Sabine Royalty Trust 10-Q Summary
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for the period ended March 31, 2019. Sabine Royalty Trust is a passive entity holding 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 May 3, 2019, there were 14,579,345 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Royalty Income | $13,692,528 | $10,750,239 |
| Interest Income | $49,237 | $20,450 |
| Total Income | $13,741,765 | $10,770,689 |
| General & Administrative Expenses | ($893,359) | ($838,607) |
| Distributable Income | $12,848,406 | $9,932,082 |
| Distributable Income per Unit | $0.88 | $0.68 |
| Distributions per Unit | $0.83 | $0.63 |
| Cash and Short-Term Investments | $8,288,322 | N/A |
| Trust Corpus | $6,372,474 | $5,349,539 |
Note: The Trust operates on a modified cash basis of accounting. Amortization of royalty interests ($8,099) is recorded as a reduction of Trust Corpus, not as an operating expense.
Material Changes vs. Prior Period
- Revenue Growth: Royalty income increased by approximately $2.94 million (27%) compared to Q1 2018.
- Drivers of Increase: The increase was primarily driven by higher production volumes for both oil and natural gas ($3.0 million), refunds of state withholding taxes ($0.8 million), and higher natural gas prices ($0.3 million).
- Offsetting Factors: Gains were partially offset by a decrease in oil prices ($0.8 million) and an increase in severance taxes ($0.4 million).
- Expense Changes: General and administrative expenses increased by approximately $54,800 year-over-year, mainly due to higher legal/professional services, printing/unitholder services, and NYSE listing fees.
- Quarter-over-Quarter: Compared to Q4 2018, royalty income decreased by 18% due to lower production volumes and lower oil prices.
Outlook, Risks, and Commentary
- Production and Pricing: Q1 2019 oil revenues related primarily to production from November 2018 through January 2019. Gas revenues related to production from October through December 2018. Future revenues are highly sensitive to commodity prices and production volumes.
- Liquidity: The Trust holds cash and short-term investments of $8.3 million. Borrowings are not anticipated in the foreseeable future.
- Risk Factors: The Trustee notes no material changes to risk factors from the 2018 10-K. Key risks include volatility in oil and gas prices, production declines, and regulatory changes. The Trustee is not aware of any unfavorable contingencies as of March 31, 2019.
- Subsequent Events: Distributions were declared for April 2019 ($0.351660 per unit) and May 2019 ($0.146470 per unit).
Investor Verification Checklist
- Production Volumes: Verify the reported oil (179,016 Bbls) and gas (1,909,586 Mcfs) production volumes against independent operator reports.
- Commodity Price Lag: Confirm the timing of revenue recognition, as Q1 2019 revenues reflect prices from late 2018 and early 2019, not current spot prices.
- State Tax Withholding: Review the impact of New Mexico and Oklahoma withholding taxes on net distributions, particularly for non-resident unit holders.
- Amortization Impact: Note that amortization reduces Trust Corpus directly and does not affect Distributable Income, which may impact long-term unit value calculations.