SABINE ROYALTY TRUST - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2021. Sabine Royalty Trust is a passive entity established to receive distributions from royalty and mineral interests in oil and gas properties located in Florida, Louisiana, Mississippi, New Mexico, Oklahoma, and Texas. The Trust is managed by Simmons Bank as Trustee. As of August 12, 2021, there were 14,579,345 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2021 |
|---|---|---|
| Royalty Income | $12,950,456 | $22,693,140 |
| Interest Income | $1,436 | $2,799 |
| Total Income | $12,951,892 | $22,695,939 |
| General & Administrative Expenses | $(792,905) | $(1,577,892) |
| Distributable Income | $12,158,987 | $21,118,047 |
| Distributable Income per Unit | $0.83 | $1.45 |
| Distributions per Unit | $0.78 | $1.32 |
| Cash and Short-Term Investments | $7,426,626 (as of June 30, 2021) | N/A |
| Trust Corpus | $5,895,443 (as of June 30, 2021) | N/A |
Debt and Liquidity: The Trust has no long-term debt. Borrowings are permitted only to pay liabilities if cash is insufficient, but none are anticipated. The Trustee maintains an expense reserve of $700,000 to cover general and administrative expenses during periods of low income.
Material Changes vs. Prior Period
- Quarter-over-Quarter (Q2 2021 vs. Q2 2020): Royalty income increased by approximately $3.0 million (30%). This was driven primarily by higher oil and natural gas prices ($5.6 million increase), partially offset by lower production volumes ($2.4 million decrease) and higher taxes/operating expenses ($0.2 million).
- Year-to-Date (Six Months 2021 vs. 2020): Royalty income increased by approximately $1.5 million (7%). The increase was due mainly to higher commodity prices ($4.0 million), tempered by decreased production volumes ($2.4 million) and slightly higher taxes/expenses ($0.1 million).
- Commodity Prices: Average oil prices received rose to $53.48 per barrel in Q2 2021 from $41.33 in Q2 2020. Average gas prices rose to $3.23 per Mcf in Q2 2021 from $1.61 in Q2 2020.
- Production Volumes: Oil production decreased to 151,116 Bbls in Q2 2021 from 191,252 Bbls in Q2 2020. Gas production decreased to 1,962,250 Mcfs in Q2 2021 from 2,049,830 Mcfs in Q2 2020.
Outlook, Risks, and Contingencies
- Outlook: Future income and distributions are heavily dependent on volatile oil and natural gas prices. While prices have rebounded in 2021 from 2020 lows, the Trustee notes that predicting future price movements is impossible.
- Risks: Key risks include fluctuations in commodity prices, supply and demand dynamics, geopolitical conditions, and the impact of the COVID-19 pandemic on demand. The Trust has no control over production levels or commodity prices.
- Contingencies: The Trustee is not aware of any unfavorable contingencies related to royalty properties as of June 30, 2021. Any unfavorable resolution would reduce future royalty income and cash distributions.
- Subsequent Events: Following the quarter end, the Trust declared distributions of $0.278250 per unit (July record date) and $0.318130 per unit (August record date).
Investor Verification Checklist
- Verify the correlation between current NYMEX oil and Henry Hub gas prices and the Trust's lagged royalty income (oil lags ~2 months, gas lags ~3 months).
- Confirm the status of the $700,000 expense reserve and whether it remains sufficient to cover administrative costs if commodity prices decline.
- Review the specific production volumes for the underlying properties to understand the trend of declining output despite rising prices.
- Check for any updates on state tax withholding (New Mexico and Oklahoma) and the timing of refunds distributed to unit holders.
- Monitor the Trust's cash balance versus upcoming distribution obligations to ensure liquidity remains adequate without borrowing.