SABINE ROYALTY TRUST

Previous wording

Sabine Royalty Trust (the “Trust”) makes monthly distributions to its Unit holders of the excess of the preceding month’s revenues 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 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. Accordingly the Trust is dependent on its operations to generate excess cash flows utilized in making distributions. These operating cash flows are largely dependent on such factors as oil and gas prices and production volumes, which are influenced by many factors beyond the control of the Trust. As a royalty owner, the Trust does not have access to certain types of information that would be disclosed by a company with oil and gas operations. See “Item 2. Properties” for a discussion of the types of information not available to the Trust.

Current wording

The Trust makes monthly distributions to its Unit holders of the excess of the preceding month’s revenues 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 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. Accordingly the Trust is dependent on receipt of royalty income to generate excess cash flows utilized in making distributions. These cash flows are largely dependent on such factors as oil and gas prices and production volumes, which are influenced by many factors beyond the control of the Trust. The Trust does not undertake capital projects or make capital expenditures, and is not liable for any production costs or liabilities attributable to the Royalty Properties. As a royalty owner, the Trust does not have access to certain types of information that would be disclosed by a company with oil and gas operations. See “Item 2. Properties” for a discussion of the types of information not available to the Trust.

Previous wording

Royalty income during 2023 decreased approximately $32,737,000, or 26 percent, compared to 2022 royalty income, which had increased approximately $64,845,000, or 106.5 percent, from 2021 royalty income.

Current wording

Royalty income during 2024 decreased approximately $10,442,000, or 11 percent, compared to 2023 royalty income, which had increased approximately $32,737,000, or 26 percent, from 2022 royalty income.

Previous wording

Revenues generated by sales of oil and gas decreased in 2023 from 2022 as a result of lower oil and gas prices ($41.0 million) and decreased production of natural gas ($8.0 million); offset somewhat by increased oil production volumes ($13.8 million) and lower operating expenses and taxes ($2.5 million).

Current wording

Revenues generated by sales of oil and gas decreased in 2024 from 2023 due mainly to lower oil and natural gas prices ($21.4 million) and higher operating expenses and taxes ($0.5 million), partially offset by an increase in both oil and natural gas production ($11.5 million).

Previous wording

Gas volumes decreased from 14,092,037 thousand cubic feet (“Mcf”) in 2022 to 11,819,167 Mcf in 2023 after increasing from 10,070,366 Mcf in 2021. The average price per Mcf of gas received by the Trust decreased from $5.96 in 2022 to $3.52 in 2023 after increasing from $3.20 in 2021. The COVID-19 pandemic that hit in March 2020 and the subsequent sharp decrease in demand due to lockdowns worldwide pushed the price of natural gas to historic lows in 2020. The restrictions in activity through the rest of 2020 and the economic uncertainty that went with it continued to put pressure on natural gas prices into 2021. When the lockdowns began to ease in 2021, the subsequent rise in demand allowed natural gas prices to rise. Cold weather in the last quarter of 2021 also contributed to higher prices. In February 2022, Russia invaded Ukraine and the resulting uncertainty due to the war and sanctions imposed on Russia drove the price of natural gas up significantly, peaking in the summer of 2022. Once international markets absorbed the effects of Russia’s inability to sell gas to the EU and other countries, the price of natural gas began to ease somewhat in the second half of 2022 and 2023.

Current wording

Gas volumes increased from 11,819,167 Mcf in 2023 to 16,509,134 Mcf in 2024 after decreasing from 14,092,037 Mcf in 2022. The average price of gas received by the Trust decreased from $3.52 per Mcf in 2023 to $1.88 per Mcf in 2024 after decreasing from $5.96 per Mcf in 2022. In February 2022, Russia invaded Ukraine and the resulting uncertainty due to the war and sanctions imposed on Russia drove the price of natural gas up significantly, peaking in the summer of 2022. Once international markets absorbed the effects of Russia’s inability to sell gas to the European Union and other countries, the price of natural gas began to ease somewhat in the second half of 2022 and 2023. The lower gas prices continued throughout most of 2024, due mainly to warmer weather in the fall and early winter in 2024, higher inflation than in previous years, along with the uncertainty brought about by the November U.S. presidential election. Late in the year, with cold weather finally arriving in some parts of the United States, natural gas prices began to increase.

Previous wording

Oil volumes sold increased to 780,930 barrels (“Bbls”) in 2023 from 608,140 Bbls in 2022 after decreasing from 631,660 Bbls in 2021. The average sales price of oil decreased to $79.60 per Bbl in 2023, from $90.41 per Bbl in 2022 after increasing from $57.95 per Bbl in 2021. For the first two months of 2020, oil prices were high until COVID-19 was discovered in the U.S. in March. The subsequent lockdowns led to a steep decrease in demand, causing the spot price of oil briefly to go negative. The price of oil recovered somewhat in the third and fourth quarters of 2020 as restrictions began to ease. This price recovery continued throughout 2021 as COVID restrictions continued to be eased around the U.S., resulting in an increase in the demand of oil. In February 2022, Russia invaded Ukraine and the uncertainty of war and the sanctions that were imposed on Russia drove the price of oil to historic levels where they peaked in June 2022, then declining through the rest of 2022 and the first few months of 2023. As 2023 went on, the price of oil increased somewhat but the average prices were still below that of the previous year.

