SABINE ROYALTY TRUST - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2002, for Sabine Royalty Trust, a passive entity holding royalty interests in oil and gas properties located in Florida, Louisiana, Mississippi, New Mexico, Oklahoma, and Texas. The Trust is administered by Bank of America, N.A., as Trustee. As of August 1, 2002, there were 14,579,345 units of beneficial interest outstanding. The financial statements are prepared on a modified cash basis of accounting.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2002 | Six Months Ended June 30, 2002 |
|---|---|---|
| Royalty Income | $6,091,686 | $13,063,140 |
| Interest Income | $10,431 | $20,881 |
| Total Income | $6,102,117 | $13,084,021 |
| General & Administrative Expenses | ($448,725) | ($868,578) |
| Distributable Income | $5,653,392 | $12,215,443 |
| Distributable Income Per Unit | $0.39 | $0.84 |
| Distributions Per Unit (YTD) | N/A | $0.96 |
| Cash and Short-Term Investments | $2,667,353 (as of June 30, 2002) | |
| Trust Corpus |
Debt and Liquidity: The Trust has no long-term debt. Borrowings are permitted only to pay liabilities and must be repaid before further distributions. Total liabilities as of June 30, 2002, were $520,974, consisting of trust expenses payable ($155,953) and other payables ($365,021).
Material Changes vs. Prior Period
- Revenue Decline: Royalty income for the quarter ended June 30, 2002, decreased by approximately $5.36 million (47%) compared to the same period in 2001. For the six-month period, the decrease was approximately $12.01 million (48%).
- Price and Volume Drivers: The decline is attributed to significant decreases in both oil and gas prices and production volumes.
- Oil Prices: Average price dropped from $25.49/Bbl (Q2 2001) to $21.85/Bbl (Q2 2002).
- Gas Prices: Average price dropped from $5.62/Mcf (Q2 2001) to $2.32/Mcf (Q2 2002).
- Production: Oil production fell from 123,302 Bbls to 104,183 Bbls; Gas production fell from 1,657,542 Mcfs to 1,441,334 Mcfs in the quarter.
- Expenses: General and administrative expenses increased slightly by $21,500 (5%) for the quarter compared to 2001, primarily due to the timing of payments for engineering and tax reporting services.
- Interest Income: Decreased by approximately $60,400 for the quarter due to changes in interest rates and available funds.
Outlook, Risks, and Commentary
Management Commentary: The Trustee notes that distributable income for interim periods is not necessarily indicative of full-year results. The Trust operates as a passive entity with no ability to influence production or pricing. Future distributions depend entirely on cash receipts from royalty interests.
Risks and Contingencies:
- Market Risk: The Trust is highly sensitive to fluctuations in oil and gas prices and production volumes, which are outside the Trustee's control.
- Impairment: Management reviews royalty interests for impairment if carrying amounts may not be recoverable; however, no impairment was recorded in this period.
- Forward-Looking Statements: The filing includes standard disclaimers that future expectations regarding prices and reserves are subject to uncertainty.
Subsequent Events: Following the period end, the Trust declared distributions of $0.08743 per unit (July record date) and $0.25240 per unit (August record date).
Investor Verification Checklist
- Verify the current market prices of oil and gas to assess the trajectory of future royalty income.
- Review the "Other Payables" line item ($365,021), which consists of suspended royalty receipts pending title verification, to understand potential cash flow timing issues.
- Confirm the Trust's cash balance ($2.67M) relative to upcoming distribution obligations and administrative expenses.
- Monitor production volume reports from the underlying properties in the six states to validate the Trustee's production data.
- Check for any new litigation or title disputes that could impact the "Other Payables" or future royalty receipts.