SABINE ROYALTY TRUST - 10-Q Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 30, 2019. Sabine Royalty Trust is a passive entity holding royalty and mineral interests in producing and proved undeveloped 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 7, 2019, there were 14,579,345 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2019 |
|---|---|---|
| Royalty Income | $10,451,812 | $24,144,340 |
| Interest Income | $44,752 | $93,989 |
| Total Income | $10,496,564 | $24,238,329 |
| General & Administrative Expenses | $(554,970) | $(1,448,329) |
| Distributable Income | $9,941,594 | $22,790,000 |
| Distributable Income per Unit | $0.68 | $1.56 |
| Distributions per Unit | $0.86 | $1.69 |
| Cash and Short-Term Investments | $7,153,837 (as of June 30, 2019) | N/A |
| Trust Corpus | $3,810,416 (as of June 30, 2019) | N/A |
Liquidity and Debt: The Trust holds cash and short-term investments of $7.15 million. The Trustee does not anticipate borrowings in the foreseeable future. Liabilities consist primarily of trust expenses payable ($179,966) and other payables ($3.36 million), which include royalty receipts suspended pending title verification.
Material Changes vs. Prior Period
- Quarter-over-Quarter (Q2 2019 vs. Q2 2018): Royalty income decreased by approximately $2.69 million (20%). This decline was driven by lower oil and natural gas prices ($1.8 million impact) and decreased production volumes ($1.0 million impact). Distributable income per unit fell from $0.86 to $0.68.
- Year-to-Date (Six Months 2019 vs. 2018): Royalty income increased slightly by $255,000 (1%). Higher production volumes ($1.9 million) and lower operating expenses ($0.8 million) offset decreases in commodity prices ($2.3 million) and higher taxes ($0.2 million). Distributable income per unit rose from $1.54 to $1.56.
- Production and Pricing: For the quarter ended June 30, 2019, average oil prices were $51.46 per barrel (down from $59.56 in Q2 2018), and average gas prices were $2.50 per Mcf (down from $2.81 in Q2 2018).
Outlook, Risks, and Management Commentary
Management Commentary: The Trustee notes that distributable income for interim periods is not necessarily indicative of full-year results due to the timing of cash receipts and distributions. Distributions are made monthly based on cash received in the preceding month.
Risks and Contingencies:
- Commodity Price Volatility: Future distributions are highly dependent on oil and natural gas prices, which are subject to market fluctuations beyond the Trustee's control.
- Production Decline: As a royalty trust, the underlying assets are depleting. Amortization of royalty interests reduced the Trust corpus by $6,527 in Q2 2019.
- State Tax Withholding: New Mexico and Oklahoma impose withholding taxes on non-residents. The Trust files for refunds, but unit holders transferring units before refunds are distributed may face double taxation.
- Legal Proceedings: No material legal proceedings were reported. The Trustee is not aware of any unfavorable contingencies as of June 30, 2019.
Subsequent Events: Following the quarter end, the Trust declared distributions of $0.176360 per unit (July record date) and $0.228930 per unit (August record date).
Investor Verification Checklist
- Verify the current market price of oil and natural gas relative to the average prices received by the Trust ($51.46/bbl oil, $2.50/Mcf gas in Q2 2019).
- Confirm the status of title verification for the $3.36 million in "other payables" to ensure these funds will be released for distribution.
- Review the Trust's production volumes to assess the rate of depletion of the underlying royalty interests.
- Check for any updates on New Mexico and Oklahoma tax refund processing times, as this impacts net cash available for distribution.
- Monitor the Trust corpus balance ($3.81 million) to understand the remaining capital base relative to monthly distribution obligations.