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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER: 1-8424
SABINE ROYALTY TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-6297143
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
TRUST DIVISION
NATIONSBANK OF TEXAS, N.A.
NATIONSBANK PLAZA
17TH FLOOR
901 MAIN STREET
DALLAS, TEXAS 75202
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (214) 508-2400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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UNITS OF BENEFICIAL INTEREST NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
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At March 17, 1997, there were 14,579,345 units of beneficial interest
outstanding and the aggregate market value of such units (based on the closing
sale price on the New York Stock Exchange) held by non-affiliates of the
registrant was approximately $182,241,813.
DOCUMENTS INCORPORATED BY REFERENCE
Listed below is the only document parts of which are incorporated herein by
reference and the parts of this report into which the document is
incorporated:
1996 ANNUAL REPORT TO UNIT HOLDERS--PART II
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TABLE OF CONTENTS
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PART I
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Item 1. Business...................................................... 1
Description of the Trust...................................... 1
Assets of the Trust........................................ 2
Liabilities of the Trust................................... 2
Duties and Limited Powers of Trustee....................... 2
Liabilities of Trustee..................................... 3
Duration of Trust.......................................... 3
Voting Rights of Unit Holders.............................. 3
Description of Units.......................................... 4
Distributions of Net Income................................ 4
Transfer................................................... 4
Reports to Unit Holders.................................... 5
Liability of Unit Holders.................................. 5
Possible Divestiture of Units.............................. 5
Federal Taxation.............................................. 6
State Law and Tax Considerations.............................. 8
Regulation and Prices......................................... 9
Regulation................................................. 9
Prices..................................................... 10
Item 2. Properties.................................................... 11
Title......................................................... 11
Reserves...................................................... 11
Forward-Looking Statements.................................... 16
Item 3. Legal Proceedings............................................. 16
Item 4. Submission of Matters to a Vote of Security Holders........... 16
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters....................................................... 16
Item 6. Selected Financial Data....................................... 16
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 16
Item 8. Financial Statements and Supplementary Data................... 17
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure...................................... 17
PART III
Item 10. Directors and Executive Officers of the Registrant............ 17
Item 11. Executive Compensation........................................ 17
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................... 17
Item 13. Certain Relationships and Related Transactions................ 17
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-
K............................................................. 17
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PART I
ITEM 1. BUSINESS.
DESCRIPTION OF THE TRUST
Sabine Royalty Trust (the "Trust") is an express trust formed under the laws
of the State of Texas by the Sabine Corporation Royalty Trust Agreement (the
"Trust Agreement") made and entered into effective as of December 31, 1982,
between Sabine Corporation, as trustor, and InterFirst Bank Dallas, N.A.
("InterFirst"), as trustee. The current trustee of the Trust is NationsBank of
Texas, N.A. ("NationsBank"). In accordance with the successor trustee
provisions of the Trust Agreement, NationsBank, as trustee of the Trust (the
"Trustee"), is subject to all the terms and conditions of the Trust Agreement.
The principal office of the Trust (sometimes referred to herein as the
"Registrant") is located at NationsBank Plaza, 17th Floor, 901 Main Street,
Dallas, Texas 75202. The telephone number of the Trust is (214) 508-2400.
On November 12, 1982, the shareholders of Sabine Corporation approved and
authorized Sabine Corporation's transfer of royalty and mineral interests,
including landowner's royalties, overriding royalty interests, minerals (other
than executive rights, bonuses and delay rentals), production payments and any
other similar, nonparticipatory interest, in certain producing and proved
undeveloped oil and gas properties located in Florida, Louisiana, Mississippi,
New Mexico, Oklahoma and Texas (the "Royalty Properties") to the Trust. The
conveyances of the Royalty Properties to the Trust were effective with respect
to production as of 7:00 a.m. (local time) on January 1, 1983.
In order to avoid uncertainty under Louisiana law as to the legality of the
Trustee's holding record title to the Royalty Properties located in that state,
title to such properties is held by a separate trust formed under the laws of
Louisiana, the sole beneficiary of which is the Trust. Sabine Louisiana Royalty
Trust is a passive entity, with the trustee thereof, Hibernia National Bank in
New Orleans, having only such powers as are necessary for the collection of and
distribution of revenues from and the protection of the Royalty Properties
located in Louisiana and the payment of liabilities of Sabine Louisiana Royalty
Trust. A separate trust also was established to hold record title to the
Royalty Properties located in Florida. Legislation was adopted in Florida in
1992 that eliminated the provision of Florida law that prohibited the Trustee
from holding record title to the Royalty Properties located in that state. In
November 1993, record title to the Royalty Properties held by the trustee of
Sabine Florida Land Trust was transferred to the Trustee. As used herein, the
term "Royalty Properties" includes the Royalty Properties held directly by the
Trust and the Royalty Properties located in Louisiana and Florida that are or
were held indirectly through the Trust's ownership of 100 percent beneficial
interest of Sabine Louisiana Royalty Trust and Sabine Florida Land Trust. In
discussing the Trust, this report disregards the technical ownership
formalities described in this paragraph, which have no effect on the tax or
accounting treatment of the Royalty Properties, since the observance thereof
would significantly complicate the information presented herein without any
corresponding benefit to Unit holders.
Certificates evidencing units of beneficial interest (the "Units") in the
Trust were mailed on December 31, 1982 to the shareholders of Sabine
Corporation of record on December 23, 1982, on the basis of one Unit for each
outstanding share of common stock of Sabine Corporation. The Units are listed
and traded on the New York Stock Exchange under the symbol "SBR".
In May 1988, Sabine Corporation was acquired by Pacific Enterprises, a
California corporation. Through a series of mergers, Sabine Corporation was
merged into Pacific Enterprises Oil Company (USA) ("Pacific (USA)"), a
California corporation and a wholly owned subsidiary of Pacific Enterprises,
effective January 1, 1990. This acquisition and the subsequent mergers had no
effect on the Units. Pacific (USA), as successor to Sabine Corporation, assumed
by operation of law all of Sabine
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Corporation's rights and obligations with respect to the Trust. References
herein to Pacific (USA) shall be deemed to include Sabine Corporation where
appropriate.
In connection with the transfer of the Royalty Properties to the Trust upon
its formation, Sabine Corporation 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 of
Pacific (USA)'s producing oil an gas assets to Hunt Oil Company. The sale did
not include the executive rights relating to the Royalty Properties, and
Pacific (USA)'s ownership of such rights was not affected by the sale.
The following summaries of certain provisions of the Trust Agreement are
qualified in their entirety by reference to the Trust Agreement itself, which
is an exhibit to the Form 10-K and available upon request from the Trustee.
The definitions, formulas, accounting procedures and other terms governing the
Trust are complex and extensive and no attempt has been made below to describe
all such provisions. Capitalized terms not otherwise defined herein are used
with the meanings ascribed to them in the Trust Agreement.
ASSETS OF THE TRUST
The Royalty Properties are the only assets of the Trust, other than cash
being held for the payment of expenses and liabilities and for distribution to
the Unit holders. Pending such payment of expenses and distribution to Unit
holders, cash may be invested by the Trustee only in certificates of deposit,
United States government securities or repurchase agreements secured by United
States government securities. See "Duties and Limited Powers of Trustee"
below.
