UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
x Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
OR
o Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 1-8424
SABINE ROYALTY TRUST
Texas | 75-6297143 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or | Identification No.) | |
organization |
U.S. Trust, Bank of America
Private Wealth Management
Bank of America Plaza
901 Main Street
17th Floor
Dallas, Texas 75202
(Address of principal executive offices)
(Zip Code)
(214) 209-2400
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer x Accelerated filer o Non-accelerated filer (Do not check if a smaller reporting company) o Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Number of units of beneficial interest outstanding at October 30, 2009: 14,579,345
SABINE ROYALTY TRUST
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed financial statements included herein have been prepared by Bank of America, N.A. (as successor to NationsBank, N.A.), as Trustee (the Trustee) of Sabine Royalty Trust (the Trust), pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to such rules and regulations, although the Trustee believes that the disclosures are adequate to make the information presented not misleading. The condensed financial statements of the Trust presented herein are unaudited. It is suggested that these condensed financial statements and notes thereto be read in conjunction with the financial statements and notes thereto included in the Trusts latest annual report on Form 10-K. The December 31, 2008 condensed balance sheet is derived from the audited balance sheet as of that date. In the opinion of the Trustee, all adjustments necessary to present fairly the assets, liabilities and trust corpus of the Trust as of September 30, 2009, the distributable income for the three-month and the nine-month periods ended September 30, 2009 and 2008 and the changes in trust corpus for the nine-month periods ended September 30, 2009 and 2008, have been included. The distributable income for such interim periods is not necessarily indicative of the distributable income for the full year.
The condensed financial statements as of September 30, 2009 and for the three-month and nine-month periods ended September 30, 2009 and 2008, included herein, have been reviewed by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein.
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SABINE ROYALTY TRUST
September 30, | December 31, | |||||||||||
Note | 2009 | 2008 | ||||||||||
Assets |
||||||||||||
Cash and short-term investments |
$ | 3,915,653 | $ | 6,383,892 | ||||||||
Royalty interests in oil and gas properties
(less accumulated amortization of
$21,724,458
and $21,660,941 at September 30, 2009 and
December 31, 2008, respectively) |
670,727 | 734,244 | ||||||||||
TOTAL |
$ | 4,586,380 | $ | 7,118,136 | ||||||||
Liabilities and Trust Corpus |
||||||||||||
Trust expenses payable |
$ | 130,794 | $ | 143,197 | ||||||||
Other payables |
4 | 287,275 | 239,674 | |||||||||
418,069 | 382,871 | |||||||||||
Contingencies |
6 | |||||||||||
Trust corpus 14,579,345 units of beneficial
interest authorized and outstanding |
4,168,311 | 6,735,265 | ||||||||||
TOTAL |
$ | 4,586,380 | $ | 7,118,136 | ||||||||
The accompanying notes are an integral part of these condensed financial statements.
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SABINE ROYALITY TRUST
Three Months Ended | ||||||||||||
September 30, | ||||||||||||
Notes | 2009 | 2008 | ||||||||||
Royalty Income |
$ | 10,239,252 | $ | 28,420,792 | ||||||||
Interest Income |
650 | 75,964 | ||||||||||
Total |
10,239,902 | 28,496,756 | ||||||||||
General and administrative expenses |
(455,455 | ) | (471,669 | ) | ||||||||
Distributable Income |
$ | 9,784,447 | $ | 28,025,087 | ||||||||
Distributable Income per unit
(14,579,345 units) |
1,3,5 | $ | .67 | $ | 1.92 | |||||||
The accompanying notes are an integral part of these condensed financial statements.
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SABINE ROYALITY TRUST
Nine Months Ended | ||||||||||||
September 30, | ||||||||||||
Notes | 2009 | 2008 | ||||||||||
Royalty Income |
$ | 31,754,428 | $ | 70,332,285 | ||||||||
Interest Income |
21,268 | 224,594 | ||||||||||
Total |
31,775,696 | 70,556,879 | ||||||||||
General and administrative expenses |
(1,765,623 | ) | (1,704,028 | ) | ||||||||
Distributable Income |
$ | 30,010,073 | $ | 68,852,851 | ||||||||
Distributable Income per unit
(14,579,345 units) |
1,3,5 | $ | 2.06 | $ | 4.72 | |||||||
The accompanying notes are an integral part of these condensed financial statements.
