $ 3.32     $ 4.45  
 
OPERATING AREAS
 
The following table summarizes the estimated proved reserves by operating area attributable to the Underlying Properties according to the reserve reports, the corresponding pre-tax PV-10 value as of December 31, 2010 and the average net production attributable to the Underlying Properties for the year ended December 31, 2010.
 
                                                         
                                        Year Ended
 
    Proved Reserves (1)     December 31,
 
                                  % of
    2010 Average
 
          Natural
          % of
    Pre-Tax
    Pre-Tax
    Net
 
    Oil
    Gas
    Total
    Total
    PV-10%
    PV-10%
    Production
 
Operating Area   (MBbls)     (MMcf)     (MBoe)     Reserves     Value     Value     (Boe per day)  
                            (In thousands)              
 
Kansas (188 Fields)
                                                       
Fairport
    889       0       889       6.5 %   $ 17,334       6.5 %     123  
Marcotte
    474       0       474       3.5 %     10,638       4.0 %     94  
Chase-Silica
    434       0       434       3.2 %     8,075       3.0 %     85  
Bindley
    365       0       365       2.7 %     7,097       2.6 %     53  
Moore-Johnson
    351       0       351       2.6 %     6,853       2.6 %     52  
Griston SW
    121       0       121       0.9 %     4,164       1.6 %     36  
Wesley
    169       0       169       1.2 %     3,979       1.5 %     34  
Mueller
    175       0       175       1.3 %     3,947       1.5 %     32  
Codell
    145       0       145       1.1 %     3,757       1.4 %     65  
Adell Northwest
    104       0       104       0.8 %     2,211       0.8 %     19  
Dopita
    110       0       110       0.8 %     2,157       0.8 %     19  
Yaege
    110       0       110       0.8 %     2,153       0.8 %     19  
Spivey-Grabs-Basil
    59       891       207       1.5 %     2,075       0.8 %     39  
Other
    3,029       2,660       3,473       25.3 %     60,333       22.5 %     863  
                                                         
Kansas Total
    6,535       3,550       7,127       52.0 %   $ 134,772       50.2 %     1,536  
                                                         
Texas (3 Fields)
                                                       
Kurten
    4,054       3,398       4,620       33.7 %     91,880       34.2 %     695  
Sand Flat
    927       0       927       6.8 %     23,067       8.6 %     169  
Hitts Lake North
    1,026       1       1,026       7.5 %     18,564       6.9 %     147  
                                                         
Texas Total
    6,007       3,399       6,573       48.0 %   $ 133,511       49.8 %     1,011  
                                                         
Total
    12,542       6,949       13,700       100 %   $ 268,283       100.0 %     2,547  
                                                         
 
(1) In accordance with the rules and regulations promulgated by the SEC, the proved reserves presented above were determined using the twelve month unweighted arithmetic average of the first-day-of-the-month price for the period from January 1, 2010 through December 1, 2010, without giving effect to any hedge transactions, and were held constant for the life of the properties. This yielded a price for oil of $79.43 per barrel and a price for natural gas of $4.37 per MMBtu.
 
(2) PV-10 is the present value of estimated future net revenue to be generated from the production of proved reserves, discounted using an annual discount rate of 10%, calculated without deducting future income taxes. Standardized measure of discounted net cash flows is calculated the same as PV-10 except that it deducts future income taxes. Because the trust bears no federal tax expense and taxable income is passed through to the unitholders of the trust, no


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provision for federal or state income taxes is included in the summary reserve reports and therefore the standardized measure of discounted future net cash flows attributable to the Underlying Properties is equal to the pre-tax PV-10 value. PV-10 may not be considered a GAAP financial measure as defined by the SEC and is derived from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. The pre-tax PV-10 value and the standardized measure of discounted future net cash flows do not purport to present the fair value of the oil and natural gas reserves attributable to Underlying Properties.
 
The Underlying Properties are located in Kansas and Texas in areas characterized by long production histories and by several additional development opportunities, which may help to diminish natural declines in production from the Underlying Properties. See “— Planned development and workover program” for a summary of VOC Sponsor’s development plans. Based on the reserve reports, approximately 92% of the future production from the Underlying Properties is expected to be oil and approximately 8% is expected to be natural gas.
 