LIABILITIES OF THE TRUST
Because of the passive nature of the Trust's assets and the restrictions on
the power of the Trustee to incur obligations, it is anticipated that the only
liabilities the Trust will incur are those for routine administrative
expenses, such as insurance and trustee's fees, and accounting, engineering,
legal and other professional fees. The total general and administrative
expenses of the Trust for 1996 were $1,343,248, of which, pursuant to the
terms of the Trust Agreement, $205,750 was paid to NationsBank, as Trustee,
and $617,264 was paid to NationsBank, as escrow agent.
DUTIES AND LIMITED POWERS OF TRUSTEE
The duties of the Trustee are specified in the Trust Agreement and by the
laws of the State of Texas. The basic function of the Trustee is to collect
income from the Trust properties, to pay out of the Trust's income and assets
all expenses, charges and obligations, and to pay available income to Unit
holders. Since Pacific (USA) has retained the executive rights with respect to
the minerals included in the Royalty Properties and the right to receive any
future bonus payments or delay rentals resulting from leases with respect to
such minerals, the Trustee is not required to make any investment or operating
decision with respect to the Royalty Properties.
The Trust has no employees. Administrative functions of the Trust are
performed by the Trustee.
The Trustee has the discretion to establish a cash reserve for the payment
of any liability that is contingent or uncertain in amount or that otherwise
is not currently due and payable. The Trustee has the power to borrow funds
required to pay liabilities of the Trust as they become due and pledge or
otherwise encumber the Trust's properties if it determines that the cash on
hand is insufficient to pay such liabilities. Borrowings must be repaid in
full before any further distributions are made to Unit holders. All
distributable income of the Trust is distributed on a monthly basis. The
Trustee is required to invest any cash being held by it for distribution on
the next Distribution Date or as a reserve for liabilities in certificates of
deposit, United States government securities or repurchase agreements
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secured by United States government securities. The Trustee furnishes Unit
holders with periodic reports. See "Item 1--Description of Units--Reports to
Unit Holders".
The Trust Agreement grants the Trustee only such rights and powers as are
necessary to achieve the purposes of the Trust. The Trust Agreement prohibits
the Trustee from engaging in any business, commercial or, with certain
exceptions, investment activity of any kind and from using any portion of the
assets of the Trust to acquire any oil and gas lease, royalty or other mineral
interest other than the Royalty Properties. The Trustee may sell Trust
properties only as authorized by a vote of the Unit holders, or when necessary
to provide for the payment of specific liabilities of the Trust then due or
upon termination of the Trust. Pledges or other encumbrances to secure
borrowings are permitted without the authorization of unit holders if the
Trustee determines such action is advisable. Any sale of Trust properties must
be for cash unless otherwise authorized by the Unit holders or unless the
properties are being sold to provide for the payment of specific liabilities
of the Trust then due, and the Trustee is obligated to distribute the
available net proceeds of any such sale to the Unit holders.
LIABILITIES OF TRUSTEE
The Trustee is to be indemnified out of the assets of the Trust for any
liability, expense, claim, damage or other loss incurred by it in the
performance of its duties unless such loss results from its negligence, bad
faith or fraud or from its expenses in carrying out such duties exceeding the
compensation and reimbursement it is entitled to under the Trust Agreement.
The Trustee can be reimbursed out of the Trust assets for any liability
imposed upon the Trustee for its failure to ensure that the Trust's
liabilities are satisfiable only out of Trust assets. In no event will the
Trustee be deemed to have acted negligently, fraudulently or in bad faith if
it takes or suffers action in good faith in reliance upon and in accordance
with the advice of parties considered to be qualified as experts on the
matters submitted to them. The Trustee is not entitled to indemnification from
Unit holders except in certain limited circumstances related to the
replacement of mutilated, destroyed, lost or stolen certificates. See "Item
1--Description of Units--Liability of Unit Holders".
DURATION OF TRUST
The Trust is irrevocable and Pacific (USA) has no power to terminate the
Trust or, except with respect to certain corrective amendments, to alter or
amend the terms of the Trust Agreement. The Trust will exist until it is
terminated by (i) two successive fiscal years in which the Trust's gross
revenues from the Royalty Properties are less than $2,000,000 per year, (ii) a
vote of Unit holders as described below under "Voting Rights of Unit Holders"
or (iii) operation of provisions of the Trust Agreement intended to permit
compliance by the Trust with the "rule against perpetuities". Upon the
termination of the Trust, the Trustee will continue to act in such capacity
until all the assets of the Trust are distributed. The Trustee will sell all
Trust properties for cash (unless the Unit holders authorize the sale for a
specified non-cash consideration, in which event the Trustee may, but is not
obligated to, consummate such non-cash sale) in one or more sales and, after
satisfying all existing liabilities and establishing adequate reserves for the
payment of contingent liabilities, will distribute all available proceeds to
the Unit holders.
VOTING RIGHTS OF UNIT HOLDERS
Although Unit holders possess certain voting rights, their voting rights are
not comparable to those of shareholders of a corporation. For example, there
is no requirement for annual meetings of Unit holders or for annual or other
periodic re-election of the Trustee.
The Trust Agreement may be amended by the affirmative vote of a majority of
the outstanding Units at any duly called meeting of Unit holders. However, no
such amendment may alter the relative rights of Unit holders unless approved
by the affirmative vote of 100 percent of the Unit holders and by the Trustee.
In addition, certain special voting requirements can be amended only if such
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amendment is approved by the holders of at least 80 percent of the outstanding
Units and by the Trustee.
Removal of the Trustee requires the affirmative vote of the holders of a
majority of the Units represented at a duly called meeting of Unit holders. In
the event of a vacancy in the position of Trustee or if the Trustee has given
notice of its intention to resign, a successor trustee of the Trust may be
appointed by similar voting approval of the Unit holders.
The sale of all or any part of the assets of the Trust must be authorized by
the affirmative vote of the holders of a majority of the outstanding Units.
However, the Trustee may, without a vote of the Unit holders, sell all or any
part of the Trust assets upon termination of the Trust or otherwise if
necessary to provide for the payment of specific liabilities of the Trust then
due. The Trust can be terminated by the Unit holders only if the termination
is approved by the holders of a majority of the outstanding Units.
Meetings of Unit holders may be called by the Trustee at any time at its
discretion and must be called by the Trustee at the written request of holders
of not less than 10 percent of the then outstanding Units. The presence of a
majority of the outstanding Units is necessary to constitute a quorum and Unit
holders may vote in person or by proxy.
Notice of any meeting of Unit holders must be given not more than 60 nor
less than 20 days prior to the date of such meeting. The notice must state the
purposes of the meeting and no other matter may be presented or acted upon at
the meeting.
DESCRIPTION OF UNITS
Each Unit represents an equal undivided share of beneficial interest in the
Trust and is evidenced by a transferable certificate issued by the Trustee.
Each Unit entitles its holder to the same rights as the holder of any other
Unit, and the Trust has no other authorized or outstanding class of equity
security. At March 17, 1997, there were 14,579,345 Units outstanding.