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SABINE ROYALITY TRUST
Nine Months Ended | ||||||||||||
September 30, | ||||||||||||
Note | 2009 | 2008 | ||||||||||
Trust corpus, beginning of period |
$ | 6,735,265 | $ | 5,822,655 | ||||||||
Amortization of royalty interests |
(63,517 | ) | (75,743 | ) | ||||||||
Distributable income |
30,010,073 | 68,852,851 | ||||||||||
Distributions |
3 | (32,513,510 | ) | (65,400,714 | ) | |||||||
Trust corpus, end of period |
$ | 4,168,311 | $ | 9,199,049 | ||||||||
Distributions per unit (14,579,345 units) |
3 | $ | 2.23 | $ | 4.49 | |||||||
The accompanying notes are an integral part of these condensed financial statements.
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SABINE ROYALTY TRUST
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. TRUST ORGANIZATION AND PROVISIONS
Sabine Royalty Trust (the Trust) was established by the Sabine Corporation Royalty Trust Agreement (the Trust Agreement), made and entered into effective as of December 31, 1982, to receive a distribution from Sabine Corporation (Sabine) of royalty and mineral interests, including landowners royalties, overriding royalty interests, minerals (other than executive rights, bonuses and delay rentals), production payments and any other similar, nonparticipatory interests, in certain producing and proved undeveloped oil and gas properties located in Florida, Louisiana, Mississippi, New Mexico, Oklahoma and Texas (the Royalties).
Certificates evidencing units of beneficial interest (the Units) in the Trust were mailed on December 31, 1982 to Sabines shareholders of record on December 23, 1982, on the basis of one Unit for each share of Sabines outstanding common stock. In May 1988, Sabine was acquired by Pacific Enterprises (Pacific), a California corporation. Through a series of mergers, Sabine was merged into Pacific Enterprises Oil Company (USA) (Pacific (USA)), a California corporation and a wholly owned subsidiary of Pacific, effective January 1, 1990. This acquisition and the subsequent mergers had no effect on the Units. Pacific (USA), as successor to Sabine, has assumed by operation of law all of Sabines rights and obligations with respect to the Trust. The Units are listed and traded on the New York Stock Exchange.
In connection with the transfer of the Royalties to the Trust upon its formation, Sabine had reserved to itself all executive rights, including rights to execute leases and to receive bonuses and delay rentals. In January 1993, Pacific (USA) completed the sale of substantially all its producing oil and gas assets to a third party. The sale did not include executive rights relating to the Royalties, and Pacific (USA)s ownership of such rights was not affected by the sale.
Bank of America, N.A. (the Trustee), acts as trustee of the Trust. In 2007 the Bank of America private wealth management group officially became known as U.S. Trust, Bank of America Private Wealth Management. The legal entity that serves as the Trustee of the Trust did not change, and references in this Form 10-Q to U.S. Trust, Bank of America Private Wealth Management shall describe the legal entity Bank of America, N.A. The terms of the Trust Agreement provide, among other things, that:
| The Trust shall not engage in any business or commercial activity of any kind or acquire assets other than those initially transferred to the Trust. | |||
| The Trustee may not sell all or any part of its assets unless approved by the holders of a majority of the outstanding Units in which case the sale must be for cash and the proceeds, after satisfying all existing liabilities, promptly distributed to Unit holders. | |||
| The Trustee may establish a cash reserve for the payment of any liability that is contingent or uncertain in amount or that otherwise is not currently due or payable. | |||
| The Trustee will use reasonable efforts to cause the Trust and the Unit holders to recognize income and expenses on monthly record dates. | |||
| The Trustee is authorized to borrow funds to pay liabilities of the Trust provided that such borrowings are repaid in full before any further distributions are made to Unit holders. | |||
| The Trustee will make monthly cash distributions to Unit holders of record on the monthly record date (see Note 3). |
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Because of the passive nature of the Trust and the restrictions and limitations on the powers and activities of the Trustee contained in the Trust Agreement, the Trustee does not consider any of the officers and employees of the Trustee to be officers or executive officers of the Trust as such terms are defined under applicable rules and regulations adopted under the Securities Exchange Act of 1934.
