Sabine Royalty Trust(SBR) - 2025 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the unaudited condensed financial statements for Sabine Royalty Trust, prepared on a modified cash basis, not GAAP, as permitted by the SEC Item 1. Financial Statements This section presents the unaudited condensed financial statements for Sabine Royalty Trust, prepared on a modified cash basis, not GAAP, as permitted by the SEC - The condensed financial statements are unaudited and prepared by Argent Trust Company, as Trustee, with certain information and footnote disclosures condensed or omitted per SEC rules[8] - The financial statements are prepared on a modified cash basis of accounting, not in conformity with GAAP, as permitted for royalty trusts by SEC Staff Accounting Bulletin Topic 12:E[33][34] Condensed Statements of Assets, Liabilities, and Trust Corpus Condensed Statements of Assets, Liabilities, and Trust Corpus (June 30, 2025 vs. December 31, 2024) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------------------ | :------------ | :---------------- | | Cash and short-term investments | $7,889,388 | $9,169,742 | | Royalty interests in oil and gas properties (net) | $74,351 | $80,619 | | Total Assets | $7,963,739 | $9,250,361 | | Trust expenses payable | $250,620 | $311,784 | | Other payables | $505,365 | $231,645 | | Total liabilities | $755,985 | $543,429 | | Trust corpus | $7,207,754 | $8,706,932 | | Total Liabilities and Trust Corpus | $7,963,739 | $9,250,361 | Condensed Statements of Distributable Income (Unaudited) Condensed Statements of Distributable Income (Three Months Ended June 30) | Metric | 2025 | 2024 | Change (YoY) | | :------------------------------------ | :----------- | :----------- | :----------- | | Royalty income | $18,583,570 | $22,607,108 | -$4,023,538 | | Interest income | $119,730 | $175,353 | -$55,623 | | Total Income | $18,703,300 | $22,782,461 | -$4,079,161 | | General and administrative expenses | ($914,305) | ($703,464) | -$210,841 | | Distributable income | $17,788,995 | $22,078,997 | -$4,290,002 | | Distributable income per unit | $1.22 | $1.51 | -$0.29 | Condensed Statements of Distributable Income (Six Months Ended June 30) | Metric | 2025 | 2024 | Change (YoY) | | :------------------------------------ | :----------- | :----------- | :----------- | | Royalty income | $37,978,136 | $43,365,913 | -$5,387,777 | | Interest income | $226,690 | $327,279 | -$100,589 | | Total Income | $38,204,826 | $43,693,192 | -$5,488,366 | | General and administrative expenses | ($2,269,348) | ($1,692,768) | -$576,580 | | Distributable income | $35,935,478 | $42,000,424 | -$6,064,946 | | Distributable income per unit | $2.46 | $2.88 | -$0.42 | Condensed Statements of Changes in Trust Corpus (Unaudited) Condensed Statements of Changes in Trust Corpus (Three Months Ended June 30) | Metric | 2025 | 2024 | Change (YoY) | | :-------------------------- | :----------- | :----------- | :----------- | | Trust corpus, beginning | $9,514,016 | $9,987,642 | -$473,626 | | Amortization of royalty interests | ($2,732) | ($5,276) | +$2,544 | | Distributable income | $17,788,995 | $22,078,997 | -$4,290,002 | | Distributions | ($20,092,525) | ($24,360,190) | +$4,267,665 | | Trust corpus, end of period | $7,207,754 | $7,701,173 | -$493,419 | | Distributions per unit | $1.38 | $1.67 | -$0.29 | Condensed Statements of Changes in Trust Corpus (Six Months Ended June 30) | Metric | 2025 | 2024 | Change (YoY) | | :-------------------------- | :----------- | :----------- | :----------- | | Trust corpus, beginning | $8,706,932 | $8,558,906 | +$148,026 | | Amortization of royalty interests | ($6,269) | ($10,335) | +$4,066 | | Distributable income | $35,935,478 | $42,000,424 | -$6,064,946 | | Distributions | ($37,428,387) | ($42,847,822) | +$5,419,435 | | Trust corpus, end of period | $7,207,754 | $7,701,173 | -$493,419 | | Distributions per unit | $2.57 | $2.94 | -$0.37 | NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. TRUST ORGANIZATION AND PROVISIONS - Sabine Royalty Trust was established effective December 31, 1982, to receive royalty and mineral interests in oil and gas properties across Florida, Louisiana, Mississippi, New Mexico, Oklahoma, and Texas[21] - Argent Trust Company became the successor trustee effective December 30, 2022[26][27] - The Trust is passive, prohibited from engaging in business or acquiring assets other than those initially transferred, and the Trustee makes monthly cash distributions to Unit holders[28][29] 2. ACCOUNTING POLICIES - The condensed financial statements are prepared on a modified cash basis, not GAAP, as permitted by SEC Staff Accounting Bulletin Topic 12:E[33][34] - Royalty income and interest income are recognized in the month received by