The Trust may not issue additional Units unless such issuance is approved by
the holders of at least 80 percent of the outstanding Units and by the
Trustee. Under limited circumstances, Units may be redeemed by the Trust and
cancelled. See "Possible Divestiture of Units" below.
DISTRIBUTIONS OF NET INCOME
The identity of Unit holders entitled to receive distributions of Trust
income and the amounts thereof are determined as of each Monthly Record Date.
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 the related
Monthly Period no later than 10 business days after the Monthly Record Date.
The Monthly Income Amount is the excess of (i) revenues from the Trust
properties plus any decrease in cash reserves previously established for
contingent liabilities and any other cash receipts of the Trust over (ii) the
expenses and payments of liabilities of the Trust plus any increase in cash
reserves for contingent liabilities.
TRANSFER
Units are transferable on the records of the Trustee upon surrender of any
certificate in proper form for transfer and compliance with such reasonable
regulations as the Trustee may prescribe. No service charge is made to the
transferor or transferee for any transfer of a Unit, but the Trustee may
require payment of a sum sufficient to cover any tax or governmental charge
that may be imposed in relation to such transfer. Until any such transfer, the
Trustee may conclusively treat the holder of a
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Unit shown by its records as the owner of that Unit for all purposes. Any such
transfer of a Unit will, as to the Trustee, vest in the transferee all rights
of the transferor at the date of transfer, except that the transfer of a Unit
after the Monthly Record Date for a distribution will not transfer the right
of the transferor to such distribution.
The transfer of Units by gift and the transfer of Units held by a decedent's
estate, and distributions from the Trust in respect thereof, may be restricted
under applicable state law. See "Item 1--State Law and Tax Considerations".
Chemical Mellon Shareholder Services Group, Inc. serves as transfer agent
and registrar for the Units.
REPORTS TO UNIT HOLDERS
As promptly as practicable following the end of each fiscal year, the
Trustee mails to each person who was a Unit holder on any Monthly Record Date
during such fiscal year, a report showing in reasonable detail on a cash basis
the receipts and disbursements and income and expenses of the Trust for
federal and state tax purposes for each Monthly Period during such fiscal year
and containing sufficient information to enable Unit holders to make all
calculations necessary for federal and state tax purposes. As promptly as
practicable following the end of each of the first three fiscal quarters of
each year, the Trustee mails a report for such fiscal quarter showing in
reasonable detail on a cash basis the assets and liabilities, receipts and
disbursements, and income and expenses of the Trust for such fiscal quarter to
Unit holders of record on the last Monthly Record Date immediately preceding
the mailing thereof. Within 120 days following the end of each fiscal year, or
such shorter period as may be required by the New York Stock Exchange, the
Trustee mails to Unit holders of record on the last Monthly Record Date
immediately preceding the mailing thereof, an annual report containing audited
financial statements of the Trust and an audited statement of fees and
expenses paid by the Trust to NationsBank, as Trustee and escrow agent. See
"Federal Taxation" below.
Each Unit holder and his duly authorized agent has the right, during
reasonable business hours at his own expense, to examine and make audits of
the Trust and the records of the Trustee, including lists of Unit holders, for
any proper purpose in reference thereto.
LIABILITY OF UNIT HOLDERS
As regards the Unit holders, the Trustee, in engaging in any activity or
transaction that results or could result in any kind of liability, will be
fully liable if the Trustee fails to take reasonable steps necessary to ensure
that such liability is satisfiable only out of the Trust assets (even if the
assets are inadequate to satisfy the liability) and in no event out of amounts
distributed to, or other assets owned by, Unit holders. However, the Trust
might be held to constitute a "joint stock company" under Texas law, which is
unsettled on this point, and therefore a Unit holder may be jointly and
severally liable for any liability of the Trust if the satisfaction of such
liability was not contractually limited to the assets of the Trust and the
assets of both the Trust and the Trustee are not adequate to satisfy such
liability. In view of the substantial value and passive nature of the Trust
assets, the restrictions on the power of the Trustee to incur liabilities and
the required financial net worth of any trustee of the Trust, the imposition
of any liability on a Unit holder is believed to be extremely unlikely.
POSSIBLE DIVESTITURE OF UNITS
The Trust Agreement imposes no restrictions based on nationality or other
status of the persons or entities which are eligible to hold Units. However,
the Trust Agreement provides that if at any time the Trust or the Trustee is
named a party in any judicial or administrative proceeding seeking the
cancellation or forfeiture of any property in which the Trust has an interest
because of the nationality, or any other status, of any one or more Unit
holders, the following procedure will be applicable:
1. The Trustee will give written notice to each holder whose nationality
or other status is an issue in the proceeding of the existence of such
controversy. The notice will contain a reasonable
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summary of such controversy and will constitute a demand to each such
holder that he dispose of his Units within 30 days to a party not of the
nationality or other status at issue in the proceeding described in the
notice.
2. If any holder fails to dispose of his Units in accordance with such
notice, the Trustee shall have the preemptive right to redeem and shall
redeem, at any time during the 90-day period following the termination of
the 30-day period specified in the notice, any Unit not so transferred for
a cash price equal to the closing price of the Units on the stock exchange
on which the Units are then listed or, in the absence of any such listing,
the mean between the closing bid and asked prices for the Units in the
over-the-counter market, as of the last business day prior to the
expiration of the 30-day period stated in the notice.
3. The Trustee shall cancel any Unit acquired in accordance with the
foregoing procedures.
4. The Trustee may, in its sole discretion, cause the Trust to borrow any
amount required to redeem Units.
FEDERAL TAXATION
In May 1983, the Internal Revenue Service (the "Service") ruled that the
Trust would be classified as a grantor trust for federal income tax purposes
and not as an association taxable as a corporation. Accordingly, the income
and deductions of the Trust are reportable directly by Unit holders for
federal income tax purposes. The Service also ruled that Unit holders would be
entitled to deduct cost depletion with respect to their investment in the
Trust and that the transfer of a Unit in the Trust would be considered to be a
transfer of a proportionate part of the properties held by the Trust.
Transferees of Units transferred after October 11, 1990 may be eligible to
use the percentage depletion deduction on oil and gas income thereafter
attributable to such Units, if the percentage depletion deduction would exceed
cost depletion. However, no Unit holders were eligible to claim percentage
depletion deductions for 1990 or any subsequent year because cost depletion
has exceeded percentage depletion.
If a taxpayer disposes of any "section 1254 property" (certain oil, gas,
geothermal or other mineral property), and if the adjusted basis of such
property includes adjustments for deductions for depletion under section 611
of the Internal Revenue Code (the "Code"), the taxpayer generally must
recapture the amount deducted for depletion in ordinary income (to the extent
of gain realized on the disposition of the property). This depletion recapture
rule applies to any dispositon of property that was placed in service by the
taxpayer after December 31, 1986. Detailed rules set forth in Sections 1.1254-
1 through 1.1254-6 of the United States Treasury regulations govern
dispositions of property after March 13, 1995. The Service will likely take
the position that a Unit holder who purchases a Unit subsequent to December
31, 1986 must recapture depletion upon the disposition of that Unit.
