SABINE ROYALTY TRUST - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 1995, 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 of July 17, 1995, there were 14,579,345 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | Q2 1995 (3 Months) | Q2 1994 (3 Months) | YTD 1995 (6 Months) | YTD 1994 (6 Months) |
|---|---|---|---|---|
| Royalty Income | $4,541,456 | $4,723,726 | $8,838,678 | $9,355,367 |
| Interest Income | $25,980 | $18,064 | $51,427 | $32,445 |
| Total Income | $4,567,436 | $4,741,790 | $8,890,105 | $9,387,812 |
| G&A Expenses | $380,722 | $333,491 | $736,229 | $683,435 |
| Distributable Income | $4,186,714 | $4,408,299 | $8,153,876 | $8,704,377 |
| Income Per Unit | $0.29 | $0.30 | $0.56 | $0.60 |
| Distributions Per Unit | N/A | N/A | $0.55 | $0.60 |
| Cash & Short-term Investments | $2,128,958 (as of June 30, 1995) | |||
| Trust Corpus | $5,903,524 (as of June 30, 1995) |
Note: The filing does not provide specific debt figures; the Trustee states borrowings are not anticipated in the foreseeable future.
Material Changes vs. Prior Period
- Royalty Income Decline: Royalty income decreased by approximately 4% ($182,000) in Q2 1995 compared to Q2 1994, and by 6% ($517,000) for the six-month period. This was primarily driven by lower oil and gas prices and reduced production volumes.
- Expense Increases: General and administrative expenses rose by approximately 14% ($47,000) in Q2 1995 versus Q2 1994, largely due to the timing of annual reporting costs. YTD expenses increased by $53,000, partly due to legal fees associated with settling litigation.
- Interest Income Growth: Interest income increased by approximately 44% ($8,000) in Q2 1995 compared to the prior year quarter, attributed to higher interest rates.
- Amortization: Amortization of royalty interests for the six months ended June 30, 1995, was $304,724, reducing the trust corpus.
Outlook, Risks, and Management Commentary
- Price Volatility: Management notes that estimating future oil and gas prices remains difficult, and assumptions regarding future prices may prove incorrect.
- Revenue Timing: Royalty income is recognized when received, not when produced. A posting of previously suspended revenues in Q2 1995 contributed to a 6% increase in royalty income compared to Q1 1995.
- Contingencies: "Other payables" of $387,443 consist primarily of royalty receipts suspended pending verification of ownership or title. The Trustee expects these to be resolved in the normal course of business.
- Subsequent Distributions: Following the reporting period, the Trust declared distributions of $0.07766 per unit (July record date) and $0.06546 per unit (August record date).
Investor Verification Checklist
- Verify current oil and gas price trends to assess future royalty income stability.
- Monitor the resolution of suspended royalty receipts included in "Other payables."
- Review the status of the litigation settlement mentioned as a driver for increased legal expenses.
- Confirm the Trust's cash reserve levels against upcoming distribution obligations.
- Check for any changes in production volumes from the underlying oil and gas properties.