the Trust, while amortization of royalty interests reduces Trust corpus, not operating results[35] - The Trust is classified as a grantor trust for federal income tax purposes, meaning income is taxed at the Unit holder level. The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, with significant federal income tax provisions effective from 2025 through 2027[40][41] - State income taxes apply in Louisiana, Mississippi, New Mexico, and Oklahoma for royalty income, with New Mexico and Oklahoma imposing withholding taxes on non-resident oil and gas proceeds[44] 3. DISTRIBUTION TO UNIT HOLDERS - The Monthly Income Amount is determined by cash received from royalties and interest, less liabilities paid and changes in cash reserves, and is distributed to Unit holders of record on the 15th day of each calendar month[48] - The Trustee maintains an expense reserve due to the unusual volatility of oil and natural gas prices[48] 4. PAYABLES - Payables primarily consist of royalty receipts suspended pending verification of ownership interest or title, and amounts reserved for other expenses, which are expected to be paid or released in the normal course of business[50] 5. CONTINGENCIES - Unfavorably resolved contingencies related to royalty properties would generally reduce future royalty income payments and corresponding cash distributions to Unit holders[51] - The Trustee is not aware of any such contingent items as of June 30, 2025[51] 6. TRUSTEE FEES Trustee and Escrow Agent Fees (Three Months Ended June 30) | Fee Type | 2025 | 2024 | Change (YoY) | | :------------------ | :---------- | :---------- | :----------- | | Trustee Fee | $136,932 | $109,145 | +$27,787 | | Escrow Agent Fee | $410,798 | $327,432 | +$83,366 | | Trustee Bonus Fee | $92,271 | — | +$92,271 | | Total Fees | $640,001 | $436,577 | +$203,424 | Trustee and Escrow Agent Fees (Six Months Ended June 30) | Fee Type | 2025 | 2024 | Change (YoY) | | :------------------ | :---------- | :---------- | :----------- | | Trustee Fee | $279,884 | $211,260 | +$68,624 | | Escrow Agent Fee | $839,653 | $633,774 | +$205,879 | | Trustee Bonus Fee | $184,542 | — | +$184,542 | | Total Fees | $1,304,079 | $845,034 | +$459,045 | - A Trustee bonus fee of approximately $31,000 per month is being taken from February 2025 until January 2026, based on 2024 cost savings[52] 7. SUBSEQUENT EVENTS Distributions Declared Subsequent to June 30, 2025 | Notification Date | Monthly Record Date | Payment Date | Distribution per Unit | | :---------------- | :------------------ | :----------- | :-------------------- | | July 3, 2025 | July 15, 2025 | July 29, 2025 | $0.345930 | | August 5, 2025 | August 15, 2025 | August 29, 2025 | $0.744730 | Item 2. Trustee's Discussion and Analysis of Financial Condition and Results of Operations This section discusses the Trust's financial condition, liquidity, and operations, highlighting commodity price impact on income and distributions - The Trust's income and monthly distributions are heavily influenced by volatile commodity prices (oil and natural gas)[56] - Distributable income for the three months ended June 30, 2025, was $17,788,995 ($1.22 per unit), and for the six months ended June 30, 2025, was $35,935,478 ($2.46 per unit)[58][13][15] - Royalty income decreased by 18% YoY for Q2 2025 and 12% YoY for the six months ended June 30, 2025, primarily due to lower production and oil prices, partially offset by higher natural gas prices[61][63] Liquidity and Capital Resources - The Trust makes monthly distributions of excess royalty income over expenses and is dependent on royalty income for cash flows[55] - The Trust's only long-term assets are royalty interests in oil and gas properties; it does not undertake capital projects or make capital expenditures[55] - Borrowings are permitted if necessary but are not anticipated in the foreseeable future[55] Commodity Prices - Oil prices showed weakness in early 2024, rose in early 2025, then fell due to weak demand and rising supply, before rallying in May and June 2025[56] - Natural gas markets experienced heightened volatility, with prices rising in Q1 2025 due to colder weather and tight conditions, and further increasing through May and June 2025 due to geopolitical tensions[56] - Factors influencing commodity prices include political conditions, economic/geopolitical conditions, weather, trade barriers, public health concerns, supply/demand, alternative fuels, transportation, energy conservation, and governmental regulation/taxation[60] Results of Operations - Distributable income for the three months ended June 30, 2025, was $17,788,995, or $1.22 per unit[58] - Royalty income for Q2 2025 decreased by approximately $4.024 million (18%) YoY, primarily due to