In order to facilitate creation of the Trust and to avoid the administrative
expense and inconvenience of daily reporting to Unit holders by the Trustee,
the conveyances by Sabine Corporation of the Royalty Properties located in
five of the six states provided for the execution of an escrow agreement by
Sabine Corporation and InterFirst (the initial trustee of the Trust), in its
capacities as trustee of the Trust and as escrow agent. The conveyances by
Sabine Corporation of the Royalty Properties located in Louisiana provided for
the execution of a substantially identical escrow agreement by Sabine
Corporation and Hibernia National Bank in New Orleans, in the capacities of
escrow agent and of trustee of Sabine Louisiana Royalty Trust.
Pursuant to the terms of the escrow agreements and the conveyances of the
Royalty Properties, the proceeds of production from the Royalty Properties for
each calendar month, and interest thereon,
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are collected by the escrow agents and are paid to and received by the Trust
only on the next Monthly Record Date. The escrow agents have agreed to
endeavor to assure that they incur and pay 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 arrangement is recognized for federal income tax
purposes and that the Trustee and the escrow agents are 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 and the escrow agents may not be able to cause third party
expenses to be incurred on each Monthly Record Date in all instances. Cash
basis Unit holders, however, should be treated as having paid all expenses and
fees only when such expenses and fees are actually paid. Even if the escrow
arrangement is recognized for federal income tax purposes, however, accrual
basis Unit holders might be considered to have accrued expenses when such
expenses are incurred rather than on each Monthly Record Date when paid.
No ruling was requested from the Service with respect to the effect of the
escrow arrangement. Due to the absence of direct authority and the factual
nature of the characterization of the relationship among the escrow agent,
Pacific (USA) and the Trust, no opinion has been expressed by legal counsel
with respect to the tax consequences of the escrow arrangement. In the absence
of the escrow arrangement, the 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. If the escrow arrangement is recognized, the income from the
Royalty Properties for a calendar month and interest income thereon will be
taxed to the holder of the Unit on the next Monthly Record Date without regard
to the ownership of the Unit prior to that date. The Trustee is treating the
escrow arrangement as effective for tax purposes and has furnished tax
information to Unit holders on that basis.
The Service might take the position that the escrow arrangement should be
ignored for tax purposes. In such case, the Trustee could be required to
report the proceeds from production and interest income thereon to the Unit
holders on a daily basis resulting in a substantial increase in the
administrative expense of the Trust. In the event of a transfer of a Unit, the
income and the depletion deduction attributable to the Royalty Properties for
the period up to the date of transfer would be allocated to the transferor,
and the income and depletion deduction attributable to the Royalty Properties
on and after the date of transfer would be allocated to the transferee, even
though the transferee was the holder of the Unit on the next Monthly Record
Date and, therefore, would be entitled to the monthly income distribution.
Thus, if the escrow arrangement is not recognized, a mismatching of such
income and deduction could occur between a transferor and a transferee upon
the transfer of a Unit.
Unit holders of record on each Monthly Record Date are entitled to receive
monthly distributions. See "Description of Units--Distributions of Net Income"
above. The terms of the escrow agreements and the Trust Agreement, as
described above, seek to assure that taxable income attributable to such
distributions will be reported by the Unit holder who receives such
distributions, assuming that such holder is the holder of record on the
Monthly Record Date. In certain circumstances, however, a Unit holder may be
required to report taxable income attributable to his Units but the Unit
holder will not receive the distribution attributable to such income. For
example, if the Trustee establishes a reserve or borrows money to satisfy
debts and liabilities of the Trust, income used to establish such reserve or
to repay such loan will be reported by the Unit holder, even though such
income is not distributed to the Unit holder.
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Interest and royalty income attributable to ownership of Units and any gain
on the sale thereof are considered portfolio income, and not income from a
"passive activity", and therefore generally may not be offset by losses from
any passive activities.
Individuals may deduct "miscellaneous itemized deductions" (including, in
general, investment expenses) only to the extent that such expenses exceed two
percent of the individual's adjusted gross income. Although the Trustee
believes that no portion of a Unit holder's share of administrative expenses
of the Trust is subject to the floor, it is possible that the Service could
take such a position.
The foregoing summary is not exhaustive, and many other provisions of the
federal tax laws may affect individual Unit holders. Each Unit holder should
consult his personal tax adviser with respect to the effects of his ownership
of Units on his personal tax situation.
STATE LAW AND TAX CONSIDERATIONS
The following is intended as a brief summary of certain information
regarding state income taxes and other state law matters affecting the Trust
and the Unit holders. Unit holders are urged to consult their own legal and
tax advisers with respect to these matters.
Texas. Texas does not impose an income tax. Therefore, no part of the income
produced by the Trust is subject to an income tax in Texas. However,
corporations doing business in Texas are subject to the Texas franchise tax,
which includes a calculation based upon the corporation's taxable income for
federal income tax purposes. It is currently unclear whether the ownership of
Units would be sufficient to subject a corporate Unit holder who is not
otherwise doing business in Texas to the franchise tax. Under certain
circumstances, Texas inheritance tax may be applicable to property in Texas
(including intangible personal property such as the Units) of both resident
and nonresident decedents.
Louisiana. Units held by residents of Louisiana, to the extent that they
represent a proportionate share of mineral royalties from mineral interests
located in Louisiana, are subject to Louisiana inheritance and other taxes and
probate, community property, forced heirship and other rules. Units held of
record by a person who was not domiciled in Louisiana at the date of death
generally are not subject to Louisiana inheritance taxes or probate, community
property or forced heirship rules, and Units transferred inter vivos by non-
domiciliaries of Louisiana generally are not subject to Louisiana gift tax.
Income of the Units attributable to interests located in Louisiana will,
subject to applicable minimum filing requirements, be subject to Louisiana
income tax, and the Trustee is required to file with Louisiana a return
reflecting the income of the Trust attributable to mineral interests located
in Louisiana.
Florida, Mississippi, New Mexico and Oklahoma. Florida imposes an income tax
on resident and nonresident corporations but not individuals. Mississippi, New
Mexico and Oklahoma each impose an income tax applicable to both resident and
nonresident individuals and corporations which will be applicable to royalty
income allocable to a Unit holder from properties located within that state.
Although the Trust may be required to file information returns with taxing
authorities in those states and provide copies of such returns to the Unit
holders, the Trust should be considered a grantor trust for state income tax
purposes and the Royalty Properties that are located in such states should be
considered economic interests in minerals for state income tax purposes.
Generally, the state income tax in these states is computed as a percentage
of taxable income attributable to the particular state. Furthermore, even
though there are variances from state to state, taxable income for state
purposes is often computed in a manner similar to the computation of taxable
income for federal income tax purposes. Some of these states give credit for
taxes paid by their
8
<PAGE>
residents on income from sources in other states. In certain of these states,
a Unit holder is required to file a state income tax return if income is
attributable to the Unit holder even though no tax is owed.
REGULATION AND PRICES
REGULATION
General
Exploration for and production and sale of oil and gas are extensively
regulated at the national, state and local levels. Oil and gas development and
production activities are subject to various state laws and regulations (and
orders of regulatory bodies pursuant thereto) governing a wide variety of
matters, including allowable rates of production, marketing, pricing,
prevention of waste, and pollution and protection of the environment. These
laws, regulations and orders may restrict the rate of oil and gas production
below the rate that would otherwise exist in the absence of such laws,
regulations and orders.
