Sabine Royalty Trust(SBR) - 2025 Q4 - Annual Report

Financial Overview - The Trust's total general and administrative expenses for 2025 were $4,090,067, with $556,852 paid to Argent Trust Company as Trustee and $1,670,553 as escrow agent[21]. - The Trust's estimated costs and expenses for 2026 are projected to be approximately $4,450,000[195]. - The Trust's financial statements are prepared on a modified cash basis, differing from GAAP, which may affect revenue recognition and cash reserves[132]. Trust Structure and Governance - As of February 27, 2026, there were 14,579,345 Units outstanding, representing an equal undivided share of beneficial interest in the Trust[35]. - The Trust will exist until it is terminated by two successive fiscal years with gross revenues from Royalty Properties less than $2,000,000 per year[27]. - The Trustee is required to distribute all distributable income of the Trust on a monthly basis[24]. - The Trust's assets consist solely of Royalty Properties and cash held for expenses and distributions[20]. - The Trustee has the discretion to establish a cash reserve for contingent liabilities[24]. - The Trust may not issue additional Units unless approved by at least 80 percent of the outstanding Units[36]. - The Trustee is indemnified out of the Trust's assets for liabilities incurred in the performance of its duties, except in cases of negligence or fraud[26]. - The Trust has no employees, and all administrative functions are performed by the Trustee[23]. - Unit holders have limited voting rights and cannot influence the operations or future development of the Royalty Properties[126]. Distribution and Income - Unit holders are entitled to receive monthly distributions based on the calculated Monthly Income Amount, which is determined by revenues minus expenses and liabilities[37]. - The Monthly Record Date for distributions is the 15th day of each calendar month, with payments made no later than 10 business days after this date[37]. - The Monthly Income Amount distributed to Unit holders is calculated based on cash received from Royalty Properties, reduced by liabilities and cash reserves[207]. - Unit holders are entitled to receive the Monthly Income Amount within 10 business days after the monthly record date, which is the 15th of each month[207]. Taxation and Regulatory Environment - The Trust is classified as a non-mortgage widely held fixed investment trust (WHFIT) for U.S. federal income tax purposes[43]. - Unit holders may be entitled to a percentage depletion deduction if it exceeds cost depletion, which is not limited to the Unit holder's depletable tax basis[52]. - The highest marginal U.S. federal income tax rate applicable to ordinary income is 37%, while the rate for long-term capital gains is 20%[62]. - The Trust is expected to remain exempt from Texas franchise tax as a passive entity, benefiting Unit holders by not subjecting Trust income to individual income tax in Texas[71]. - Florida does not impose an individual income tax, but corporate income tax applies to royalty income allocable to corporate Unit holders from Royalty Properties located within the state[72]. - New Mexico and Oklahoma impose withholding taxes on payments to nonresidents from oil and gas proceeds derived from royalty interests, affecting cash distributions to Unit holders[75]. - The Trust's net proceeds are derived from the sale of depleting assets, and distributions may be considered a return of capital, potentially diminishing tax benefits for Unit holders[120]. - Unit holders must maintain records of their adjusted basis in Trust Units for tax purposes[54]. Environmental and Regulatory Risks - The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") imposes liability for hazardous substance releases, which could impact the Trust's financial responsibilities[85]. - The production of oil and natural gas is subject to extensive regulations, which may restrict production rates and affect operational costs[78]. - The Federal Energy Regulatory Commission ("FERC") promotes competition in the natural gas market, impacting pricing and sales dynamics for the Trust's Royalty Properties[80]. - Compliance with environmental regulations is expected to impose obligations that may not materially affect the Trust or Unit holders, barring extraordinary events[82]. - The Railroad Commission of Texas (RRC) announced in September 2021 that it will not issue any new saltwater disposal (SWD) well permits in the Gardendale Seismic Response Area (SRA) and will require existing SWD wells in that area to reduce their maximum daily injection rate to 10,000 barrels per day per well[88]. - The U.S. Supreme Court ruled in April 2020 that discharges into groundwater may be regulated under the Clean Water Act if the discharge is the "functional equivalent" of a direct discharge into navigable waters[89]. - The EPA issued draft guidance in November 2023 regarding the regulation of discharges through groundwater, with comments due by December 27, 2023[89]. - The EPA's November 2025 proposed rule aims to further conform the Waters of the United States (WOTUS) definition to the Supreme Court's decision, which could affect regulatory obligations and increase costs for the Royalty Properties[93]. - The Inflation Reduction Act passed in August 2022 included requirements to impose fees on methane emissions from oil and gas operations starting in 2025[97]. - Following the second Trump presidential inauguration, Congress postponed the collection of the Waste Emissions Charge until 