The proceeds of production from the Royalties are receivable from hundreds of separate payors. In order to facilitate creation of the Trust and to avoid the administrative expense and inconvenience of daily reporting to Unit holders, the conveyances by Sabine of the Royalties located in five of the six states provided for the execution of an escrow agreement by Sabine and the initial trustee of the Trust, in its capacities as trustee of the Trust and as escrow agent. The conveyances by Sabine of the Royalties located in Louisiana provided for the execution of a substantially identical escrow agreement by Sabine and a Louisiana bank in the capacities of escrow agent and of trustee under the name of Sabine Louisiana Royalty Trust. Sabine Louisiana Royalty Trust, the sole beneficiary of which is the Trust, was established in order to avoid uncertainty under Louisiana law as to the legality of the Trustees holding record title to the Royalties located in Louisiana. The Trust now only has one escrow agent, which is the Trustee, and a single escrow agreement.
Pursuant to the terms of the escrow agreement and the conveyances of the properties by Sabine, the proceeds of production from the Royalties for each calendar month, and interest thereon, are collected by the Trustee, as escrow agent, and are paid to and received by the Trust only on the next monthly record date. The Trustee, as escrow agent, has agreed to endeavor to assure that it incurs and pays expenses and fees for each calendar month only on the next monthly record date. The Trust Agreement also provides that the Trustee is to endeavor to assure that income of the Trust will be accrued and received and expenses of the Trust will be incurred and paid only on each monthly record date. Assuming that the escrow agreement is recognized for Federal income tax purposes and that the Trustee is able to control the timing of income and expenses, as stated above, cash and accrual basis Unit holders should be treated as realizing income only on each monthly record date. The Trustee is treating the escrow agreement as effective for tax purposes. However, for financial reporting purposes, royalty and interest income are recorded in the calendar month in which the amounts are received by either the escrow agent or the Trust.
Distributable income as determined for financial reporting purposes for a given quarter will not usually equal the sum of distributions made during that quarter. Distributable income for a given quarter will approximate the sum of the distributions made during the last two months of such quarter and the first month of the next quarter.
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2. ACCOUNTING POLICIES
Basis of Accounting
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 (GAAP):
| Royalty income, net of severance and ad valorem tax, and interest income are recognized in the month in which amounts are received by the Trust (see Note 1). | |||
| Trust expenses, consisting principally of routine general and administrative costs, include payments made during the accounting period. Expenses are accrued to the extent of amounts that become payable on the next monthly record date following the end of an accounting period. Reserves for liabilities that are contingent or uncertain in amount may also be established if considered necessary. | |||
| Royalties that are producing properties are amortized using the unit-of-production method. This amortization is shown as a reduction of Trust corpus. | |||
| Distributions to Unit holders are recognized when declared by the Trustee (see Note 3). |
The financial statements of the Trust differ from financial statements prepared in conformity with accounting principles generally accepted in the United States of America because of the following:
| Royalty income is recognized in the month received rather than in the month of production. | |||
| Expenses other than those expected to be paid on the following monthly record date are not accrued. | |||
| Amortization of the Royalties is shown as a reduction to Trust corpus and not as a charge to operating results. | |||
| Reserves may be established for contingencies that would not be recorded under accounting principles generally accepted in the United States of America. |
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.
In December 2008, the Securities and Exchange Commission (SEC) released Final Rule, Modernization of Oil and Gas Reporting. The new disclosure requirements include provisions that permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserves volumes. The new requirements also will allow companies to disclose their probable and possible reserves to investors. In addition, the new disclosure requirements require companies to: (a) report the independence and qualifications of its reserves preparer or auditor; (b) file reports when a third party is relied upon to prepare reserves estimates or conducts a reserves audit; and (c) report oil and gas reserves using an average price based upon the prior 12-month period rather than year-end prices. The new disclosure requirements are effective for financial statements for fiscal years ending on or after December 31, 2009. The effect of adopting the SEC rule has not been determined, but it is not expected to have a significant effect on the Trusts reported financial position or distributable income.
Use of Estimates
The preparation of financial statements in conformity with the basis of accounting described above requires the Trustee to make estimates and assumptions that affect reported amounts of certain assets, liabilities, revenues and expenses as of and for the reporting periods. Actual results may differ from such estimates.