Laws affecting the oil and gas industry are under constant review for
amendment or expansion, frequently increasing the regulatory burden. Numerous
governmental departments and agencies are authorized by statute to issue and
have issued rules and regulations binding on the oil and gas industry which
often are difficult and costly to comply with and which carry substantial
penalties for the failure to comply.
Natural Gas
On January 1, 1993, pursuant to the Natural Gas Wellhead Decontrol Act of
1989, the maximum lawful prices prescribed for the sale of natural gas under
the Natural Gas Policy Act of 1978 were eliminated. Consequently, prices for
the sale of natural gas, like the sale of other commodities, are governed by
the marketplace and the provisions of applicable gas sales contracts.
The Federal Energy Regulatory Commission ("FERC") has taken significant
steps in the implementation of a policy to restructure the natural gas
pipeline industry to promote full competition in the sales of natural gas, so
that all natural gas suppliers, including pipelines, can compete equally for
sales customers. This policy, set forth principally in Order 636, issued on
April 8, 1992, and its progeny, is being implemented largely through
restructuring proceedings for each pipeline. These factors make the future
effect of that order upon the natural gas markets uncertain.
There are many other statutes, rules, regulations and orders that affect the
pricing or transportation of natural gas. Some of the provisions are and will
be subject to court or administrative review. Consequently, uncertainty as to
the ultimate impact of these regulatory provisions on the prices and
production of natural gas from the Royalty Properties is expected to continue
for the foreseeable future.
Environmental Regulation
General. Activities on the Royalty Properties are subject to existing
federal, state and local laws (including case law), rules and regulations
governing health, safety, environmental quality and pollution control. It is
anticipated that, absent the occurrence of an extraordinary event, compliance
with existing federal, state and local laws, rules and regulations regulating
health, safety, the release of materials into the environment or otherwise
relating to the protection of the environment will not have a material adverse
effect upon the Trust or Unit holders. The Trustee cannot predict what effect
additional regulation or legislation, enforcement policies thereunder, and
claims for damages to property, employees, other persons and the environment
resulting from operations on the Royalty
9
<PAGE>
Properties could have on the Trust or Unit holders. Even if the Trust were not
directly liable for costs or expenses related to these matters, increased
costs of compliance could result in wells being plugged and abandoned earlier
in their productive lives, with a resulting loss of reserves and revenues to
the Trust.
Superfund. The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), also known as the "superfund" law, imposes
liability, regardless of fault or the legality of the original conduct, on
certain classes of persons that contributed to the release of a "hazardous
substance" into the environment. These persons include the current or previous
owner and operator of a site and companies that disposed, or arranged for the
disposal, of the hazardous substance found at a site. CERCLA also authorizes
the Environmental Protection Agency and, in some cases, private parties to
take actions in response to threats to the public health or the environment
and to seek recovery from such responsible classes of persons of the costs of
such action. In the course of operations, the working interest owner and/or
the operator of Royalty Properties may have generated and may generate wastes
that may fall within CERCLA's definition of "hazardous substances". The
operator of the Royalty Properties or the working interest owners may be
responsible under CERCLA for all or part of the costs to clean up sites at
which such substances have been disposed. Although the Trust is not the
operator of any Royalty Properties, or the owner of any working interest, its
ownership of royalty interests could cause it to be responsible for all or
part of such costs to the extent CERCLA imposes responsibility on parties as
"owners".
Solid and Hazardous Waste. The Royalty Properties have produced oil and/or
gas for many years, and, although the Trust has no knowledge of the procedures
followed by the operators of the Royalty Properties in this regard,
hydrocarbons or other solid or hazardous wastes may have been disposed or
released on or under the Royalty Properties by the current or previous
operators. Federal, state and local laws applicable to oil- and gas-related
wastes and properties have become increasingly more stringent. Under these
laws, removal or remediation of previously disposed wastes or property
contamination could be required.
PRICES
Oil
Crude oil prices are affected by a variety of factors. Since domestic crude
oil price controls were lifted in 1981, the principal factors influencing the
prices received by producers of domestic crude oil have been the pricing and
production of the members of the Organization of Petroleum Exporting Countries
("OPEC").
The Trust's average per barrel oil price increased from $15.65 in 1995 to
$17.31 in 1996. The Trustee believes that the higher average price per barrel
of crude oil realized by the Trust in 1996 can be attributed to normal market
fluctuations.
Natural Gas
Substantial competition in the natural gas marketplace continued in 1996.
Competition with alternative fuels and excess gas supplies persist. Natural
gas prices, which once were determined largely by governmental regulations,
are now being generally governed by the marketplace. The average price
received by the Trust in 1996 on natural gas volumes sold of $1.98 per Mcf
represented an increase from the $1.45 per Mcf received in 1995, due in part
to increased demand for gas which resulted from extreme weather conditions
during the second half of 1996.
FERC is the federal agency responsible for implementing regulations
governing the natural gas industry. The current policy of FERC is designed to
promote increased competition among gas
10
<PAGE>
industry participants. Accordingly, Order 636 and various other orders have
been proposed and implemented to encourage nondiscriminatory open-access
transportation by interstate pipelines, to provide for the release of natural
gas dedicated to long-term contracts but not required by pipelines to meet
near-term system supply needs, and to provide for the unbundling of pipeline
services so that such services may also be furnished by nonpipeline suppliers
on a competitive basis. Certain of these orders have been or will be
challenged in the courts, and no prediction can be made regarding the future
impact on the industry of FERC's current or proposed regulations.
ITEM 2. PROPERTIES
The assets of the Registrant consist principally of the Royalty Properties,
which constitute interests in gross production of oil, gas and other minerals
free of the costs of production. The Royalty Properties consist of royalty and
mineral interests, including landowner's royalties, overriding royalty
interests, minerals (other than executive rights, bonuses and delay rentals),
production payments and any other similar, nonparticipatory interest, in
certain producing and proved undeveloped oil and gas properties located in
Florida, Louisiana, Mississippi, New Mexico, Oklahoma and Texas.
The following table summarizes total developed and proved undeveloped
acreage represented by the Royalty Properties at February 15, 1997.
<TABLE>
<CAPTION>
MINERAL AND ROYALTY
--------------------
GROSS NET
STATE ACRES ACRES
----- ---------- ---------
<S> <C> <C>
Florida............................................... 5,448 697
Louisiana............................................. 244,391 23,682
Mississippi........................................... 75,489 9,713
New Mexico............................................ 112,294 9,141
Oklahoma.............................................. 381,538 67,558
Texas................................................. 1,273,132 105,760
---------- --------
Total............................................... 2,092,292 216,551
========== ========
</TABLE>
Detailed information concerning the number of wells on royalty properties is
not generally available to the owner of royalty interests. Consequently, the
Registrant does not have an accurate count of the number of wells located on
the Royalty Properties and cannot readily obtain such information.
