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 prices of oil and natural gas remained relatively strong during the second quarter of 2026, although both commodities experienced volatility throughout the quarter. Oil prices were supported by geopolitical tensions in key producing regions and concerns regarding potential supply disruptions, while fluctuations in global supply and demand expectations, changes in U.S. trade policy, and broader macroeconomic uncertainty contributed to price movements. Natural gas prices remained supported by continued liquefied natural gas export demand, lower inventory levels, regional supply constraints, and weather-related demand, although prices also fluctuated in response to evolving market conditions. Overall, commodity prices during the second quarter of 2026 remained generally higher than those experienced during the comparable period in 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, 2025. Factors that may impact future commodity prices, including the prices 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 prices of oil and natural gas remained volatile during the first nine months of 2026. Oil prices increased significantly during the first half of 2026 as geopolitical tensions in the Middle East disrupted global energy markets and raised concerns regarding supply availability and transportation through key shipping routes. As conditions improved and trade flows gradually resumed, prices moderated during the third quarter, although continued geopolitical uncertainty and changing supply and demand expectations resulted in ongoing price volatility. Global oil markets were also influenced by production levels among major producing countries, inventory levels and economic growth expectations. Natural gas prices were influenced by disruptions to liquefied natural gas (“LNG”) supplies, weather-related demand, storage levels and export activity. During the first half of 2026, natural gas markets experienced volatility as reduced LNG shipments from the Middle East tightened global supply conditions. During the third quarter of 2026, prices continued to be affected by LNG export demand, summer cooling requirements, storage injection activity and uncertainty regarding the pace of supply recovery. Increased competition for LNG cargoes among global markets and strong demand from power generation also contributed to price fluctuations throughout the quarter. 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, 2025. Factors that may impact future commodity prices, including the prices 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 June 30, 2026, was $20,849,020, or $1.43 per unit. Royalty income for the three months ended June 30, 2026, amounted to $21,689,562 while interest income was $104,767. General and administrative expenses totaled $945,309 for the three months ended June 30, 2026.

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, 2026, was $19,048,841, or $1.31 per unit. Royalty income for the three months ended September 30, 2026, amounted to $19,719,377 while interest income was $102,150. General and administrative expenses totaled $772,686 for the three months ended September 30, 2026.

Previous wording

Distributions during the period were $0.324970, $0.497900, and $0.502990 per Unit payable to Unit holders of record on April 15, May 15, and June 15, 2026, respectively.

Current wording

Distributions during the period were $0.429150, $0.619430, and $0.331680 per Unit payable to Unit holders of record on July 15, August 17, and September 15, 2026, respectively.

Previous wording

Compared to the preceding quarter ended March 31, 2026, royalty income increased approximately $7,498,000, or 53%, due to higher oil and natural gas prices ($5.5 million) and higher oil and natural gas production ($2.6 million), partially offset by higher production taxes and operating expenses ($0.6 million).

Current wording

Compared to the preceding quarter ended June 30, 2026, royalty income decreased approximately $1,970,000, or 9%, due mainly to decreased natural gas prices ($4.5 million), decreased oil production ($0.2 million), and higher operating expenses ($0.03 million), partially offset by higher oil prices ($1.8 million), higher natural gas production ($0.9 million), and lower production taxes and ad valorem taxes ($0.04 million).

Previous wording

Royalty income for the six months ended June 30, 2026 decreased approximately $2,097,000, or 6%, compared to the same period in 2025. This decrease was due mainly to lower oil and natural gas production ($7.8 million) and a one-time miscellaneous receipts distribution recognized in the first quarter of 2025 ($0.7 million). These decreases were tempered somewhat by higher oil and natural gas prices ($6.0 million), and lower production taxes, operating expenses and ad valorem taxes ($0.4 million).

Current wording

Royalty income for the nine months ended September 30, 2026, decreased approximately $7,900,000, or 12%, compared to the same 2025 period. This decrease was primarily the result of lower oil and natural gas production ($16.4 million), higher operating expenses ($0.1 million), and a one-time miscellaneous receipts distribution recognized in the first quarter of 2025 ($0.7 million). These decreases were partially offset by higher oil and natural gas prices ($8.9 million) and lower production taxes and ad valorem taxes ($0.4 million).

Previous wording

Oil royalty income for the three months ended June 30, 2026, related primarily to production for February through April 2026. The average price of oil as reported by NYMEX for that time period was $86.17 per barrel. The average price of oil was $84.29 per barrel for January through June 2026. Gas royalty income received for the three months ended June 30, 2026, related primarily to production for January through March 2026. The average price of gas reported by Henry Hub for the same time period was $4.24 per Mcf. The average price of gas for Henry Hub was $3.43 per Mcf for January through June 2026. As of July 27, 2026, the price of gas for Henry Hub was $2.37 per Mcf and the price of oil reported by NYMEX was $84.25 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, 2026, related primarily to production for May through July 2026. The average price of oil reported by NYMEX for that time period was $88.79 per barrel. The average price of oil was $85.25 per barrel for January through September 2026. Gas royalty income received for the three months ended September 30, 2026, related primarily to production for April through June 2026. The average price of gas reported by Henry Hub for the April through June 2026 period was $2.66 per thousand cubic feet (“Mcf”). The average price of gas reported by the Henry Hub was $3.14 per Mcf for January through September 2026. As of October 27, 2026, the average price of oil reported by NYMEX was $103.37 per barrel and the average price of gas for Henry Hub was $2.48 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, 2026, decreased $14,963 compared with the second quarter of 2025. Compared to the preceding quarter ended March 31, 2026, interest income increased $32,018. Interest income for the six months ended June 30, 2026 decreased $49,174 compared to the same period in 2025. 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, 2026, decreased $53,400 compared to the third quarter of 2025. Compared to the preceding quarter ended June 30, 2026, interest income decreased $2,600. Interest income for the nine months ended September 30, 2026, decreased approximately $102,600 compared to the same period in 2025. 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, 2026, increased approximately $31,000 compared to the same quarter of 2025, due primarily to increases in legal and professional expenses of approximately $45,100 and miscellaneous and other expenses of approximately $8,800. These increases were partially offset by decreases in unit holder services of approximately $17,400 and Escrow Agent/Trustee/Bonus fees of approximately $5,500.

Current wording

General and administrative expenses for the quarter ended September 30, 2026, decreased approximately $153,300 compared to the same quarter of 2025, primarily due to decreases in Escrow Agent/Trustee/Bonus fees of approximately $79,200, legal and professional expenses of approximately $34,800 and other expenses of approximately $49,200. These decreases were offset by increases in unit holder expenses of approximately $9,900.

Previous wording

Compared to the previous quarter ended March 31, 2026, general and administrative expenses decreased approximately $276,800, primarily due to decreases related to the timing of payments for legal and professional services of approximately $248,800 and unit holder services of approximately $59,800. These decreases were partially offset by increases in Escrow/Agent/Trustee/Bonus Fees of approximately $22,700 and miscellaneous and other expenses of approximately $9,100.

Current wording

Compared to the previous quarter ended June 30, 2026, general and administrative expenses decreased approximately $172,600, primarily due to decreases in unit holder expenses of approximately $83,100, Escrow Agent/Trustee fees of approximately $42,900, legal and professional expenses of approximately $29,600, and miscellaneous expenses of approximately $17,000.

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, 2025. There have been no significant changes to the critical accounting policies during the three months ended June 30, 2026.

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, 2025. There have been no significant changes to the critical accounting policies during the three and nine months ended September 30, 2026.