Kansas.  As of December 31, 2010, proved reserves attributable to the portion of the Kansas Underlying Properties were approximately 7.1 MMBoe and are located in three primary areas — the Central Kansas Uplift, Western Kansas and South Central Kansas. As of December 31, 2010, the Kansas Underlying Properties covered approximately 76,217 gross acres (45,326.1 net acres) and included 188 fields. As of December 31, 2010, the VOC Operators operated 97% of the total proved reserves attributable to the Kansas Underlying Properties based on PV-10 value.
 
The major fields in the Central Kansas Uplift include Fairport Field, Chase-Silica Field and Marcotte Field, all of which are producing primarily from the Arbuckle and Lansing Kansas City zones. The major fields in Western Kansas include the Bindley, Moore-Johnson and Wesley fields, which are producing primarily from the Mississippian, Morrow, Lansing Kansas City and Cherokee zones. The major fields in South Central Kansas include the Gerberding, Spivey Grabs and Alford fields, which are producing primarily from the Mississippian, Simpson and Lansing Kansas City zones. During the year ended December 31, 2010, the average net production for the Kansas Underlying Properties was approximately 1,536 Boe per day, which represented 4.3% of total fluid production (water production averaged 95.7%).
 
The following table summarizes VOC Sponsor’s interests in the major fields in Kansas as of December 31, 2010.
 
                                         
    No. of Wells
                      Average
    Operated/
                  Average
  Net
    Non-
          Productive
  Gross/
  Working
  Revenue
Field   Operated   Operator   County   Zones   Net Acres   Interest   Interest
 
Fairport
  59/5   Vess Oil, Counts Kellis   Russell   Arbuckle, LKC, Dodge, Reagan, Wabaunsee     1,320/963.5       73.6 %     63.3 %
Marcotte
  25/0   Vess Oil   Rooks   Arbuckle, LKC     1,760/1,676.7       95.4 %     79.5 %
Chase-Silica
  48/0   Vess Oil, Davis Petroleum Inc, L D Drilling   Barton, Rice, Stafford   Arbuckle, LKC     2,760/2,038.1       82.0 %     67.0 %
Bindley
  18/0   Vess Oil   Hodgeman   Mississippian     1,360/1,166.0       85.5 %     73.8 %
Moore-Johnson
  10/0   Vess Oil   Greeley   Morrow     1,621/1,292.3       79.7 %     64.6 %
Griston SW
  7/0   Vess Oil   Scott   LKC, Mississippian     160/82.7       50.3 %     40.2 %
Wesley
  5/0   Davis Petroleum Inc, L D Drilling   Ness   Mississippian     480/444.5       92.2 %     80.1 %
Mueller
  14/0   Vess Oil,
L D Drilling
  Stafford   Arbuckle, Conglomerate, LKC     640/497.0       85.2 %     69.4 %
Codell
  3/0   Vess Oil   Rooks   Arbuckle, LKC     106/100.6       95.0 %     76.5 %
Adell Northwest
  7/0   Vess Oil   Decatur   LKC     800/797.6       99.7 %     86.7 %


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    No. of Wells
                      Average
    Operated/
                  Average
  Net
    Non-
          Productive
  Gross/
  Working
  Revenue
Field   Operated   Operator   County   Zones   Net Acres   Interest   Interest
 
Dopita
  9/0   Vess Oil   Rooks   Arbuckle, Toronto     380/357.1       93.5 %     81.8 %
Yaege
  26/0   Vess Oil   Riley   Hunton     2,098/1,094.1       52.2 %     45.6 %
Spivey-Grabs-Basil
  10/1   Vess Oil   Harper, Kingman   Mississippian     1,470/1,123.7       86.6 %     72.5 %
 
Texas.  As of December 31, 2010, proved reserves attributable to the Texas Underlying Properties were approximately 6.6 MMBoe and are located in two areas — Central Texas and East Texas. As of December 31, 2010, the Texas Underlying Properties covered approximately 23,693 gross acres (16,841.3 acres) and included three fields. As of December 31, 2010, the VOC Operators operated approximately 99% of the total proved reserves attributable to the Texas Underlying Properties based on PV-10 value.
 
Central Texas production is attributable to the Kurten Woodbine Unit, which is producing primarily from the Woodbine Interval and Buda Georgetown zones. East Texas properties include the Sand Flat field and Hitts Lake North field, each of which is producing primarily from the Paluxy and Chisum zones. During the year ended December 31, 2010, the average net production for the Texas Underlying Properties was approximately 1,011 Boe per day, which represented 9.4% of total fluid production (water production averaged 90.6%).
 
