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 showed weakness in early 2024, unable to gain much strength through the fourth quarter, due mainly to higher inflation, the uncertainty brought about by the November U.S. presidential election, and warmer weather in the fall and early winter in 2024. The price of oil rose in early 2025 and then fell through the remainder of the first quarter of 2025 primarily due to weak demand, increasing supply, and tariffs and trade tensions between the U.S. and China. In early May 2025 prices dropped sharply, to a nearly two-year low. The decline was driven by a combination of weak demand and rising supply concerns after a surge in global inventories. As concerns over a trade war and energy tariffs subsided, prices were able to rally throughout the rest of May and June 2025. The natural gas markets faced heightened volatility, driven by a milder-than-expected winter in late 2024 in major consuming regions like the US and Europe leading to weaker heating demand. Natural gas prices rose in the first quarter of 2025 amid tight conditions and rising demand. Colder-than-normal weather in January and February 2025 led to increased natural gas consumption and large natural gas withdrawals from inventories, which contributed to higher prices in the first quarter 2025. Geopolitical tensions, particularly instability in the Middle East affecting shipping routes, added upward pressure through May and June 2025, pushing prices back above US $4.00 by mid-June 2025. 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, 2024. 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 showed weakness in early 2024, unable to gain much strength through the fourth quarter, due mainly to higher inflation, the uncertainty brought about by the November U.S. presidential election, and warmer weather in the fall and early winter in 2024. The price of oil rose in early 2025 and then fell through the remainder of the first quarter of 2025 primarily due to weak demand, increasing supply, and tariffs and trade tensions between the U.S. and China. In early May 2025 oil prices dropped sharply, to a nearly two-year low. The decline was driven by a combination of weak demand and rising supply concerns after a surge in global inventories. As concerns over a trade war and energy tariffs subsided, prices were able to rally throughout the rest of May and June 2025. The change in the third quarter price of oil was primarily caused by a combination of factors including an increase in the supply from OPEC+ production increases, weakening global demand due to concerns about economic growth and trade tensions, and geopolitical risks that created some volatility. The natural gas markets faced heightened volatility, driven by a milder-than-expected winter in late 2024 in major consuming regions like the US and Europe leading to weaker heating demand. Natural gas prices rose in the first quarter of 2025 amid tight conditions and rising demand. Colder-than-normal weather in January and February 2025 led to increased natural gas consumption and large natural gas withdrawals from inventories, which contributed to higher prices in the first quarter 2025. Geopolitical tensions, particularly instability in the Middle East affecting shipping routes, added upward pressure through May and June 2025, pushing prices back above US $4.00 by mid-June 2025. In the third quarter 2025, a mix of factors caused natural gas prices to fluctuate, including high demand from a heatwave in July, a midsummer lull driven by strong storage injections, and a later price rebound fueled by lower-than-expected supply and increased demand for liquified natural gas and data centers. Geopolitical tensions also played a role, creating volatility before a ceasefire in the Middle East in late June stabilized prices, while infrastructure issues like pipeline maintenance and Light Liquid Hydrocarbon and Natural Gas Liquid plant interruptions caused localized price drops, especially in the Permian Basin. 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, 2024. Factors that may impact future commodity prices, including the price of oil and …

Excerpt shortened here; the source contains the full paragraph.

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 June 30, 2025, was $17,788,995, or $1.22 per unit. Royalty income for the three months ended June 30, 2025, amounted to $18,583,570 while interest income was $119,730. General and administrative expenses totaled $914,305 for the three months ended June 30, 2025.

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 September 30, 2025, was $24,752,168, or $1.70 per unit. Royalty income for the three months ended September 30, 2025, amounted to $25,522,605 while interest income was $155,561. General and administrative expenses totaled $925,998 for the three months ended September 30, 2025.

Previous wording

Distributions during the period were $0.503880, $0.447780, and $0.426490 per Unit payable to Unit holders of record on April 15, May 15, and June 16, 2025, respectively.

Current wording

Distributions during the period were $0.345930, $0.744730, and $0.584110 per Unit payable to Unit holders of record on July 15, August 15, and September 15, 2025, respectively.

Previous wording

Compared to the preceding quarter ended March 31, 2025, royalty income decreased approximately $811,000, or 4%, due mainly to decreased oil and natural gas production ($6.6 million) and the absence of miscellaneous receipts recognized in the prior quarter ($0.7 million), partially offset by higher oil and natural gas prices ($6.1 million), and lower production taxes, operating expenses, and ad valorem taxes ($0.4 million).

Current wording

Compared to the preceding quarter ended June 30, 2025, royalty income increased approximately $6,939,000, or 37%, due mainly to increased oil and natural gas production ($9.1 million), partially offset by lower natural gas prices ($2.0 million), and higher production taxes and ad valorem taxes ($0.2 million).