Current wording

Oil volumes sold increased to 815,811 barrels (“Bbls”) in 2024 from 780,930 Bbls in 2023 after increasing from 608,140 Bbls in 2022. The average sales price of oil decreased to $77.04 per Bbl in 2024, from $79.60 per Bbl in 2023 after decreasing from $90.41 per Bbl in 2022. In February 2022, Russia invaded Ukraine and the uncertainty of war and the sanctions that were imposed on Russia drove the price of oil to [near] historic levels where they peaked in June 2022, then declined through the rest of 2022 and the first few months of 2023. As 2023 went on, the price of oil increased, but the average prices were still below that of the previous year. For most of 2024, oil prices stayed lower than the prices in 2023 due mainly to higher inflation, along with the uncertainty brought about by the November U.S. presidential election.

Previous wording

Interest income was approximately $804,000 in 2023, which had increased from approximately $232,000 in 2022, which had increased from approximately $6,000 in 2021. Changes in interest income are the result of changes in interest rates and funds available for investment.

Current wording

Interest income was approximately $601,000 in 2024, which had decreased from approximately $804,000, or 25 percent, in 2023, which had increased from approximately $232,000, or 247 percent, in 2022. Changes in interest income are the result of changes in interest rates and funds available for investment.

Previous wording

General and administrative expenses increased to approximately $3,287,400 in 2022 from approximately $3,054,000 in 2021. This increase was caused primarily by increases in legal and professional services of approximately $329,900 and an increase in revenue processing of approximately $117,900. These increases were offset somewhat by decreases due to the timing of payment of expenses to digitize certain permanent files of approximately $174,900, a decrease in the Escrow Agent/Trustee fees of approximately $46,600 and a decrease in Unitholder services of approximately $3,400.

Current wording

General and administrative expenses decreased to approximately $3,528,000, or 1 percent, in 2024 from approximately $3,564,000 in 2023. This decrease was caused mainly by decreases in Escrow Agent/Trustee fees of approximately $267,000. These were offset by increases in legal and professional services of approximately $223,000 and in revenue processing of approximately $76,000.

Previous wording

General and administrative expenses increased to approximately $3,564,400 in 2023 from approximately $3,287,400 in 2022. This increase was caused mainly by increases in Escrow Agent/Trustee fees of approximately $490,000, and in Unitholder services of approximately $155,000. These were offset somewhat by decreases in legal and professional services of approximately $178,000 and in revenue processing of approximately $181,000.

Current wording

General and administrative expenses increased to approximately $3,564,400, or 8 percent, in 2023 from approximately $3,287,400 in 2022. This increase was caused mainly by increases in Escrow Agent/Trustee fees of approximately $490,000, and in Unitholder services of approximately $155,000. These were offset somewhat by decreases in legal and professional services of approximately $178,000 and in revenue processing of approximately $181,000.

Previous wording

The Trust did file tax returns for 2021 and 2022 with the States of Oklahoma and New Mexico requesting refunds. The Trust will file tax returns for 2023 with the States of Oklahoma and New Mexico requesting refunds. The refunds represent taxes that were withheld from the proceeds of production from the Royalty Properties and remitted to the State of Oklahoma and the State of New Mexico by the applicable payors of such proceeds.

Current wording

The Trust did file tax returns for 2022 and 2023 with the States of Oklahoma and New Mexico requesting refunds. The refunds represent taxes that were withheld from the proceeds of production from the Royalty Properties and remitted to the State of Oklahoma and the State of New Mexico by the applicable payors of such proceeds. [The Trust will file tax returns for 2024 with the States of Oklahoma and New Mexico requesting refunds.] The Trust has historically obtained refunds from the states of New Mexico and Oklahoma and distributed such refunds to Unit holders. However, with respect to Oklahoma, beginning in 2018, the Trust’s refund claims have been denied, and the Trust may not qualify for an exemption from withholding. The Trustee is actively working with the Oklahoma Tax Commission to resolve the issue. Unless the Trust is eligible to obtain an exemption from Oklahoma withholding tax or obtain a refund of Oklahoma withholding tax, Unit holders subject to Oklahoma income tax would be required to file an Oklahoma income tax return in order to claim a credit or refund for any Oklahoma withholding tax attributable to such Unit holder’s Units. A Unit holder’s entitlement to such a credit or refund will be dependent upon the relevant facts and circumstances of such Unit holder.

Previous wording

The Trust’s financial statements reflect the selection and application of accounting policies that require the Trust to make significant estimates and assumptions. The following are some of the more critical judgement areas in the application of accounting policies that currently affect the Trust’s financial condition and results of operations.

Current wording

The Trust’s financial statements reflect the selection and application of accounting policies that require the Trust to make significant estimates and assumptions. The following are some of the more critical judgment areas in the application of accounting policies that currently affect the Trust’s financial condition and results of operations.

Previous wording

This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the U.S. Securities and Exchange Commission, as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.