The following table summarizes VOC Sponsor’s interests in the major fields in Texas as of December 31, 2010.
 
                                         
    No. of Wells
                      Average
    Operated/
                  Average
  Net
    Non-
          Productive
  Gross/
  Working
  Revenue
Field
  Operated   Operator   County   Zones   Net Acres   Interest   Interest
 
Kurten
  108/7   Vess Oil, CML,
Ogden Resources
  Brazos   Austin Chalk,
Woodbine
Sand, Buda-
Georgetown
    20,908/15,280.4       72.7 %     58.6 %
Sand Flat
  18/1   Vess Oil, Carrizo   Smith   Paluxy, Rodessa     2,579/1,418.0       54.9 %     48.1 %
Hitts Lake North
  5/0   Vess Oil   Smith   Paluxy     206/142.9       59.6 %     52.5 %
 
PLANNED DEVELOPMENT AND WORKOVER PROGRAM
 
The primary goals of VOC Sponsor’s development and workover program have been to develop proved undeveloped reserves, manage workovers and minimize the natural decline in production in areas in which it operates. However, VOC Sponsor is not obligated to undertake any development activities, so any drilling and completing activities will be subject to the reasonable discretion of VOC Sponsor. No assurance can be given, however, that any development well will produce in commercially paying quantities or that the characteristics of any development well will match the characteristics of VOC Sponsor’s existing wells or VOC Sponsor’s historical drilling success rate. With respect to the Underlying Properties, VOC Sponsor expects, but is not obligated, to implement the following development strategies specific to each of its primary operating areas.
 
  •   Kansas.  VOC Sponsor’s historical development and workover program for the Kansas Underlying Properties has included recompleting certain existing wells, drilling infill development wells, conducting 3-D seismic surveys, completing workovers and applying new production technologies. VOC Sponsor intends to continue this program with respect to the Kansas Underlying Properties, and expects to incur total development expenditures

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  for these properties through December 31, 2015 of approximately $3.2 million, of which VOC Sponsor contemplates spending approximately $2.5 million to drill and complete 13 vertical wells. The remaining approximate $0.7 million is expected to be used for recompletions and workovers of 12 wells.
 
  •   Texas.  VOC Sponsor’s historical development program for the Texas Underlying Properties has included recompleting certain existing wells, drilling infill development wells, completing workovers and applying new production technologies. In 2009, after an extensive review of horizontal development drilling in the area, VOC Sponsor commenced drilling horizontal wells in the Kurten Woodbine Unit in order to accelerate the development of proved undeveloped reserves. VOC Sponsor has successfully completed each of its first four horizontal wells to the Woodbine C sand in this area with average lateral lengths of approximately 3,000 feet. VOC Sponsor intends to continue developing the Woodbine C sand underlying the Kurten Woodbine Unit, utilizing horizontal wells completed with multiple fracture stimulations together with recompletions of existing vertical wellbores into additional pay intervals. VOC Sponsor expects total development expenditures for the Texas Underlying Properties through December 31, 2015 to be approximately $24.0 million. Of this total, VOC Sponsor contemplates spending approximately $22.5 million to drill and complete 11 horizontal wells in the Woodbine C sand. The remaining approximate $1.5 million is expected to be used for recompletions and workovers of 12 Woodbine vertical wells to additional Woodbine sands and seven existing wells in the Sand Flat Unit.
 
The trust is not directly obligated to pay any portion of any development expenditures made with respect to the Underlying Properties; however, development expenditures made by VOC Sponsor with respect to the Underlying Properties will be included among the costs that will be deducted from the gross proceeds in calculating cash distributions attributable to the Net Profits Interest. As a result, the trust will indirectly bear an 80% share of any development expenditures made with respect to the Underlying Properties (subject to certain limitations near the end of the term of the trust, as described below). Accordingly, higher or lower development expenditures will, in general, directly decrease or increase, respectively, the cash received by the trust. In making development expenditure determinations, VOC Sponsor will attempt to balance the impact of the development expenditures on current cash distributions to the trust unitholders with the longer term benefits of increased oil and natural gas production expected to result from the development expenditure. In addition, VOC Sponsor may establish a capital reserve of up to a maximum of $1.0 million in the aggregate at any given time.
 
