Sabine Royalty Trust 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 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. There were 14,579,345 units of beneficial interest outstanding as of October 31, 1997.
Key Financial Metrics
| Metric | Q3 1997 | Q3 1996 | YTD 9 Months 1997 | YTD 9 Months 1996 |
|---|---|---|---|---|
| Royalty Income | $5,654,003 | $5,921,727 | $19,886,847 | $17,062,348 |
| Total Income | $5,692,676 | $5,958,583 | $20,015,426 | $17,168,350 |
| Distributable Income | $5,356,152 | $5,672,862 | $18,981,838 | $16,089,494 |
| Distributable Income Per Unit | $0.37 | $0.39 | $1.30 | $1.10 |
| Distributions Per Unit | $0.41 (Q3 Total) | $0.32 (Q3 Total) | $1.34 | $1.05 |
| Cash & Short-Term Investments | $2,201,468 | $3,321,723 (Dec 31, 1996) | N/A | |
| Trust Corpus | $4,824,702 | $5,885,543 (Dec 31, 1996) | N/A |
Note: The Trust operates on a modified cash basis. Amortization of royalty interests ($442,552 for YTD 1997) reduces Trust Corpus rather than operating income.
Material Changes vs. Prior Period
- Quarterly Royalty Income: Decreased by approximately $268,000 (5%) compared to Q3 1996. This decline was primarily due to a $271,000 revenue reimbursement in 1997 related to ownership disputes and the recognition of $398,000 in previously received revenues in Q3 1996.
- Year-to-Date Royalty Income: Increased by approximately $2.8 million (17%) compared to the same period in 1996. This growth was driven by significant increases in oil and gas prices and higher gas production, partially offset by a decrease in oil production volumes.
- Production Volumes (Q3 1997 vs Q3 1996): Oil production increased slightly (150,367 Bbls vs 145,258 Bbls), while Gas production increased significantly (1,899,273 Mcfs vs 1,681,993 Mcfs).
- Prices (Q3 1997 vs Q3 1996): Average oil price decreased to $17.60/Bbl from $18.03/Bbl. Average gas price decreased to $2.12/Mcf from $2.15/Mcf.
- Expenses: General and administrative expenses increased by $50,800 for the quarter due to third-party reimbursements and data processing costs.
Outlook, Risks, and Commentary
- Forward-Looking Statements: The Trustee notes that future oil and gas prices are difficult to estimate and are subject to numerous risks outside the Trust's control, including global economic conditions and policies of petroleum-producing nations.
- Liquidity: The Trust holds cash and short-term investments to fund monthly distributions. Borrowings are not anticipated in the foreseeable future.
- Subsequent Events: Following the quarter end, distributions were declared for October ($0.11836/unit) and November ($0.10268/unit).
- Accounting Basis: Financial statements are prepared on a modified cash basis, not GAAP. Income is recognized when received, and amortization is a direct reduction of Trust Corpus.
Investor Verification Checklist
- Verify the impact of the $271,000 revenue reimbursement on future cash flows and whether ownership disputes are fully resolved.
- Monitor oil and gas price trends, as the Trust's income is highly sensitive to commodity price fluctuations.
- Review the Trust's production volumes versus the prior year to assess the sustainability of the 17% YTD income growth.
- Confirm the status of "Other Payables" ($380,009), which represent suspended royalty receipts pending title verification.
- Check the Trust Corpus balance ($4.8M) relative to the amortization rate to understand the long-term depletion of the asset base.