Sabine Royalty Trust 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 1997, for Sabine Royalty Trust, a passive trust holding royalty interests in oil and gas properties across six states. The Trust distributes monthly cash flows to unit holders and is managed by NationsBank of Texas, N.A. as Trustee. As of August 12, 1997, there were 14,579,345 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | Three Months Ended June 30, 1997 | Six Months Ended June 30, 1997 |
|---|---|---|
| Royalty Income | $6,792,610 | $14,232,844 |
| Interest Income | $48,109 | $89,906 |
| Total Income | $6,840,719 | $14,322,750 |
| General & Administrative Expenses | ($333,452) | ($697,064) |
| Distributable Income | $6,507,267 | $13,625,686 |
| Distributable Income Per Unit | $0.45 | $0.93 |
| Cash and Short-Term Investments | $3,028,916 (as of June 30, 1997) | |
| Trust Corpus | ||
| Net Royalty Interests (Asset Value) | $3,268,933 (as of June 30, 1997) | |
| Total Liabilities | ||
| Total Liabilities | $667,242 (as of June 30, 1997) |
Note: The filing does not provide a specific "profit margin" percentage as the Trust operates on a modified cash basis where amortization reduces Trust Corpus rather than operating income.
Material Changes vs. Prior Period
- Royalty Income Increase: Royalty income for the quarter ended June 30, 1997, increased by approximately $823,000 (14%) compared to the same quarter in 1996. This was driven primarily by higher oil and gas prices.
- Year-to-Date Growth: For the six months ended June 30, 1997, royalty income increased by approximately $3,092,000 (28%) compared to the prior year period, attributed to significant price increases in the first two quarters of 1997.
- Expense Reduction: General and administrative expenses decreased by approximately $118,200 for the quarter and $96,100 for the six-month period compared to 1996, largely due to the timing of professional fee payments.
- Production vs. Price: While oil production volumes decreased slightly year-over-year (164,001 Bbls in Q2 1997 vs. 183,184 Bbls in Q2 1996), the average price per barrel rose from $17.08 to $19.02, offsetting the volume decline.
Outlook, Risks, and Commentary
- Price Volatility: Management notes that estimating future oil and gas prices is difficult. Recent income growth is heavily dependent on commodity prices, which are subject to global economic conditions and policies of petroleum-producing nations.
- Quarterly Variance: Royalty income decreased by approximately $648,000 compared to the preceding quarter (ended March 31, 1997) due to a drop in oil and gas prices, partially offset by increased production volumes.
- Accounting Basis: Financial statements are prepared on a modified cash basis. Royalty income is recognized when received, not when produced. Amortization of royalty interests is recorded as a reduction of Trust Corpus, not as an operating expense.
- Subsequent Distributions: Following the reporting period, the Trust declared distributions of $0.14499 per unit (July record date) and $0.15155 per unit (August record date).
Investor Verification Checklist
- Verify current oil and gas commodity prices against the average prices reported ($19.02/Bbl oil, $2.33/Mcf gas for Q2 1997) to assess future income potential.
- Review the "Other Payables" line item ($556,029), which consists of suspended royalty receipts pending title verification, to understand potential cash flow timing risks.
- Confirm the Trust's status as a grantor trust for tax purposes, meaning unit holders are responsible for their own tax liabilities on distributed income.
- Monitor production volumes, as the Trust's income is sensitive to both price and volume fluctuations in its specific geographic regions (FL, LA, MS, NM, OK, TX).