SABINE ROYALTY TRUST

Previous wording

Item 2. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations. Liquidity and Capital Resources

Current wording

Item 2. Trustee’s Discussion and Analysis of Financial Condition and Results of Operations.

Previous wording

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. The price of oil and natural gas continued to remain soft from the first quarter through the beginning of the third quarter in 2023 due to continued lower demand resulting from higher-than-normal inflation and an oversupply of the commodities. In the latter part of the third quarter of 2023, the price of oil and gas began to increase, due mainly to OPEC cutting oil production and colder weather during the winter. Oil prices have continued to fluctuate during the first quarter of 2024, due mainly to weather conditions and geopolitical conditions in Eastern Europe and the Middle East. Factors which may affect commodity prices are discussed below and under “Item 1A—Risk Factors” in the Trust’s Form 10-K for the year ended December 31, 2023. Factors that may impact future commodity prices, including the price of oil and natural gas, include but are not limited to:

Current wording

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. The price of oil and natural gas continued to remain soft from the first quarter through the beginning of the third quarter in 2023 due to continued lower demand resulting from higher-than-normal inflation and an oversupply of the commodities. In the latter part of the third quarter of 2023, the price of oil and gas began to increase, due mainly to OPEC cutting oil production and colder weather during the winter. Oil prices have continued to fluctuate during the first six months of 2024, due mainly to weather conditions and geopolitical conditions in Eastern Europe and the Middle East. Factors which may affect commodity prices are discussed below and under “Item 1A—Risk Factors” in the Trust’s Form 10-K for the year ended December 31, 2023. Factors that may impact future commodity prices, including the price of oil and natural gas, include but are not limited to:

Previous wording

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 March 31, 2024, was $19,921,427, or $1.37 per unit. Royalty income for the three months ended March 31, 2024, amounted to $20,758,805 while interest income was $151,926. General and administrative expenses totaled $989,304 for the three months ended March 31, 2024.

Current wording

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 June 30, 2024, was $22,078,997, or $1.51 per unit. Royalty income for the three months ended June 30, 2024, amounted to $22,607,108 while interest income was $175,353. General and administrative expenses totaled $703,464 for the three months ended June 30, 2024.

Previous wording

Distributions during the period were $0.437160, $0.419460, and $0.411450 per Unit payable to Unit holders of record on January 16, February 15, and March 15, 2024, respectively.

Current wording

Distributions during the period were $0.535500, $0.597730, and $0.537640 per Unit payable to Unit holders of record on April 15, May 15, and June 17, 2024, respectively.

Previous wording

Royalty income for the quarter ended March 31, 2024, decreased approximately $6,376,481, or 24%, compared with the first quarter of 2023. This decrease was primarily the result of lower prices for both oil and natural gas ($8.8 million), partially offset by increased production for both oil and natural gas ($2.4 million).

Current wording

Royalty income for the quarter ended June 30, 2024, increased approximately $5,173,000 or 30%, compared with the second quarter of 2023. This increase was primarily the result of an increase in both oil and natural gas production ($7.2 million) and in oil prices ($1.3 million), offset by a decrease in natural gas prices ($2.7 million) and increased production taxes, operating expenses, and ad valorem taxes ($0.6 million).

Previous wording

Compared to the preceding quarter ended December 31, 2023, royalty income decreased approximately $13,319,411, or 39%, due mainly to lower oil and natural gas prices ($5.8 million), a decrease in the production of oil ($11.8 million) and higher operating expenses ($0.2 million). These decreases were offset somewhat by an increase in the production of natural gas ($2.1 million), and lower ad valorem taxes and production taxes ($2.4 million).

Current wording

Royalty income for the six months ended June 30, 2024, decreased approximately $1,203,000 or 3% compared to the same time period in 2023. This decrease was due mainly to lower natural gas prices ($11.6 million). This decrease was tempered somewhat by an increase in the production of both oil and natural gas ($9.8 million) and lower ad valorem taxes and operating expenses ($0.6 million).

Previous wording

Gas royalty income received for the three months ended March 31, 2024, related primarily to production for October through December 2023. The average price of gas reported by the Henry Hub for the same time period was $2.47 per Mcf. The average price of gas for the Henry Hub was $1.93 per Mcf for January through March 2024. Oil royalty income for the three months ended March 31, 2024, related primarily to production for November 2023 through January 2024. The average price of oil as reported by NYMEX for that time period was $74.57 per barrel. The average price of oil was $77.50 per barrel for January through March 2024. As of May 1, 2024, the average price of gas for the Henry Hub was $2.36 per Mcf and the average price of oil reported by NYMEX was $78.51 per barrel. It is difficult to estimate future prices of oil and gas, and any assumptions concerning future prices may prove to be incorrect.

Current wording

Gas royalty income received for the three months ended June 30, 2024, related primarily to production for January through March 2024. The average price of gas reported by the Henry Hub for the same time period was $1.93 per Mcf. The average price of gas for the Henry Hub was $1.90 per Mcf for January through June 2024. Oil royalty income for the three months ended June 30, 2024, related primarily to production for February through April 2024. The average price of oil as reported by NYMEX for that time period was $81.42 per barrel. The average price of oil was $79.69 per barrel for January through June 2024. As of July 29, 2024, the average price of gas for the Henry Hub was $1.71 per Mcf and the average price of oil reported by NYMEX was $77.27 per barrel. It is difficult to estimate future prices of oil and gas, and any assumptions concerning future prices may prove to be incorrect.

Previous wording

Interest income for the quarter ended March 31, 2024, decreased $95,100 compared with the first quarter of 2023. Compared to the preceding quarter ended December 31, 2023, interest income decreased $121,000. Changes in interest income are the result of changes in interest rates and funds available for investment.

Current wording

Interest income for the quarter ended June 30, 2024, increased $20,644 compared with the second quarter of 2023. Compared to the preceding quarter ended March 31, 2024, interest income increased $23,427. Interest income for the six months ended June 30, 2024 decreased approximately $74,446 compared to the same period in 2023. Changes in interest income are the result of changes in interest rates and funds available for investment.

Previous wording

Compared to the previous quarter ended December 31, 2023, general and administrative expenses increased approximately $187,000 primarily due to an increase in the timing of payment of legal and professional services of approximately $118,000 and in payment of printing expenses of $69,000.

Current wording

Compared to the previous quarter ended March 31, 2024, general and administrative expenses decreased approximately $285,800 primarily due to a decrease related to timing of payment of legal and professional services of approximately $216,000, unitholder services of $57,800, and CDEX account and transfer agent services of $12,000.

Previous wording

General and administrative expenses decreased approximately $116,500 for the three months ended March 31, 2024, compared to the same time period in 2023 due primarily to a decrease in Escrow Agent/Trustee fees of approximately $178,500, partially offset by an increase in professional of approximately $58,000 and transfer agent services of approximately $5,000. Expenses decreased from the same period last year primarily due to the expenses incurred in the first quarter of 2023 relative to the change of Trustee and in the timing of invoices received.

Current wording

General and administrative expenses decreased approximately $302,800 for the six months ended June 30, 2024, compared to the same time period in 2023 due primarily to a decrease in Escrow Agent/Trustee fees of approximately $267,100 and a decrease in professional services of $35,900.