Previous wording

Royalty income for the six months ended June 30, 2025, decreased approximately $5,388,000, or 12%, compared to the same period in 2024. This decrease was due mainly to lower oil and natural gas production ($4.0 million) and a decrease in oil prices ($6.5 million). These were partially offset by higher natural gas prices ($3.7 million), a one-time miscellaneous receipts distribution recognized in the first quarter of 2025 ($0.7 million), and lower production taxes, ad valorem taxes, and operating expenses ($0.7 million).

Current wording

Royalty income for the nine months ended September 30, 2025, increased approximately $350,000, or 1%, compared to the same 2024 period. This increase was primarily the result of higher oil production ($2.3 million), higher natural gas prices ($7.5 million), a one-time miscellaneous receipts distribution recognized in the first quarter of 2025 ($0.7 million), lower operating expenses ($0.4 million), and lower production taxes and ad valorem taxes ($0.3 million). This increase was partially offset by lower natural gas production ($2.7 million), and lower oil prices ($8.2 million).

Previous wording

Oil royalty income for the three months ended June 30, 2025, related primarily to production for February through April 2025. The average price of oil as reported by NYMEX for that time period was $67.65 per barrel. The average price of oil was $68.12 per barrel for January through June 2025. Gas royalty income received for the three months ended June 30, 2025, related primarily to production for January through March 2025. The average price of gas reported by Henry Hub for the same time period was $3.73 per Mcf. The average price of gas for Henry Hub was $3.30 per Mcf for January through June 2025. As of July 30, 2025, the average price of gas for Henry Hub was $2.81 per Mcf and the average price of oil reported by NYMEX was $67.81 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

Oil royalty income for the three months ended September 30, 2025, related primarily to production for May through July 2025. The average price of oil reported by NYMEX for that time period was $66.25 per barrel. The average price of oil was $67.31 per barrel for January through September 2025. Gas royalty income received for the three months ended September 30, 2025, related primarily to production for April through June 2025. The average price of gas reported by the Henry Hub for the April through June 2025 period was $2.87 per thousand cubic feet (“Mcf”). The average price of gas reported by the Henry Hub was $3.10 per Mcf for January through September 2025. As of October 27, 2025, the average price of oil reported by NYMEX was $62.13 per barrel and the average price of gas for the Henry Hub was 2.97 per Mcf. 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 June 30, 2025, decreased $55,623 compared with the second quarter of 2024. Compared to the preceding quarter ended March 31, 2025, interest income increased $12,770. Interest income for the six months ended June 30, 2025 decreased approximately $100,589 compared to the same period in 2024. 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 September 30, 2025, increased $9,700 compared to the third quarter of 2024. Compared to the preceding quarter ended June 30, 2025, interest income increased $35,800. Interest income for the nine months ended September 30, 2025, decreased approximately $90,900 compared to the same period in 2024. Changes in interest income are the result of changes in interest rates and funds available for investment.

Previous wording

General and administrative expenses for the quarter ended June 30, 2025 increased approximately $210,800 compared to the same quarter of 2024 due primarily to an increase in Escrow Agent/Trustee/Bonus fees of approximately $203,400, and professional services of $37,000. These were offset by a decrease in printing expenses of $29,600.

Current wording

General and administrative expenses for the quarter ended September 30, 2025, increased approximately $66,100 compared to the same quarter of 2024, primarily due to increases in Escrow Agent/Trustee/Bonus fees of approximately $190,800, professional services of approximately $38,000, and courier expenses of approximately $50,100. These were offset by a decrease in legal services of approximately $90,400, check stub data exchange (“CDEX”) services of approximately $79,400, tax reporting services of approximately $16,500, and approximately $26,500 in unit holder services expenses.

Previous wording

General and administrative expenses increased approximately $576,600 for the six months ended June 30, 2025, compared to the same time period in 2024 due primarily to increases in Escrow Agent/Trustee/Bonus fees of approximately $459,000, professional services of approximately $116,000 and tax reporting services of approximately $5,800. These were slightly offset by a decrease in other expenses of approximately $4,200.

Current wording

General and administrative expenses increased approximately $642,700 for the nine months ended September 30, 2025, compared to the same period in 2024, due primarily to increases in Escrow Agent/Trustee/Bonus fees of approximately $649,000 and an increase in miscellaneous expenses of approximately $4,300. These were slightly offset by a decrease in tax reporting services of approximately $10,600.

Previous wording

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 December 31, 2024. There have been no significant changes to the critical accounting policies during the three months ended June 30, 2025.

Current wording

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 December 31, 2024. There have been no significant changes to the critical accounting policies during the three and nine months ended September 30, 2025.