SABINE ROYALTY TRUST - 10-Q Summary (Q1 2002)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 31, 2002. Sabine Royalty Trust is a passive entity established to hold royalty and mineral interests in oil and gas properties located in Florida, Louisiana, Mississippi, New Mexico, Oklahoma, and Texas. The Trust makes monthly cash distributions to unit holders based on cash received from production. As of May 1, 2002, there were 14,579,345 units of beneficial interest outstanding.
Key Financial Metrics
| Metric | Q1 2002 | Q1 2001 |
|---|---|---|
| Royalty Income | $6,971,454 | $13,624,211 |
| Interest Income | $10,450 | $73,987 |
| Total Income | $6,981,904 | $13,698,198 |
| General & Administrative Expenses | $(419,853) | $(441,233) |
| Distributable Income | $6,562,051 | $13,256,965 |
| Distributable Income Per Unit | $0.45 | $0.91 |
| Total Distributions Paid (Q1) | $7,405,146 ($0.51/unit) | $7,711,167 ($0.53/unit) |
| Cash and Short-Term Investments | $3,277,597 | $4,140,971 (Dec 31, 2001) |
| Trust Corpus (Net Assets) | $4,771,244 | $5,677,097 (Dec 31, 2001) |
Debt and Liquidity: The Trust has no long-term debt. Borrowings are permitted only to pay liabilities and must be repaid before further distributions. The Trust holds cash and short-term investments pending distribution.
Material Changes vs. Prior Period
- Revenue Decline: Royalty income decreased by approximately $6.65 million (49%) compared to Q1 2001. This was driven by significant decreases in both oil and gas prices and a reduction in oil production volumes.
- Production Volumes: Oil production fell to 138,290 barrels (from 161,033 in Q1 2001), while gas production increased to 1,732,036 Mcfs (from 1,587,291 in Q1 2001).
- Price Realizations: Average oil price dropped to $17.74 per barrel (from $25.87 in Q1 2001). Average gas price dropped to $2.39 per Mcf (from $6.34 in Q1 2001).
- Expense Fluctuation: General and administrative expenses decreased slightly by $21,400 year-over-year due to timing of engineering service payments.
- Trust Corpus Reduction: The Trust corpus decreased by approximately $905,853 from the prior quarter end, reflecting amortization of royalty interests and distributions exceeding distributable income for the period.
Outlook, Risks, and Management Commentary
- Forward-Looking Statements: The Trustee notes that future oil and gas prices are difficult to estimate. Expectations are subject to risks including general economic conditions, actions of petroleum-producing nations, and changes in energy markets.
- Market Risk: The Trust invests in no derivative financial instruments and has no foreign operations. It is not subject to material interest rate risk due to the short-term nature of its investments.
- Subsequent Events: Following the quarter end, the Trust declared distributions of $0.21475 per unit (April record date) and $0.10526 per unit (May record date).
- Accounting Basis: Financial statements are prepared on a modified cash basis, not GAAP. Royalty income is recognized when received, and amortization reduces Trust Corpus rather than operating income.
Investor Verification Checklist
- Price Sensitivity: Verify current oil and gas spot prices against the Trust's historical average realizations ($17.74 oil / $2.39 gas) to assess future income potential.
- Production Decline: Confirm the rate of decline in oil production volumes versus the increase in gas production to understand the net impact on cash flow.
- Distribution Coverage: Note that distributions paid in Q1 ($0.51/unit) exceeded distributable income ($0.45/unit), drawing down cash reserves or corpus.
- Asset Amortization: Review the amortization of royalty interests ($62,758 for the quarter) as a reduction to the Trust Corpus, which permanently reduces the asset base.
- Escrow Timing: Understand that income is recognized when received by escrow agents or the Trust, which may lag behind actual production dates.