TITLE
The conveyances of the Royalty Properties to the Trust covered the royalty
and mineral properties located in the six states that were vested in Sabine
Corporation on the effective date of the conveyances and that were subject to
existing oil, gas and other mineral leases other than properties specifically
excluded in the conveyances. Since Sabine Corporation may not have had
available to it as a royalty owner information as to whether specific lands in
which it owned a royalty interest were subject to an existing lease, minimal
amounts of nonproducing royalty properties may also have been conveyed to the
Trust. Sabine Corporation did not warrant title to the Royalty Properties
either expressly or by implication.
RESERVES
The Registrant has obtained from DeGolyer and MacNaughton, independent
petroleum engineering consultants, a study of the proved oil and gas reserves
attributable as of January 1, 1997 to the Royalty Properties. The following
letter report summarizes such reserve study and sets forth information as to
the assumptions, qualifications, procedures and other matters relating to such
reserve study. See Note 8 of the Notes to Financial Statements incorporated by
reference in Item 8 hereof for additional information regarding the proved oil
and gas reserves of the Trust.
11
<PAGE>
DeGolyer and MacNaughton
One Energy Square
Dallas, Texas 75206
February 28, 1997
NationsBank of Texas, N.A.
P.O. Box 830650
Dallas, Texas 75283-0650
Gentlemen:
Pursuant to your request, we have prepared estimates of the extent and value
of the proved crude oil, condensate, natural gas liquids (NGL), and natural
gas reserves, as of January 1, 1997, of certain royalty interests owned by
Sabine Royalty Trust (the Trust). The properties appraised consist of
royalties located in Florida, Louisiana, Mississippi, New Mexico, Oklahoma,
and Texas. NationsBank of Texas, N.A. (NationsBank) acts as trustee of the
Trust.
Information used in the preparation of this report was obtained from
NationsBank, from records on file with the appropriate regulatory agencies,
and from public sources. During this investigation, we consulted freely with
officers and employees of NationsBank and were given access to such accounts,
records, geological and engineering reports, and other data as were desired
for examination. In the preparation of this report we have relied, without
independent verification, upon information furnished by NationsBank with
respect to property interests owned by the Trust, production from such
properties, current prices for production, agreements relating to current and
future operations and sale of production, and various other information and
data that were accepted as represented. It was not considered necessary to
make a field examination of the physical condition and operation of the
properties in which the Trust owns interests.
Our reserves estimates are based on a detailed study of the properties and
were prepared by the use of standard geological and engineering methods
generally accepted by the petroleum industry. The method or combination of
methods used in the analysis of each reservoir was tempered by experience with
similar reservoirs, consideration of the state of development, and the quality
and completeness of basic data. The Trust owns several thousand royalty
interests. In view of the limited information available to a royalty owner and
the small reserves attributable to many of these interests, certain of them
representing approximately 36 percent of the total reserves of the properties
included herein were summarized by state or field and worked in total rather
than being appraised individually. Historical records of net production and
revenue and experience with similar properties were used in analyzing these
properties.
Reserves estimated in this report are expressed as gross and net reserves.
Gross reserves are defined as the total estimated petroleum to be produced
from these properties after December 31, 1996. Net reserves are defined as
that portion of the gross reserves attributable to the interests owned by the
Trust after deducting royalties and other interests owned by others.
Petroleum reserves included in this report are classified as proved and are
judged to be economically producible in future years from known reservoirs
under existing economic and operating conditions and assuming continuation of
current regulatory practices using conventional production methods and
equipment. In the analyses of production-decline curves, reserves were
12
<PAGE>
estimated only to the limit of economic rates of production under existing
economic and operating conditions using prices and costs as of the date the
estimate is made, including consideration of changes in existing prices
provided only by contractual arrangements but not including escalations based
upon future conditions. The petroleum reserves are classified as follows:
Proved--Reserves that have been proved to a high degree of certainty by
analysis of the producing history of a reservoir and/or by volumetric
analysis of adequate geological and engineering data. Commercial
productivity has been established by actual production, successful testing,
or in certain cases by favorable core analyses and electrical-log
interpretation when the producing characteristics of the formation are
known from nearby fields. Volumetrically, the structure, areal extent,
volume, and characteristics of the reservoir are well defined by a
reasonable interpretation of adequate subsurface well control and by known
continuity of hydrocarbon-saturated material above known fluid contacts, if
any, or above the lowest known structural occurrence of hydrocarbons.
Developed--Reserves that are recoverable from existing wells with current
operating methods and expenses.
Developed reserves include both producing and nonproducing reserves.
Estimates of producing reserves assume recovery by existing wells
producing from present completion intervals with normal operating
methods and expenses. Developed nonproducing reserves are in reservoirs
behind the casing or at minor depths below the producing zone and are
considered proved by production from other wells in the field, by
successful drill-stem tests, or by core analyses from the particular
zones. Nonproducing reserves require only moderate expense to be
brought into production.
Undeveloped--Reserves that are recoverable from additional wells yet to
be drilled.
Undeveloped reserves are those considered proved for production by
reasonable geological interpretation of adequate subsurface control in
reservoirs that are producing or proved by other wells but are not
recoverable from existing wells. This classification of reserves
requires drilling of additional wells, major deepening of existing
wells, or installation of enhanced recovery or other facilities.
Reserves recoverable by enhanced recovery methods, such as injection of
external fluids to provide energy not inherent in the reservoirs, may be
classified as proved developed or proved undeveloped reserves depending upon
the extent to which such enhanced recovery methods are in operation. These
reserves are considered to be proved only in cases where a successful fluid-
injection program is in operation, a pilot program indicates successful fluid
injection, or information is available concerning the successful application
of such methods in the same reservoir and it is reasonably certain that the
program will be implemented.
The development status shown herein represents the status applicable on
January 1, 1997. In the preparation of this study, data available from wells
drilled on the appraised properties through December 31, 1996, were used in
estimating gross ultimate recovery. When applicable, gross production
estimated to January 1, 1997, was deducted from gross ultimate recovery to
arrive at the estimates of gross reserves as of January 1, 1997. In most
fields, this required that the production rates be estimated for up to 2
months since production data were available only through October 1996.
Gas volumes shown herein are salable gas volumes and are expressed at a
temperature base of 60 degrees Fahrenheit and at the legal pressure bases of
the states in which the interests are located. Condensate reserves estimated
herein are those to be obtained from normal separator recovery. NGL reserves
are those attributed to the leasehold interests according to processing
agreements.
13
<PAGE>
Net proved reserves, as of January 1, 1997, of the Trust from the properties
appraised are estimated in barrels (bbl) and thousands of cubic feet (Mcf) as
follows:
<TABLE>
<CAPTION>
PROVED DEVELOPED AND PROVED DEVELOPED
UNDEVELOPED RESERVES RESERVES
--------------------------- ---------------------------
OIL, CONDENSATE, OIL, CONDENSATE,
AND NGL GAS AND NGL GAS
STATE (BBL) (MCF) (BBL) (MCF)
- ----- ---------------- ---------- ---------------- ----------
<S> <C> <C> <C> <C>
Florida................ 121,769 233,424 121,769 233,424
Louisiana.............. 65,593 2,904,294 65,593 2,904,294
Mississippi............ 69,125 1,311,631 69,125 1,311,631
New Mexico............. 307,007 1,915,648 307,007 1,915,648
Oklahoma............... 584,025 10,751,249 584,025 10,751,249
Texas.................. 4,827,536 16,583,723 4,737,419 16,455,911
--------- ---------- --------- ----------
Total................ 5,975,055 33,699,969 5,884,938 33,572,157
========= ========== ========= ==========
</TABLE>
Revenue values in this report are expressed in terms of estimated future net
revenue and present worth of future net revenue. These values are based on the
continuation of prices in effect on December 31, 1996. Future gross revenue is
defined as that revenue to be realized from the production and sale of the
estimated net reserves. Future net revenue is calculated by deducting
estimated severance and ad valorem taxes from the future gross revenue.