VOC Sponsor, as the designated operator of the Underlying Properties, is entitled to make all determinations related to development expenditures with respect to the Underlying Properties, and there are no limitations on the amount of development expenditures that VOC Sponsor may incur with respect to the Underlying Properties, except as described below. VOC Sponsor is required under the applicable Net Profits Interest conveyance to use commercially reasonable efforts to cause the operators of the Underlying Properties to operate these properties as would a reasonably prudent operator acting with respect to its own properties (without regard to the existence of the Net Profits Interest). As the trust unitholders would not be expected to fully realize the benefits of development expenditures made with respect to the Underlying Properties which occur near the end of the term of the trust, during each twelve-month period beginning on the later to occur of (1) December 31, 2027 and (2) the time when 9.8 MMBoe have been produced from the Underlying Properties and sold (which is the equivalent of 7.8 MMBoe in respect of the Net Profits Interest), development expenditures that may be included among the costs that will be taken into account in calculating net proceeds attributable to the Net Profits Interest will be limited to the average annual development expenditures incurred by VOC Sponsor during the preceding three years, as increased


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by 2.5% to account for expected increased costs due to inflation. See “Computation of net proceeds — Net Profits Interest.”
 
RESERVE REPORTS
 
Technologies.  The reserve reports were prepared using production performance decline curve analyses and analogy performance to determine the reserves of the Underlying Properties in Kansas and Texas. After estimating the reserves of each proved developed property, a reasonable level of certainty exists with respect to the reserves which can be expected from individual undeveloped wells in the fields. The consistency of reserves attributable to the proved developed producing wells in fields in Kansas and Texas, which cover a wide area, further supports proved undeveloped classification.
 
The proved undeveloped locations in Underlying Properties are direct offsets of other producing wells. 3-D seismic data has been used to target well placement for most proved undeveloped locations in Kansas so as to avoid encountering significant unfavorable faults or structural features. Data from both VOC Sponsor and offset operators with which VOC Sponsor has exchanged technical data demonstrate a consistency in this resource play over an area much larger than the Underlying Properties. In addition, information from other producing wells has also been used to analyze reservoir properties such as porosity, thickness, and stratigraphic conformity.
 
Estimates of reserves may also be obtained using extensive pressure and temperature data, production data, fluid analysis and knowledge of the nature of a reservoir, and complex calculations on computer models processing such data. Reserve estimates obtained by this method generally provide a degree of certainty that is directly related to the complexity of the reservoir and the quality and quantity of the data available. Reserve engineers may also analyze physical measurements of rock and fluid properties to calculate volumes of hydrocarbons in place. The degree of accuracy of such analysis is directly related to the quality of the rock, the subsurface control and the complexity of the reservoir.
 
Internal controls.  Cawley, Gillespie, & Associates, Inc., the independent petroleum engineering consultant, estimated all of the proved reserve information for the Underlying Properties in this registration statement in accordance with appropriate engineering, geologic, and evaluation principles and techniques that are in accordance with practices generally accepted in the petroleum industry, and definitions and guidelines established by the SEC. These reserves estimation methods and techniques are widely taught in university petroleum curricula and throughout the industry’s ongoing training programs. Although these engineering, geologic, and evaluation principles and techniques are based upon established scientific concepts, the application of such principles and techniques involves extensive judgment and is subject to changes in existing knowledge and technology, economic conditions and applicable statutory and regulatory provisions. These same industry-wide applied techniques are used in determining estimated reserve quantities. The technical persons responsible for preparing the reserves estimates presented herein meet the requirements regarding qualifications, independence, objectivity and confidentiality set forth in the Society of Petroleum Engineers’ Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information. Vice President of Operations of Vess Oil, William R. Horigan, consults regularly with Cawley, Gillespie during the reserve estimation process to review properties, assumptions, and any new data available. Additionally, VOC Sponsor’s senior management reviewed and approved all Cawley, Gillespie summary reserve reports contained herein.
 
The independent engineering reserve estimates are reviewed by Mr. Horigan, who has a Bachelor of Science in Chemical Engineering, is a member of the Society of Petroleum Engineers


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and served on the Executive Board for the Wichita Section. He is also a member of the Producers Advisory Board of the KU Tertiary Oil Recovery Project and a member of the Petroleum Technology Transfer Council of the North Mid-Continent Region. He has over 35 years of oil and gas industry experience in drilling and completions, reservoir engineering, and acquisitions and divestitures.
 
