SBR

Sabine Royalty Trust - 10-Q Summary (Period Ended September 30, 1995)

Business Context and Reporting Period

This Form 10-Q covers the quarterly period ended September 30, 1995, for Sabine Royalty Trust, a passive trust holding royalty interests in oil and gas properties across six states. The Trust distributes monthly cash flows to unit holders and is administered by NationsBank of Texas, N.A. As of October 16, 1995, there were 14,579,345 units of beneficial interest outstanding. Financial statements are prepared on a modified cash basis and have been reviewed, but not audited, by Deloitte & Touche LLP.

Key Financial Metrics

Note: The filing does not provide a specific "net profit" margin as the entity is a pass-through trust; "Distributable Income" serves as the primary performance metric. Debt is not explicitly listed as a line item, though the Trustee is authorized to borrow.

Material Changes vs. Prior Period

• Royalty Income Decline: Royalty income for the three months ended September 30, 1995, decreased by approximately $519,000 (11%) compared to the same period in 1994. For the nine-month period, the decrease was approximately $1,036,000 (8%).
• Cause of Decline: The reduction in royalty income is attributed primarily to lower oil and gas prices and decreased production volumes in the third quarter of 1995 compared to 1994.
• Interest Income Increase: Interest income rose by approximately $8,000 for the quarter and $27,000 for the nine-month period compared to 1994, driven by higher interest rates.
• Expense Fluctuations: General and administrative expenses decreased by $25,000 for the quarter (due to timing of year-end reporting costs) but increased by $28,000 for the nine-month period (due to legal expenses related to litigation settlement negotiations).

Outlook, Risks, and Management Commentary

• Price Volatility Risk: Management notes that it continues to be difficult to accurately estimate future oil and gas prices, and assumptions regarding future prices may prove incorrect.
• Liquidity and Borrowing: The Trust invests royalty income in short-term investments until distribution. While the Trustee is authorized to borrow funds to pay liabilities, borrowings are not anticipated in the foreseeable future.
• Accounting Basis: Financial statements are prepared on a modified cash basis, meaning royalty income is recognized when received rather than when production occurs. This differs from GAAP.
• Subsequent Distributions: Following the reporting period, the Trust declared distributions of $0.07460 per unit (record date Oct 16) and $0.06301 per unit (record date Nov 15).
• Other Payables: Approximately $476,887 in other payables consists of royalty receipts suspended pending verification of ownership or title, which the Trustee expects to resolve in the normal course of business.

Key Facts for Investor Verification

• Verify the current market prices of oil and gas to assess the trajectory of future royalty income, given the Trust's sensitivity to commodity prices.
• Confirm the status of the litigation mentioned in the notes, as legal expenses contributed to the increase in nine-month operating costs.
• Review the "Other Payables" balance ($476,887) to ensure suspended royalty receipts are being resolved and converted to distributable cash.
• Monitor the Trust's cash reserves and short-term investment yields, as interest income is a secondary but growing component of total income.
• Check the monthly distribution announcements to compare actual cash flow against the "Distributable Income" reported on a modified cash basis.