Present worth of future net revenue is calculated by discounting the future
net revenue at the arbitrary rate of 10 percent per year compounded monthly
over the expected period of realization.
Revenue values in this report were estimated using the initial prices and
costs provided by NationsBank. Future prices were estimated using guidelines
established by the Securities and Exchange Commission (SEC) and the Financial
Accounting Standards Board (FASB). The initial and future prices and producing
rates used in this report have been reviewed by NationsBank and it has
represented that the prices and rates used herein are those that the Trust
could reasonably expect to receive. The assumptions used for estimating future
prices and costs are as follows.
Oil, Condensate, Natural Gas Liquids, and Natural Gas Prices
Year-end oil, condensate, natural gas liquids, and natural gas prices
were furnished by NationsBank. These prices are used as initial prices
and are held constant for the lives of the properties.
A projection of the estimated future net revenue from the properties
appraised, as of January 1, 1997, based on the aforementioned assumptions
concerning prices and costs is summarized as follows:
<TABLE>
<CAPTION>
FUTURE NET REVENUE
-----------------------
YEAR TOTAL PROVED
ENDING PROVED DEVELOPED
DECEMBER 31 ($) ($)
----------- ----------- -----------
<S> <C> <C>
1997.............................................. 20,147,092 20,101,914
1998.............................................. 17,764,734 17,681,952
1999.............................................. 15,535,225 15,401,241
----------- -----------
Subtotal.......................................... 53,447,051 53,185,107
Remaining......................................... 121,562,591 119,723,621
----------- -----------
Total........................................... 175,009,642 172,908,728
</TABLE>
14
<PAGE>
The present worth of future net revenue, as of January 1, 1997, is estimated
as follows:
<TABLE>
<CAPTION>
PRESENT WORTH
($)
-------------
<S> <C>
Total Proved................................................ 94,627,213
Proved Developed............................................ 93,757,721
</TABLE>
Estimates of oil, condensate, NGL and gas reserves and future net revenue
should be regarded only as estimates that may change as further production
history and additional information become available. Not only are such
reserves and revenue estimates based on that information which is currently
available, but such estimates are also subject to the uncertainties inherent
in the application of judgmental factors in interpreting such information.
In our opinion, the information relating to estimated proved reserves,
estimated future net revenue from proved reserves, and present worth of
estimated future net revenue from proved reserves of oil, condensate, natural
gas liquids, and gas contained in this report has been prepared in accordance
with Paragraphs 10-13, 15 and 30(a)-(b) of Statement of Financial Accounting
Standards No. 69 (November 1982) of the FASB and Rules 4-10(a)(1)-(13) of
Regulation S-X and Rule 302(b) of Regulation S-K of the SEC; provided,
however, (i) certain estimated data have not been provided with respect to
changes in reserve information, (ii) future income tax expenses have not been
taken into account in estimating the future net revenue and present worth
values set forth herein, (iii) at the request of NationsBank and because of
the limited availability of data, proved reserves, future net revenue
therefrom, and the present worth thereof for certain royalty interests
accounting for approximately 36 percent of the Trust's total proved reserves
have been estimated in the aggregate by state or field rather than on a
property-by-property basis using net production and revenue data and our
general knowledge of producing characteristics in the geographic areas in
which such interests are located, and (iv) at the request of NationsBank, we
have estimated future net revenue and the present worth thereof by holding
constant current gas prices for the remaining lives of the applicable reserves
in accordance with NationsBank's advice that these are the prices that the
Trust can reasonably expect to receive.
To the extent the above-enumerated rules, regulations, and statements
require determinations of an accounting or legal nature or information beyond
the scope of our report, we are necessarily unable to express an opinion as to
whether the above-described information is in accordance therewith or
sufficient therefor.
Submitted,
DeGOLYER and MacNAUGHTON
----------------
There are numerous uncertainties inherent in estimating quantities of proved
reserves and in projecting the future rates of production and timing of
development. The preceding reserve data in the letter regarding the study
represent estimates only and should not be construed to be exact. The
estimated present worth of future net revenue amounts shown by the study
should not be construed as the current fair market value of the estimated oil
and gas reserves since a market value determination would include many
additional factors.
Reserve estimates may be adjusted from time to time as more accurate
information on the volume or recoverability of existing reserves becomes
available. Actual reserve quantities do not change, however, except through
production. The Trust continues to own only the royalty properties that were
initially transferred to the Trust at the time of its creation and is
prohibited by the Trust Agreement from acquiring additional oil and gas
interests.
The future net revenue shown by the study has not been reduced for
administrative costs and expenses of the Trust in future years. The costs and
expenses of the Trust may increase in future years,
15
<PAGE>
depending on the amount of income from the Royalty Properties, increases in
the Trustee's and escrow agents' fees and expenses, accounting, engineering,
legal and other professional fees, and other factors. It is expected that the
costs and expenses of the Trust in 1997 will be approximately $1,350,000.
The volatile nature of the world energy markets makes it difficult to
estimate future prices of oil and gas. The prices obtained for oil and gas
depend upon numerous factors, including 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 and
the effect of governmental regulations.
FORWARD-LOOKING STATEMENTS
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, certain
reserve information and other statements contained in this Item 2,
"Properties", and certain statements regarding the Trust's financial position,
industry conditions and other matters contained in "Trustee's Discussion and
Analysis" incorporated by reference in 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 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.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Registrant is a
party or of which any of its property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The section entitled "Units of Beneficial Interest" appearing on the inside
front cover of the Trust's Annual Report to Unit holders for the year ended
December 31, 1996 sets forth certain information with respect to the Units of
the Trust and the market therefor, and is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information under "Selected Financial Data" appearing on the inside
front cover of the Trust's Annual Report to Unit holders for the year ended
December 31, 1996 is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The "Trustee's Discussion and Analysis" of financial condition and results
of operations appearing on page 2 of the Trust's Annual Report to Unit holders
for the year ended December 31, 1996 is incorporated herein by reference.
16
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Trust and the notes thereto, together with
the report thereon of Deloitte & Touche LLP dated March 21, 1997 appearing on
pages 3 though 8 of the Trust's Annual Report to Unit holders for the year
ended December 31, 1996 are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant has no directors or executive officers. The Trustee is a
corporate trustee which may be removed, with or without cause, by the
affirmative vote at a meeting duly called and held of the holders of a
majority of the Units represented at the meeting.
ITEM 11. EXECUTIVE COMPENSATION.
Not applicable.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners. As of March 15, 1997
there were no Unit holders known to the Trustee to be beneficial owners of
more that 5% of the outstanding Units.