2034, which may impact operating costs associated with the Royalty Properties[97]. - The EPA proposed to suspend all GHG reporting for the oil and gas sector until 2034, creating uncertainty about future GHG regulation[97]. - If GHG emission fees or additional permitting are reinstated in the future, such requirements could decrease net revenue to the Trust[97]. - Legal challenges to environmental regulations may create operational delays and increased costs for the Royalty Properties[109]. Commodity Prices and Market Dynamics - The Trust's average per barrel oil price decreased from $77.04 in 2024 to $64.85 in 2025, influenced by higher oil inventories and economic uncertainty[110]. - The average price received for natural gas in 2025 was $2.61 per thousand cubic feet (Mcf), an increase from $1.88 per Mcf in 2024, due to lower supply and stronger seasonal demand[111]. - Crude oil and natural gas prices are volatile, with fluctuations driven by supply and demand dynamics, geopolitical tensions, and economic conditions, impacting the Trust's income and distributions[112]. - The Trust's income is heavily influenced by commodity prices, which may fluctuate widely due to various factors beyond the company's control[112]. - Future commodity prices may be affected by political conditions in major oil-producing regions, particularly in Eastern Europe, the Middle East, and South America[112]. - The implementation of the Waste Prevention Rule could lead to increased compliance costs for operations on federal and Indian lands, affecting the Royalty Properties[101]. - New EPA regulations on methane and VOC emissions are expected to significantly impact operational costs in the upstream and midstream oil and gas sectors[99]. - The SEC's proposed climate-related disclosure rules could affect companies' access to capital, although implementation is currently stayed due to legal challenges[102]. Reserves and Production - The Trust's Royalty Properties consist of approximately 2,092,292 gross acres and 216,551 net acres across six states: Texas, Oklahoma, Louisiana, Mississippi, New Mexico, and Florida[145]. - The largest gross acreage is in Texas with 1,273,132 acres, followed by Oklahoma with 381,538 acres and Louisiana with 244,391 acres[149]. - As of December 31, 2025, the Trust's proved developed producing reserves were evaluated by DeGolyer and MacNaughton, indicating significant potential for future revenue generation[151]. - The estimated future gross revenue from the Trust's proved developed producing reserves is based on current production and market conditions, with a present worth calculated at a 10% discount rate[156]. - The Trust's properties are actively producing in major basins, including the Permian Basin, which has 909,808 gross acres and 43,300 net acres[149]. - The Trust has exposure to various active plays, including the Eagle Ford and Austin Chalk in the Texas Gulf Coast and the Woodford formation in the Anadarko Basin[147]. - The Trust's reserves are classified as proved developed producing, which are expected to be economically recoverable under existing conditions[159]. - The reserve estimates are subject to uncertainties and may change as further production history and additional information become available[157]. - The Trust's royalty interests account for 100% of revenues attributed to royalty interest payments as of December 31, 2025[154]. - The Trust's internal policies for estimating reserves comply with SEC definitions and guidance, ensuring accuracy in reporting[152]. - As of December 31, 2025, the estimated net proved developed producing reserves are 6,631 Mbbl of oil and condensate, 2,692 Mbbl of NGL, and 60,658 MMcf of gas[188]. - The estimated future gross revenue from the production and sale of these reserves is $694,055,000, with future net revenue projected at $611,199,000[188]. - The present worth of estimated future net revenue at a 10% discount rate is $301,151,000, an increase from $280,325,131 at December 31, 2024[196]. - The average price for oil and condensate is estimated at $65.09 per barrel, while NGL is estimated at $24.84 per barrel[180]. - The average price for gas is estimated at $3.225 per thousand cubic feet[181]. - Approximately 44% of total net reserves were summarized by state or area due to the small volumes attributable to many individual royalty interests[179]. - The Trust holds several thousand individual royalty interests, with reserves evaluated based on historical production data and general knowledge of producing characteristics[179]. - Production taxes are estimated at $38,400,000, and ad valorem taxes at $24,671,000[188]. Operational Risks - Cybersecurity threats pose risks to the Trust's operations, and robust protocols are in place to manage these risks[140]. - Public health concerns, such as pandemics, could adversely affect demand for oil and gas, impacting Trust distributions[136]. - The Trust may cease to receive distributions if the Royalty Properties do not generate at least $2,000,000 in net revenue per year over any consecutive two-year period[129]. - The market price of the Trust's Units may not reflect the actual value of the royalty interests, as it is influenced by cash distribution levels and external factors[121]. - The Trust's assets are depleting, and if operators do not perform additional development projects, depletion may occur faster than expected[116]. - Government policies aimed at reducing oil and gas production could adversely impact the Trust's royalty income and market prices[123].