Impairment
The Trustee routinely reviews the Trusts royalty interests in oil and gas properties for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If an impairment event occurs and it is determined that the carrying value of the Trusts royalty interests may not be recoverable, an impairment will be recognized as measured by the amount by which the carrying amount of the royalty interests exceeds the fair value of these assets, which would likely be measured by discounting projected cash flows. As of September 30, 2009, no impairment is required.
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New Accounting Standards
Distributable Income per Unit
Basic distributable income per Unit is computed by dividing distributable income by the weighted average Units outstanding. Distributable income per Unit assuming dilution is computed by dividing distributable income by the weighted average number of Units and equivalent Units outstanding. The Trust had no equivalent Units outstanding for any period presented. Therefore, basic distributable income per Unit and distributable income per Unit assuming dilution are the same.
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Federal Tax Considerations
The Internal Revenue Service has ruled that the Trust is classified as a grantor trust for Federal income tax purposes and therefore is not subject to taxation at the trust level. The Unit holders are considered, for Federal income tax purposes, to own the Trusts income and principal as though no trust were in existence. Accordingly, no provision for Federal income tax expense has been made in these financial statements. The income of the Trust will be deemed to have been received or accrued by each Unit holder at the time such income is received or accrued by the Trust (on the applicable monthly record date) if the escrow arrangement discussed in Note 1 to these financial statements is respected by the Internal Revenue Service. In the absence of the escrow arrangement, Unit holders would be deemed to receive or accrue income from production from the royalty properties (and interest income) on a daily basis, in accordance with their method of accounting, as the proceeds from production and interest thereon were received or accrued by the Trust. The Trustee is treating the escrow arrangement as effective for tax purposes and furnishes tax information to Unit holders on that basis.
Some Trust Units are held by middlemen, as such term is broadly defined in U.S. Treasury Regulations (and includes custodians, nominees, certain joint owners, and brokers holding an interest for a custodian in street name, referred to herein collectively as middlemen). Therefore, the Trustee considers the Trust to be a widely held fixed investment trust (WHFIT) for U.S. Federal income tax purposes. U.S. Trust, Bank of America Private Wealth Management, 901 Main Street, 17th Floor, Dallas, Texas, 75202, telephone number (214) 209-2400, is the representative of the Trust that will provide tax information in accordance with applicable U.S. Treasury Regulations governing the information reporting requirements of the Trust as a WHFIT. Tax information is also posted by the Trustee at www.sbr-sabineroyalty.com. Notwithstanding the foregoing, the middlemen holding Trust Units on behalf of Unit holders, and not the Trustee of the Trust, are solely responsible for complying with the information reporting requirements under the U.S. Treasury Regulations with respect to such Trust Units, including the issuance of IRS Forms 1099 and certain written tax statements. Unit holders whose Trust Units are held by middlemen should consult with such middlemen regarding the information that will be reported to them by the middlemen with respect to the Trust Units.
Each Unit holder should consult his tax advisor regarding Trust tax compliance matters.
3. DISTRIBUTION TO UNIT HOLDERS
The amount to be distributed to Unit holders (Monthly Income Amount) is determined on a monthly basis. The Monthly Income Amount is an amount equal to the sum of cash received by the Trust during a monthly period (the period commencing on the day after a monthly record date and continuing through and including the next succeeding monthly record date) attributable to the Royalties, any reduction in cash reserves and any other cash receipts of the Trust, including interest, reduced by the sum of liabilities paid and any increase in cash reserves. Unit holders of record as of the monthly record date (the 15th day of each calendar month except in limited circumstances) are entitled to have distributed to them the calculated Monthly Income Amount for such month on or before 10 business days after the monthly record date. The Monthly Income Amount per Unit is declared by the Trust no later than 10 days prior to the monthly record date.
The cash received by the Trust from purchasers of the Trusts oil and gas production consists of gross sales of production less applicable severance taxes.
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4. PAYABLES
Other payables consist primarily of royalty receipts suspended pending verification of ownership interest or title.
The Trustee believes that these other payables represent an ordinary operating condition of the Trust and that such payables will be paid or released in the normal course of business.
