Sabine Royalty Trust - 10-Q Summary (Period Ended September 30, 2001)
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended September 30, 2001, for Sabine Royalty Trust, a passive entity established to hold royalty interests in oil and gas properties located in Florida, Louisiana, Mississippi, New Mexico, Oklahoma, and Texas. The Trust is administered by Bank of America, N.A. as Trustee. As of November 1, 2001, there were 14,579,345 units of beneficial interest outstanding. The financial statements are prepared on a modified cash basis of accounting.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2001 | Nine Months Ended Sep 30, 2001 |
|---|---|---|
| Royalty Income | $9,991,123 | $35,067,162 |
| Interest Income | $43,287 | $188,149 |
| Total Income | $10,034,410 | $35,255,311 |
| General & Administrative Expenses | $(417,577) | $(1,286,026) |
| Distributable Income | $9,616,833 | $33,969,285 |
| Distributable Income Per Unit | $0.66 | $2.33 |
| Distributions Per Unit (YTD) | N/A | $2.36 |
| Cash and Short-Term Investments | $3,442,523 (as of Sep 30, 2001) | |
| Trust Corpus | ||
| Liabilities | $984,848 (Trust expenses payable: $613,191; Other payables: $371,657) |
Material Changes vs. Prior Period
- Quarter-over-Quarter (Q3 2001 vs. Q3 2000): Royalty income increased by approximately $1.54 million (18%) due to higher gas prices and production volumes, partially offset by lower oil prices and production. Distributable income per unit rose from $0.56 to $0.66.
- Year-over-Year (9 Months 2001 vs. 9 Months 2000): Royalty income increased by approximately $10.32 million (42%) driven by significant increases in both oil and gas prices. This gain was tempered by decreases in production volumes for both commodities. Distributable income per unit increased from $1.63 to $2.33.
- Expense Trends: General and administrative expenses for the nine-month period increased by approximately $101,600 compared to the prior year, primarily due to higher transfer agent and NYSE listing fees.
- Production and Pricing: For the nine months ended September 30, 2001, average oil prices rose to $24.50 per barrel (from $23.50), and average gas prices rose to $5.30 per Mcf (from $2.49). However, total oil production decreased to 413,822 Bbls (from 452,626) and gas production decreased to 5,162,429 Mcfs (from 6,121,906).
Outlook, Risks, and Management Commentary
The Trustee notes that future oil and gas prices are difficult to estimate and that assumptions regarding future prices may prove incorrect. The Trust is a passive entity with no long-term debt and does not engage in derivative transactions or foreign currency operations. Borrowings are not anticipated in the foreseeable future. The Trustee believes the Trust is not subject to material interest rate risk due to the short-term nature of its investments.
Subsequent Events: Following the reporting period, the Trust declared distributions of $0.12464 per unit (record date Oct 15) and $0.23238 per unit (record date Nov 15).
Risks: The Trust's income is entirely dependent on the production and pricing of oil and gas reserves, which are subject to market volatility, economic conditions, and regulatory actions. The filing includes standard forward-looking statement disclaimers regarding these uncertainties.
Investor Verification Checklist
- Production Volumes: Verify the reported decline in oil and gas production volumes against independent industry data to assess the sustainability of the royalty base.
- Price Sensitivity: Confirm the average realized prices for oil and gas, as the Trust's income is highly sensitive to commodity price fluctuations.
- Liability Composition: Review the $613,191 in trust expenses payable, which consists primarily of ad valorem taxes, to ensure timely payment and avoid reserve depletion.
- Amortization Impact: Monitor the amortization of royalty interests ($206,538 for the nine months), which reduces the Trust Corpus but does not affect distributable income.
- Escrow Arrangements: Understand the timing differences between production dates and cash receipt dates due to the escrow agreements, which affect the recognition of income in financial statements versus actual cash flow timing.