decreased oil and natural gas production ($7.1M) and lower oil prices ($2.4M), partially offset by higher natural gas prices ($4.9M) and lower taxes/expenses ($0.5M)[61] - Royalty income for the six months ended June 30, 2025, decreased by approximately $5.388 million (12%) YoY, mainly due to lower production ($4.0M) and oil prices ($6.5M), partially offset by higher natural gas prices ($3.7M), one-time miscellaneous receipts ($0.7M), and lower taxes/expenses ($0.7M)[63] Production and Average Realized Prices | Metric | Quarter Ended June 30, 2025 | Quarter Ended June 30, 2024 | Quarter Ended March 31, 2025 | | :-------------------- | :-------------------------- | :-------------------------- | :--------------------------- | | Oil Production (Bbls) | 155,573 | 220,438 | 211,707 | | Gas Production (Mcfs) | 3,046,325 | 3,869,375 | 3,883,612 | | Average Oil Price (per Bbl) | $68.17 | $78.89 | $59.17 | | Average Gas Price (per Mcf) | $3.26 | $1.99 | $2.19 | | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Oil Production (Bbls) | 367,280 | 394,440 | | Gas Production (Mcfs) | 6,929,937 | 7,804,325 | | Average Oil Price (per Bbl) | $62.98 | $79.47 | | Average Gas Price (per Mcf) | $2.66 | $2.18 | - General and administrative expenses for Q2 2025 increased by approximately $210,800 YoY, primarily due to higher Escrow Agent/Trustee/Bonus fees and professional services, offset by lower printing expenses[66] Critical Accounting Policies and Estimates - There have been no significant changes to the Trust's critical accounting policies during the three months ended June 30, 2025[71] Distributable Income per Unit - Basic and diluted distributable income per Unit are the same as there were no equivalent Units outstanding for any period presented[72] New Accounting Pronouncements - No new accounting pronouncements are expected to have a significant impact on the Trust's financial statements[73] Forward Looking Statements - The report includes forward-looking statements subject to numerous risks and uncertainties, including factors affecting oil and gas prices, recoverability of reserves, general economic conditions, and actions of petroleum-producing nations[74] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Trust has minimal market risk exposure, avoiding derivatives, foreign operations, and long-term debt, with no material interest rate risk - The Trust does not invest in derivative financial instruments, has no foreign operations, and no long-term debt instruments[76] - Borrowings are limited to paying expenses and are unlikely to be material[76] - The Trustee believes the Trust is not subject to any material interest rate risk due to the short-term nature of its investments and limitations on investment types[76] Item 4. Controls and Procedures The Trustee concluded the Trust's disclosure controls and procedures are effective, with no material changes to internal control over financial reporting - The Trustee concluded that the Trust's disclosure controls and procedures are effective as of June 30, 2025[77] - There has been no material change in the Trust's internal control over financial reporting during the period[77] - The Trustee has fully transitioned to and is utilizing the 2013 COSO Internal Control – Integrated Framework for evaluating internal control over financial reporting[79] PART II — OTHER INFORMATION Item 1. Legal Proceedings This item states that there are no legal proceedings applicable to the Trust - Legal proceedings are not applicable to the Trust[81] Item 1A. Risk Factors This section refers to risk factors detailed in the latest Form 10-K, noting no material changes during the current period - Risk factors relating to the Trust are contained in Item 1A of the Trust's Annual Report on Form 10-K for the fiscal year ended December 31, 2024[82] - No material change to such risk factors has occurred during the three and six months ended June 30, 2025[82] Item 5. Other Information The Trust has no directors or officers, thus no Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated - The Trust does not have any directors or officers[83] - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted or terminated[83] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including the Trust Agreement, amendments, and certifications - The exhibits include the Sabine Corporation Amended and Restated Royalty Trust Agreement, Amendment No. 1, Sabine Corporation Louisiana Royalty Trust Agreement, and Trustee Certifications (302 and 906 of Sarbanes-Oxley Act)[85] SIGNATURES - The report is signed on behalf of Sabine Royalty Trust by Argent Trust Company, as Trustee, through Nancy Willis, Director of Royalty Trust Services[88] - The Trust has no directors or executive officers[88]