Cawley, Gillespie & Associates, Inc. estimated oil and natural gas reserves attributable to VOC Brazos and KEP and the Net Profit Interest as of December 31, 2010. Numerous uncertainties are inherent in estimating reserve volumes and values, and the estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production of the reserves may vary significantly from the original estimates.
 
The discounted estimated future net revenues presented below were prepared using the twelve month unweighted arithmetic average of the first-day-of-the-month price for the period from January 1, 2010 through December 1, 2010, without giving effect to any derivative transactions, and were held constant for the life of the properties. This yielded a price for oil of $79.43 per barrel and a price for natural gas of $4.37 per MMBtu. Oil equivalents in the table are the sum of the Bbls of oil and the Boe of the stated Mcfs of natural gas, calculated on the basis that six Mcfs of natural gas is the energy equivalent of one Bbl of oil. The estimated future net revenues attributable to the Net Profits Interest as of December 31, 2010 are net of the trust’s proportionate share of all estimated costs deducted from revenue pursuant to the terms of the conveyance creating the Net Profits Interest and include only the reserves attributable to the Underlying Properties that are expected to be produced during the term of the trust. Because oil and natural gas prices are influenced by many factors, use of the twelve month unweighted arithmetic average of the first-day-of-the-month price for the period from January 1, 2010 through December 1, 2010, as required by the SEC, may not be the most accurate basis for estimating future revenues of reserve data. Future net cash flows are discounted at an annual rate of 10%. There is no provision for federal income taxes with respect to the future net cash flows attributable to the Underlying Properties or the Net Profits Interest because future net revenues are not subject to taxation at the VOC Sponsor or trust level.
 
VOC Brazos’ natural gas realized price is adjusted for BTU content and natural gas liquids (NGLs) sales through percent-of-proceeds (POP) contracts. VOC Brazos has natural gas production with high BTU content. Furthermore, VOC Brazos has several POP contracts where the produced natural gas is sent to a gas plant and NGLs are removed from the stream. VOC Brazos is then paid for its share of the processed natural gas sales and a percentage of the NGL sales. The revenue VOC Brazos receives for NGLs is added to the natural gas revenue in the pricing calculation and is at pricing levels that exceed equivalent natural gas sales. VOC Brazos sold 34,321 Bbls of NGLs for the year ended December 31, 2010.
 
Therefore, in the reserve report, two adjustments are made to the assumed Henry Hub gas price on certain properties, including the Kurten Woodbine Unit: (1) BTU adjustment factor of 1.3218 and (2) POP factor of 1.2376. The following table provides an example calculation of the Realized Price ($6.27 per Mcf) from the assumed Henry Hub gas price ($3.833 per MMBTU):
 
         
Assumed HHUB Price ($/MMBTU)
  $ 3.833  
x BTU Adjustment Factor
    1.3218  
         
    $ 5.066  
x POP Factor
    1.2376  
         
Realized Price ($/Mcf)
  $ 6.270  
         


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Proved reserves of Underlying Properties.  The following table sets forth, as of December 31, 2010, certain estimated proved reserves, estimated future net revenues and the discounted present value thereof attributable to the Underlying Properties and the Net Profits Interest, in each case derived from the reserve reports. Summaries of the reserve reports are included in Annexes A, B, and C to this prospectus.
 
                 
    Underlying
  Net Profits
    Properties (1)   Interest (2)
    (In thousands, except MBbls, MMcf and MBoe amounts)
 
Proved Reserves:
               
Oil (MBbls)
    12,542       7,712  
Natural gas (MMcf)
    6,949       4,819  
Oil equivalents (MBoe)
    13,700       8,515  
Future net revenues
  $ 569,829     $ 379,296  
Discounted estimated future net revenues (3)
  $ 268,283     $ 208,552  
Standardized measure (3)(4)
  $ 268,283     $ 208,552  
 
(1) Reserve volumes and estimated future net revenues for Underlying Properties reflect volumes and revenues attributable to VOC Sponsor’s net interests in the properties comprising the Underlying Properties.
 
(2) Reflects 80% of proved reserves attributable to the Underlying Properties expected to be produced during the term of the trust based on the reserve reports.
 
(3) The present values of future net revenues for the Underlying Properties and the Net Profits Interest were determined using a discount rate of 10% per annum. As of December 31, 2010, VOC Sponsor was structured as a limited partnership. Accordingly, no provision for federal or state income taxes has been provided because taxable income was passed through to the partners of VOC Sponsor. Therefore, the standardized measure of the Underlying Properties is equal to the PV-10 value, which totaled $268.3 million as of December 31, 2010.
 