Current wording

This comprehensive basis of accounting other than GAAP corresponds to the accounting permitted for royalty trusts by the SEC, as specified by Staff Accounting Bulletin Topic 12:E, Financial Statements of Royalty Trusts.

Previous wording

The SEC and the Financial Accounting Standards Board requires supplemental disclosures for oil and gas producers based on a standardized measure of discounted future net cash flows relating to proved oil and gas reserve quantities. Under this disclosure, future cash inflows are computed by applying the average prices during the twelve-month period prior to the fiscal year-end, determined as an unweighted arithmetic average of thefirst-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions. Future price changes are only considered to the extent provided by contractual arrangements in existence at year end. The standardized measure of discounted future net cash flows is achieved by using a discount rate of 10% a year to reflect the timing of future cash flows relating to proved oil and gas reserves. Numerous uncertainties are inherent in estimating volumes and the value of proved reserves and in projecting future production rates and the timing of development ofnon-producing reserves. Such reserve estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production may be substantially different from the reserve estimates. See Note 8 of the Notes to Financial Statements in Item 8 hereof for additional information regarding the proved oil and gas reserves of the Trust. Other than those filed with the SEC, our estimated reserves have not been filed with or included in any reports to any federal agency.

Current wording

The SEC and the Financial Accounting Standards Board requires supplemental disclosures for oil and gas producers based on a standardized measure of discounted future net cash flows relating to proved oil and gas reserve quantities. Under this disclosure, future cash inflows are computed by applying the average prices during the twelve-month period prior to the fiscal year-end, determined as an unweighted arithmetic average of the first-day-of-the-month price for each month within such period, unless prices are defined by contractual arrangements, excluding escalations based upon future conditions. Future price changes are only considered to the extent provided by contractual arrangements in existence at year end. The standardized measure of discounted future net cash flows is achieved by using a discount rate of 10% a year to reflect the timing of future cash flows relating to proved oil and gas reserves. Numerous uncertainties are inherent in estimating volumes and the value of proved reserves and in projecting future production rates and the timing of development of non-producing reserves. Such reserve estimates are subject to change as additional information becomes available. The reserves actually recovered and the timing of production may be substantially different from the reserve estimates. See Part II Item 8 “Financial Statements – Notes to Financial Statements - Note 8 Supplemental Oil and Gas Information (Unaudited)” for additional information regarding the proved oil and gas reserves of the Trust. Other than those filed with the SEC, our estimated reserves have not been filed with or included in any reports to any federal agency.

Previous wording

As stipulated in the Trust Agreement, the Trust is intended to be passive in nature and the Trustee does not have any control over or any responsibility relating to the operation of the Royalty Properties. The Trustee has powers to collect and distribute proceeds received by the Trust and to pay Trust liabilities and expenses, and its actions have been limited to those activities. Therefore, the Trust has not engaged in anyoff-balance sheet arrangements.

Current wording

As stipulated in the Trust Agreement, the Trust is intended to be passive in nature and the Trustee does not have any control over or any responsibility relating to the operation of the Royalty Properties. The Trustee has powers to collect and distribute proceeds received by the Trust and to pay Trust liabilities and expenses, and its actions have been limited to those activities. Therefore, the Trust has not engaged in any off-balance sheet arrangements.

Previous wording

Inflationary pressures have accelerated during 2023, which has impacted the costs of goods and services for operators of the Royalty Properties and administrative costs for the Trust.

Current wording

Inflationary pressures continued during 2024, which has impacted the costs of goods and services for operators of the Royalty Properties and administrative costs for the Trust.

Previous wording

This Annual 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 Annual Report are forward-looking statements. Such statements include, without limitation, factors affecting the price of oil and natural gas contained in Item 1, “Business,” certain reserve information and other statements contained in Item 2, “Properties,” certain statements regarding the Trust’s financial position, industry conditions and other matters contained in this Item 7. 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 this Annual Report affecting oil and gas prices (including, without limitation, the domestic and foreign supply of oil and gas and the price of foreign imports, market demand, the price and availability of alternative fuels, the availability of pipeline capacity, instability inoil-producing regions and the effect of governmental regulations or pandemics), the recoverability of reserves, general economic conditions, actions and policies of petroleum-producing nations and other changes in the domestic and international energy markets and the factors identified in Item 1A, “Risk Factors”.

Current wording

This Annual 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 Annual Report are forward-looking statements. Such statements include, without limitation, factors affecting the price of oil and natural gas contained in Item 1, “Business,” certain reserve information and other statements contained in Item 2, “Properties,” certain statements regarding the Trust’s financial position, industry conditions and other matters contained in this Item 7. 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 this Annual Report affecting oil and gas prices (including, without limitation, the domestic and foreign supply of oil and gas and the price of foreign imports, market demand, the price and availability of alternative fuels, the availability of pipeline capacity, instability in oil-producing regions and the effect of governmental regulations or pandemics), the recoverability of reserves, general economic conditions, actions and policies of petroleum-producing nations and other changes in the domestic and international energy markets and the factors identified in Item 1A, “Risk Factors”.