SABINE ROYALTY TRUST

Previous wording

As previously disclosed, significant activity has been initiated by operators in the Haynesville Shale play in the Panola County leases. The Trustee has taken efforts to confirm that the trust receives revenue on all wells in which it has ownership. The Trustee has engaged Argent Mineral Management (“AMM”), an affiliate of the Argent Financial Group, of which the Trustee is also an affiliate, to further audit the Trust's royalty revenue. See Item 13 “Certain Relationships and Related Party Transactions, and Director Independence” for further discussion of this engagement and other related party transactions.

Current wording

The Trustee is continuing its efforts to confirm that the Trust receives revenue on all wells in which it has an ownership interest. As part of this process, the Trustee has engaged Argent Mineral Management (“AMM”), an affiliate of the Argent Financial Group, of which the Trustee is also an affiliate, to conduct an audit of the Trust’s royalty revenue. See Item 13, “Certain Relationships and Related Party Transactions, and Director Independence,” for further discussion of this engagement and other related party transactions.

Previous 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.

Current wording

Royalty income during 2025 decreased by approximately $5,508,000, or 7 percent, compared to 2024. This compares to a decrease of approximately $10,442,000, or 11 percent, in 2024 royalty income from 2023.

Previous 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).

Current wording

Revenues generated by sales of oil and gas decreased in 2025 from 2024 due mainly to lower oil prices ($9.9 million), lower oil and natural gas production ($9.3 million), partially offset by an increase in natural gas prices ($12.1 million), the payment of miscellaneous receipts recognized in 2025 ($0.7 million) and a decrease in operating expenses and taxes ($0.9 million).

Previous 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.

Current wording

Interest income was approximately $472,000 in 2025, which was a decrease from approximately $601,000, or 21 percent, in 2024, which had decreased from approximately $804,000, or 25 percent, in 2023. 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 $3,564,400, 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.

Current wording

General and administrative expenses increased to approximately $4,090,000, or 16 percent, in 2025 from approximately $3,528,000 in 2024. This increase was caused mainly by increases in Escrow Agent/Trustee/Bonus fees of approximately $681,000, professional and auditing fees of approximately $201,600, courier expenses of approximately $49,900, processing fees of approximately $6,500, and miscellaneous expenses of approximately $32,000. These were offset by decreases in engineering and legal services of approximately $150,400, check stub data exchange (“CDEX”) services of approximately $122,300, unit holder services of approximately $94,600 and approximately $42,100 in other operating expenses.

Previous 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.

Current wording

General and administrative expenses decreased to approximately $3,528,000, or 1 percent, in 2024 from approximately $3,564,400 in 2023. This decrease was caused mainly by decreases in Escrow Agent/Trustee fees of approximately $266,800, postage costs of approximately $37,400, unit holder services of approximately $48,900 and supplies expense of approximately $11,800. These were offset by increases in transfer agent fees of approximately $3,800, legal and professional services of approximately $168,400, CDEX services of approximately $76,300, processing fees of approximately $10,200 and approximately $70,400 in other operating expenses.

Previous 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.

Current wording

The Trust has historically filed tax returns with the applicable state taxing authorities in New Mexico and Oklahoma, claimed and received refunds for withholding tax, and distributed such refunds to Unit holders. The refunds represent taxes that were withheld from the proceeds of production from the Royalty Properties and remitted to the state taxing authorities by the applicable payors of such proceeds. However, with respect to Oklahoma, beginning in 2018 through 2023, the Trust’s refund claims were denied, as the Oklahoma Tax Commission determined that the Trust does not qualify for an exemption from withholding in Oklahoma. For 2024 and forward, pursuant to guidance from the Oklahoma Tax Commission, the Trustee will include Oklahoma source income and related withholding tax on the Trust’s Oklahoma tax return. The excess withholding tax, if any, is refunded to the Trustee. For 2024, this refund has been obtained and distributed to Unit holders.

Previous wording

The financial statements of the Trust are prepared on the following basis and are not intended to present financial position and results of operations in conformity with accounting principles generally accepted in the United States of America:

Current wording

The financial statements of the Trust are prepared on the following modified cash basis of accounting and are not intended to present financial position and results of operations in conformity with accounting principles generally accepted in the United States of America (“GAAP”):

Previous 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.

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. The Trustee believes such information includes all the disclosures necessary to make the information presented not misleading. The information furnished reflects all adjustments which are, in the opinion of the Trustee, necessary for a fair presentation of the results for the years presented. The Trust considers all highly liquid investments with a maturity of three months or less to be cash equivalents. Royalty interests in oil and gas properties are reviewed for impairment whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. If circumstances require the royalty interests in oil and gas properties to be tested for possible impairment, the Trust first compares undiscounted cash flows expected to be generated by the royalty interests in oil and gas properties to its carrying value. If the carrying value of the royalty interests in oil and gas properties is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. The fair value of the royalty interests in oil and gas properties is measured using valuation techniques consistent with the income approach, converting future cash flows to a single discounted amount.

Previous 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.

Current wording

Inflationary pressures continued during 2025, which has impacted the costs of goods and services for operators of the Royalty Properties and administrative costs for the Trust, although inflation eased from 2.9% in 2024 to 2.7% in 2025.