(4) Standardized measure of discounted net cash flows is calculated the same as PV-10 except that it deducts future income taxes. Because VOC Sponsor bears no federal income tax expense and taxable income is passed through to the unitholders of the trust, no provision for federal or state income taxes is included in the reserve reports and therefore the standardized measure of discounted future net cash flows attributable to the Underlying Properties is equal to the pretax PV-10 value. PV-10 may not be considered a GAAP financial measure as defined by the SEC and is derived from the standardized measure of discounted future net cash flows, which is the most directly comparable GAAP financial measure. The pre-tax PV-10 value and the standardized measure of discounted future net cash flows do not purport to present the fair value of the oil and natural gas reserves attributable to Underlying Properties.
 
Information concerning historical changes in net proved reserves attributable to the Underlying Properties is contained in the unaudited supplemental information contained elsewhere in this prospectus. VOC Sponsor has not filed reserve estimates covering the Underlying Properties with any other federal authority or agency.


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The following table summarizes the changes in estimated proved reserves of the Underlying Properties for the periods indicated. The data presents the proved reserves attributable to the Underlying Properties for the economic life of such properties and is not limited to the term of the trust. The data is presented assuming VOC Sponsor owns all the Underlying Properties as of December 31, 2007.
 
                         
                Oil
 
    Oil
    Natural Gas
    Equivalents
 
    (MBbls)     (MMcf)     (MBoe)  
 
Proved Reserves:
                       
Balance, December 31, 2007
    11,993       7,380       13,223  
Revisions of previous estimates
    (1,834 )     (151 )     (1,859 )
Purchases of minerals in place
    222       378       285  
Extensions and discoveries
    1             1  
Production
    (704 )     (750 )     (829 )
                         
Balance, December 31, 2008
    9,678       6,857       10,821  
Revisions of previous estimates
    2,640       173       2,668  
Purchases of minerals in place
    129       126       150  
Extensions and discoveries
    215             215  
Production
    (732 )     (693 )     (847 )
                         
Balance, December 31, 2009
    11,930       6,463       13,007  
Revisions of previous estimates
    1,429       1,165       1,623  
Production
    (817 )     (679 )     (930 )
                         
Balance, December 31, 2010
    12,542       6,949       13,700  
                         
Proved Developed Reserves:
                       
                         
Balance, December 31, 2007
    11,416       7,122       12,603  
                         
Balance, December 31, 2008
    8,952       6,562       10,046  
                         
Balance, December 31, 2009
    10,567       5,813       11,536  
                         
Balance, December 31, 2010
    10,971       5,844       11,945  
                         
                         
Proved Undeveloped Reserves:
                       
                         
Balance, December 31, 2007
    577       258       620  
                         
Balance, December 31, 2008
    726       295       775  
                         
Balance, December 31, 2009
    1,363       650       1,471  
                         
Balance, December 31, 2010
    1,570       1,106       1,754  
                         


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The Standardized Measure for the periods indicated is presented assuming the KEP Acquisition had taken place as of December 31, 2008.
 
STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
FROM PROVED OIL AND GAS RESERVES
 
                         
          December 31,
       
    2008     2009     2010  
    (in thousands)  
 
Future cash inflows
  $ 415,644     $ 692,391     $ 967,223  
Future costs
                       
Production
    (221,761 )     (295,606 )     (370,260 )
Development
    (12,501 )     (25,317 )     (27,134 )
                         
Future net cash flows
    181,382       371,468       569,829  
Less 10% discount factor
    (86,766 )     (192,778 )     (301,546 )
                         
Standardized measure of discounted future net cash flows
  $ 94,616     $ 178,690     $ 268,283  
                         
 
The following table sets for the changes in Standardized Measure for the periods indicated and is presented assuming the KEP Acquisition had taken place as of December 31, 2008.
 
CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH
FLOWS FROM PROVED OIL AND GAS RESERVES
 
                         
          December 31,
       
    2008     2009     2010  
    (in thousands)  
 
Standardized measure at beginning of year
  $ 339,972     $ 94,616     $ 178,690  
Sales of oil and gas produced, net of production costs
    (53,630 )     (27,032 )     (45,562 )
Net changes in price and production costs
    (259,275 )     55,081       74,089  
Extensions, discoveries and improved recovery, net of future production, and development costs
    42       8,592        
Changes in estimated future development costs
    (2,727 )     (14,504 )     (16,114 )
Development costs incurred during the period which reduce future development costs
    53       2,700       7,733  
Revisions of quantity estimates
    (18,877 )     42,950       31,795  
Accretion of discount
    33,997       9,462       17,869  
Purchase of reserves in place
    4,832       3,150        
Change in production rates and other
    50,229       3,675       19,783  
                         
Standardized measure at end of year
  $ 94,616     $ 178,690     $ 268,283  
                         
 
SALE AND ABANDONMENT OF UNDERLYING PROPERTIES
 
VOC Sponsor and any transferee of an Underlying Property will have the right to abandon its interest in any well or property if it reasonably believes a well or property ceases to produce or is not capable of producing in commercially paying quantities. To reduce the potential conflict of interest between VOC Sponsor and the trust in determining whether a well is capable of producing in commercially paying quantities, VOC Sponsor is required under the applicable conveyance to use commercially reasonable efforts to cause the operators of the Underlying Properties to operate these properties as would a reasonably prudent operator acting with respect


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to its own properties (without regard to the existence of the Net Profits Interest). Upon termination of the lease, the portion of the Net Profits Interest relating to the abandoned property will be extinguished. For the years ended December 31, 2008, 2009 and 2010, VOC Sponsor plugged and abandoned six, 15 and 27 wells, respectively, located on leases within the Underlying Properties based on its determination that such wells could no longer produce oil or natural gas in commercially economic quantities. The number of wells abandoned during this time period accounted for less than 3.13% of the producing wells attributable to the Underlying Properties.
 
VOC Sponsor generally may sell all or a portion of its interests in the Underlying Properties, subject to and burdened by the Net Profits Interest, without the consent of the trust unitholders. In addition, VOC Sponsor may, without the consent of the trust unitholders, require the trust to release the Net Profits Interest associated with any lease that accounts for less than or equal to 0.25% of the total production from the Underlying Properties in the prior 12 months and provided that the Net Profits Interest covered by such releases cannot exceed, during any 12-month period, an aggregate fair market value to the trust of $500,000. These releases will be made only in connection with a sale by VOC Sponsor to a non-affiliate of the relevant Underlying Properties and are conditioned upon the trust receiving an amount equal to the fair value to the trust of such Net Profits Interest. Any net sales proceeds paid to the trust are distributable to trust unitholders for the quarter in which they are received. VOC Sponsor has not identified for sale any of the Underlying Properties.
 
MARKETING AND POST-PRODUCTION SERVICES
 
Pursuant to the terms of the conveyance creating the Net Profits Interest, VOC Sponsor will have the responsibility to market, or cause to be marketed, the oil and natural gas production attributable to the Underlying Properties. The terms of the conveyance creating the Net Profits Interest do not permit VOC Sponsor to charge any marketing fee when determining the net proceeds upon which the Net Profits Interest will be calculated. As a result, the net proceeds to the trust from the sales of oil and natural gas production from the Underlying Properties will be determined based on the same price that VOC Sponsor receives for oil and natural gas production attributable to VOC Sponsor’s remaining interest in the Underlying Properties.
 
Texas is a mature oil producing state with a well-developed crude oil refining, transportation and marketing infrastructure. According to the Texas Railroad Commission, more than 5,000 operators reported aggregate oil production of approximately 362 million barrels for the state of Texas during 2010. There were 27 operating oil refineries located in Texas in 2010 with combined capacity to refine over 4.6 million barrels of oil per day. With oil production in the state of Texas averaging approximately 1 million barrels of oil per day, Texas refineries are net importers of crude oil. As a result, oil producers in Texas benefit from competitive marketing conditions for their oil production as a result of the high demand from the crude oil marketing companies and refineries located in Texas.
 
Kansas is a mature oil producing state with a well-developed transportation infrastructure for crude oil transportation and marketing. According to the Kansas Geological Society, more than 2,100 operators reported aggregate oil production of approximately 40 million barrels for the state of Kansas for the first ten months of 2010. Kansas is home to three oil refineries located in McPherson, El Dorado and Coffeyville, Kansas. These refineries have combined capacity to refine over 300,000 barrels of oil per day. With oil production in the state of Kansas averaging approximately 100,000 barrels of oil per day, Kansas is a net importer of crude oil. As a result, Kansas operators benefit from the competitive marketing conditions for their oil production as a result of the high demand from the refineries located in Kansas.


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