5. SUBSEQUENT EVENTS
Subsequent to September 30, 2009, the Trust declared the following distributions:
Monthly | |||||||||
Notification | Record | Payment | Distribution | ||||||
Date |
Date |
Date |
per Unit |
||||||
October 2 |
October 15 |
October 29 | $ | .24321 |
Subsequent events have been evaluated through October 30, 2009, the date of issuance of these condensed financial statements.
6. CONTINGENCIES
Contingencies related to the royalty properties that are unfavorably resolved would generally be reflected by the Trust as reductions to future royalty income payments to the Trust with corresponding reductions to cash distributions to Unit holders. The Trustee is not aware of any such items as of September 30, 2009.
Item 2. Trustees Discussion and Analysis of Financial Condition and Results of Operations.
Liquidity and Capital Resources
The Trust makes monthly distributions to the holders of Units of the excess of the preceding months 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 Trusts only long-term assets consist of royalty interests in producing and proved undeveloped 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.
Results of Operations
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The following tables illustrate average prices received for the periods discussed above and the related oil and gas production volumes:
Quarter Ended | ||||||||||||
September 30, | September 30, | June 30, | ||||||||||
2009 | 2008 | 2009 | ||||||||||
Production |
||||||||||||
Oil (Bbls) |
103,963 | 108,580 | 118,258 | |||||||||
Gas (Mcfs) |
1,350,137 | 1,577,361 | 1,385,889 | |||||||||
Average Price |
||||||||||||
Oil (per Bbl) |
$ | 59.30 | $ | 119.57 | $ | 41.36 | ||||||
Gas (per Mcf) |
$ | 3.45 | $ | 10.78 | $ | 3.87 | ||||||
Nine-Months Ended | ||||||||||||
September 30, 2009 | September 30, 2008 | |||||||||||
Production |
||||||||||||
Oil (Bbls) |
326,392 | 341,812 | ||||||||||
Gas (Mcfs) |
4,308,391 | 4,758,778 | ||||||||||
Average Price |
||||||||||||
Oil (per Bbl) |
$ | 46.36 | $ | 101.07 | ||||||||
Gas (per Mcf) |
$ | 4.15 | $ | 8.52 |
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Critical Accounting Policies and Estimates
The Trusts 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 Trusts financial condition and results of operations.
Basis of Accounting
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:
| Royalty income, net of severance and ad valorem taxes, and interest income are recognized in the month in which amounts are received by the Trust. | |||
| Trust expenses, consisting principally of routine general and administrative costs, include payments made during the accounting period. Expenses are accrued to the extent of amounts that become payable on the next monthly record date following the end of the accounting period. Reserves for liabilities that are contingent or uncertain in amount may also be established if considered necessary. | |||
| Royalties that are producing properties are amortized using the unit-of-production method. This amortization is shown as a reduction of Trust corpus. | |||
| Distributions to Unit holders are recognized when declared by the Trustee. |
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The financial statements of the Trust differ from financial statements prepared in conformity with accounting principles generally accepted in the United States of America because of the following:
| Royalty income is recognized in the month received rather than in the month of production. | |||
| Expenses other than those expected to be paid on the following monthly record date are not accrued. | |||
| Amortization of the Royalties is shown as a reduction to Trust corpus and not as a charge to operating results. | |||
| Reserves may be established for contingencies that would not be recorded under accounting principles generally accepted in the United States of America. |
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.
Revenue Recognition
Revenues from royalty interests are recognized in the period in which amounts are received by the Trust. Royalty income received by the Trust in a given calendar year will generally reflect the proceeds, on an entitlements basis, from natural gas produced for the twelve-month period ended September 30th in that calendar year.
Reserve Disclosure
Independent petroleum engineers estimate the net proved reserves attributable to the royalty interests. In accordance with Statement of Financial Standards No. 69, Disclosures About Oil and Gas Producing Activities, estimates of future net revenues from proved reserves have been prepared using year-end contractual gas prices and related costs. 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. Other than those filed with the SEC, our estimated reserves have not been filed with or included in any reports to any Federal agency.
Contingencies
Contingencies related to the royalty properties that are unfavorably resolved would generally be reflected by the Trust as reductions to future royalty income payments to the Trust with corresponding reductions to cash distributions to Unit holders. The Trustee is not aware of any such items as of September 30, 2009.
