SABINE ROYALTY TRUST Liquidity and Capital Resources
The Trust makes monthly distributions to the holders of Units of the excess of the preceding month's royalty income received over expenses incurred. Upon receipt, royalty income is invested in short-term investments until its subsequent distribution. In accordance with the Trust Agreement, the Trust's only long-term assets consist of royalty interests in producing and proved undeveloped oil and gas properties. Although the Trust is permitted to borrow funds if necessary to continue its operations, borrowings are not anticipated in the foreseeable future.
Commodity Prices
The Trust's income and monthly distributions are heavily influenced by commodity
prices. Commodity prices may fluctuate widely in response to (i) relatively
minor changes in the supply of and demand for oil and natural gas, (ii) market
uncertainty and (iii) a variety of additional factors that are beyond the
Trustee's control. In 2020, there was a substantial decrease in oil and natural
gas prices due in part to significantly decreased demand as a result of the
novel coronavirus ("COVID-19") pandemic and an oversupply of crude oil driven by
a dispute between members of the
• political conditions in major oil producing regions, especially in the
Middle East ;
• worldwide economic conditions;
• weather conditions;
• trade barriers;
• public health concerns, including the COVID-19 pandemic;
• the supply and price of domestic and foreign crude oil or natural gas;
• the level of consumer demand;
• the price and availability of alternative fuels;
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Table of Contents • the proximity to, and capacity of, transportation facilities; • the effect of worldwide energy conservation measures; and • the nature and extent of governmental regulation and taxation.
Although we cannot predict the occurrence of events that may affect future
commodity prices or the degree to which these prices will be affected, gas
royalty income for a given period generally relates to production three months
prior to the period and crude oil royalty income for a given period generally
relates to production two months prior to the period and will generally
approximate current market prices in the geographic region of the production at
the time of production. When crude oil and natural gas prices decline, the Trust
is affected in two ways. First, distributable income from the
Results of Operations
Distributable income consists of royalty income plus interest income plus any
decrease in cash reserves established by the Trustee less general and
administrative expenses of the Trust less any increase in cash reserves
established by the Trustee. Distributable income for the three months ended
Distributions during the period were
Royalty income for the quarter ended
Compared to the preceding quarter ended
Royalty income for the nine months ended
The following tables illustrate average prices received for the periods discussed above and the related oil and gas production volume:
Quarter Ended
September 30, September 30, June 30,
2021 2020 2021
Production
Oil (Bbls) 155,639 199,066 151,116
Gas (Mcfs) 2,241,298 1,910,574 1,962,250
Average Price
Oil (per Bbl) $ 63.05 $ 33.46 $ 53.48
Gas (per Mcf) $ 2.74 $ 1.48 $ 3.23
Nine-Months Ended
September 30, September 30,
2021 2020
Production
Oil (Bbls) 455,722 543,956
Gas (Mcfs) 6,224,732 5,981,976
Average Price
Oil (per Bbl) $ 53.39 $ 42.83
Gas (per Mcf) $ 2.75 $ 1.69
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Gas royalty income received for the three months ended
Interest income for the quarter ended
General and administrative expenses for the quarter ended
Compared to the previous quarter ended
Administrative expenses decreased approxmately
The financial statements of the Trust differ from financial statements prepared
in conformity with accounting principles generally accepted in
• Royalty income is recognized in the month received, pending verification
of ownership and title, rather than in the month of production.
• Expenses other than those expected to be paid on the following monthly
record date are not accrued.
• Amortization of the Royalties is shown as a reduction to Trust corpus and
not as a charge to operating results.
• Reserves may be established for contingencies that would not be recorded
under accounting principles generally accepted in the United States of
America .
This comprehensive basis of accounting other than GAAP corresponds to the
accounting permitted for royalty trusts by the
Critical Accounting Policies and Estimates
A disclosure of critical accounting policies and the more significant judgments
and estimates used in the preparation of the Trust's financial statements is
included in Item 7 of the Trust's Annual Report on Form 10-K for the year ended
Distributable Income per Unit
Basic distributable income per Unit is computed by dividing distributable income by the weighted average number of Units outstanding. Distributable income per Unit assuming dilution is computed by dividing distributable income by the weighted average number of Units and equivalent Units outstanding. The Trust had no equivalent Units outstanding for any period presented. Therefore, basic distributable income per Unit and distributable income per Unit assuming dilution are the same.
New Accounting Pronouncements
There are no new pronouncements that are expected to have a significant impact on the Trust's financial statements.
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Forward Looking Statements
This Report includes "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbor created thereby. All statements other than statements of historical fact included in this Report are forward-looking statements. Although the Trustee believes that the expectations reflected in such forward-looking statements are reasonable, such expectations are subject to numerous risks and uncertainties and the Trustee can give no assurance that they will prove correct. There are many factors, none of which is within the Trustee's control, that may cause such expectations not to be realized, including, among other things, factors identified in the Trust's most recent Annual Report on Form 10-K affecting oil and gas prices and the recoverability of reserves, general economic conditions, actions and policies of petroleum-producing nations and other changes in the domestic and international energy markets.
The Trust has an Internet website and has made available its annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Exchange Act at http://www.sbr-sabine.com as soon as reasonably
practicable after such information is electronically filed with or furnished to
the
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