Use of Estimates
The preparation of financial statements in conformity with the basis of accounting described above requires management to make estimates and assumptions that affect reported amounts of certain assets, liabilities, revenues and expenses as of and for the reporting periods. Actual results may differ from such estimates.
Impairment
The Trustee routinely reviews the Trusts royalty interests in oil and gas properties for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be recoverable. If an impairment event occurs and it is determined that the carrying value of the Trusts royalty interests may not be recoverable, an impairment will be recognized as measured by the amount by which the carrying amount of the royalty interests exceeds the fair value of these assets, which would likely be measured by discounting projected cash flows.
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17
Other
Forward Looking Statements
This 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 Report are forward-looking statements. 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 Trustees control, that may cause such expectations not to be realized, including, among other things, factors identified in the Trusts most recent Annual Report on Form 10-K affecting oil and gas prices and the recoverability of reserves, general economic conditions, actions and policies of petroleum-producing nations and other changes in the domestic and international energy markets.
The Trust has an Internet website and has made available its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act at http://www.sbr-sabineroyalty.com as soon as reasonably practicable after such information is electronically filed with or furnished to the SEC.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Trust invests in no derivative financial instruments, and has no foreign operations or long-term debt instruments. Other than the Trusts ability to periodically borrow money as necessary to pay expenses, liabilities and obligations of the Trust that cannot be paid out of cash held by the Trust, the Trust is prohibited from engaging in borrowing transactions. The amount of any such borrowings is unlikely to be material to the Trust. The Trust periodically holds short-term investments acquired with funds held by the Trust pending distribution to Unit holders and funds held in reserve for the payment of Trust expenses and liabilities. Because of the short-term nature of these borrowings and investments and certain limitations upon the types of such investments which may be held by the Trust, the Trustee believes that the Trust is not subject to any material interest rate risk. Currently, such funds are invested in Bank of America certificates of deposit which are backed by the good faith and credit of Bank of America, N.A., but are only insured by the Federal Deposit Insurance Corporation up to $250,000. Each Unit holder should independently assess the creditworthiness of Bank of America, N.A. For more information about the credit rating of Bank of America, N.A., please refer to its periodic filings with the SEC. See Item1A Risk Factors Cash held by the trustee is not fully insured by the Federal Deposit Insurance Corporation, and future royalty income may be subject to risks relating to the creditworthiness of third parties. The Trust does not engage in transactions in foreign currencies which could expose the Trust or Unit holders to any foreign currency related market risk.
Item 4. Controls and Procedures.
As of the end of the period covered by this report, the Trustee carried out an evaluation of the effectiveness of the design and operation of the Trusts disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, the Trustee concluded that the Trusts disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934 and are effective in ensuring that information required to be disclosed by the Trust in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the Trustee to allow timely decisions regarding required disclosure. There has not been any change in the Trusts internal control over financial reporting during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Trusts internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 1A. Risk Factors.
Except as set forth below, there
have been no material changes in the risk factors disclosed under
Part I, Item 1A of the Trusts Annual Report on
Form 10-K for the year ended December 31, 2008. |
Items 2-5 not applicable.
Item 6. Exhibits.
Exhibit Number and Description |
||
4(a)*
|
Sabine Corporation Royalty Trust Agreement effective as of December 31, 1982, by and between Sabine Corporation and InterFirst Bank Dallas, N.A., as trustee. | |
(b)*
|
Sabine Corporation Louisiana Royalty Trust Agreement effective as of December 31, 1982, by and between Sabine Corporation and Hibernia National Bank in New Orleans, as trustee, and joined by InterFirst Bank Dallas, N.A., as trustee. | |
(31) Trustee Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | ||
(32) Trustee Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
*
|
Exhibits 4(a) and 4(b) are incorporated herein by reference to Exhibits 4(a) and 4(b), respectively, of the Registrants Annual Report on Form 10-K for the year ended December 31, 1993. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
SABINE ROYALTY TRUST |
||||
By: | Bank of America, N.A. Trustee |
|||
By: | /s/ Ron E. Hooper | |||
Ron E. Hooper | ||||
Senior Vice President and Trust Administrator | ||||
Date: October 30, 2009
(The Trust has no directors or executive officers.)
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