(b) Security Ownership of Management. The Trust has no directors or
executive officers. NationsBank of Texas, N.A., the Trustee, held as of March
15, 1997 an aggregate of 153,367 Units in various fiduciary capacities, with
respect to which it had sole voting and investment power over all 153,367 of
such Units.
(c) Changes in Control. The Trustee knows of no arrangements the operation
of which may at a subsequent date result in a change in control of the
Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Not applicable.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this report:
1. Financial Statements (incorporated by reference in Item 8 of this
report)
Independent Auditors' report
Statements of Assets, Liabilities and Trust Corpus at December 31, 1996
and 1995
Statements of Distributable Income for Each of the Three Years in the
Period Ended December 31, 1996
Statements of Changes in Trust Corpus for Each of the Three Years in the
Period Ended December 31, 1996
Notes to Financial Statements
17
<PAGE>
2. Financial Statement Schedules
Financial statement schedules are omitted because of the absence of
conditions under which they are required or because the required
information is included in the financial statements and notes thereto.
3. Exhibits
<TABLE>
<C> <S>
(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
in by InterFirst Bank Dallas, N.A., as trustee.
(13) --Portions of 1996 annual report to Unit holders incorporated by
reference into Part II of this Annual Report on Form 10-K.
(23) --Consent of DeGolyer and MacNaughton.
(27)** --Financial Data Schedule.
(99) --Report dated March 1, 1997 of the Trustee containing interim
tax information for each of the 12 months in the year ending
December 31, 1996.
</TABLE>
- --------
* Exhibits 4(a) and 4(b) are incorporated herein by reference to Exhibits 4(a)
and 4(b), respectively, of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993.
** Included with EDGAR version of Form 10-K only.
(b) Reports on Form 8-K. No reports on Form 8-K were filed by the Registrant
during the last quarter of the period covered by this report.
18
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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 NATIONSBANK OF TEXAS, N.A.
(as successor), Trustee
By: /s/ Ron E. Hooper
-----------------------------------
Ron E. Hooper
Vice-President
Date: March 31, 1997
(THE REGISTRANT HAS NO DIRECTORS OR EXECUTIVE OFFICERS.)
19
<PAGE>
EXHIBIT 13
SABINE ROYALTY TRUST
Portions of 1996 Annual Report
UNITS OF BENEFICIAL INTEREST
The units of beneficical interest (the "Units") in the Trust are listed and
traded on the New York Stock Exchange under the symbol "SBR." The following
table sets forth the high and low sales prices for the Units and the aggregate
amount of cash distributions paid by the Trust during the periods indicated.
<TABLE>
<CAPTION>
Sales Price Distributions
1996 High Low per Unit
<S> <C> <C> <C>
First Quarter...................... $9.125 $8.000 $.27340
Second Quarter..................... 10.125 9.125 .35717
Third Quarter...................... 11.750 9.500 .42173
Fourth Quarter..................... 12.875 10.875 .31833
1995
First Quarter...................... $10.500 $9.630 $.27117
Second Quarter..................... 10.250 9.880 .28269
Third Quarter...................... 10.250 8.630 .26847
Fourth Quarter..................... 9.130 7.880 .20483
</TABLE>
At March 18, 1997, there were 14,579,345 Units outstanding and approximately
3,669 Unit holders of record.
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Royalty Income.................. $22,173,492 $16,088,936 $18,669,739 $22,140,733 $20,246,115
Distributable Income............ 20,972,323 14,829,839 17,441,297 20,893,820 19,050,150
Distributable Income per Unit... 1.44 1.02 1.20 1.43 1.31
Total Assets at Year End........ 6,868,761 6,598,427 7,172,645 7,446,908 8,824,368
Distributions per Unit.......... 1.37 1.03 1.20 1.46 1.29
</TABLE>
<PAGE>
TRUSTEE'S DISCUSSION AND ANALYSIS
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.
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. The Trust's royalty income represents payments
received during a particular time period for oil and gas production from the
Trust's properties. Because of various factors which influence the timing of the
Trust's receipt of payments, royalty income for any particular time period will
usually include payments for oil and gas produced in prior periods. The oil and
gas volumes and associated prices indicated in the Trustee's letter to Unit
holders on page one relate to oil and gas production attributable to 1996 even
though the Trust may not have received payment during 1996. The price and volume
figures which follow differ from those on page one because they represent the
volumes and prices for which the Trust received payment during 1996.
Royalty income during 1996 increased approximately $6,085,000, or 37.8 percent,
compared to 1995 royalty income, which had decreased approximately $2,581,000,
or 13.8 percent, from 1994 royalty income.
Revenues generated by sales of oil and gas increased in 1996 from 1995 as the
result of higher oil and gas prices and increased volumes of oil and gas sold.
Gas volumes sold increased from 5,936,059 thousand cubic feet ("Mcf") in 1995 to
6,565,302 Mcf in 1996, after decreasing from 6,374,888 in 1994. The average
price per Mcf of gas received by the Trust increased from $1.45 in 1995 to $1.98
in 1996, having decreased from $1.89 in 1994. Extreme weather conditions during
1996 contributed to the increase in gas prices.
Oil volumes sold increased to 660,521 barrels in 1996 from 534,266 barrels in
1995 and 561,501 barrels in 1994. The average price per barrel of oil received
by the Trust increased to $17.31 in 1996 from $15.65 in 1995 and $14.28 in 1994.
Prices for domestic oil strengthened during 1996 due to income increased during
1996 and 1995 due to an increase in funds available for temporary investment,
which resulted from the Trust's increased revenues, and higher interest rates.
General and administrative expenses decreased in 1996 from 1995, largely due to
lower expenditures for professional fees. General and administration expenses
increased from 1994 to 1995 due to slightly higher expenditures for professional
services.
<PAGE>
INDEPENDENT AUDITORS' REPORT
UNIT HOLDERS OF SABINE ROYALTY TRUST AND NATIONSBANK OF TEXAS, N.A., TRUSTEE:
We have audited the statements of assets, liabilities and trust corpus of Sabine
Royalty Trust (the "Trust") as of December 31, 1996 and 1995, and the related
statements of distributable income and changes in trust corpus for each of the
three years in the period ended December 31, 1996. These financial statements
are the responsibility of the Trustee. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As described in Note 2 to the financial statements, these statements were
prepared on a modified cash basis of accounting, which is a comprehensive basis
of accounting other than generally accepted accounting principles.
In our opinion, such financial statements present fairly, in all material
respects, the assets, liabilities and trust corpus of the Trust at December 31,
1996 and 1995, and the distributable income and changes in trust corpus for each
of the three years in the period ended December 31, 1996, on the basis of
accounting described in Note 2.
/SIG/DELOITTE & TOUCHE LLP
Dallas, Texas
March 21, 1997
<PAGE>
FINANCIAL STATEMENTS
SABINE ROYALTY TRUST
STATEMENTS OF ASSETS, LIABILITIES AND TRUST CORPUS
<TABLE>
<CAPTION>
December 31
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Cash and short-term investments........................ $3,321,723 $2,508,295
Royalty interests in oil and gas properties
less accumulated amortization of $18,848,147 and
$18,305,053.......................................... 3,547,038 4,090,132
---------- ----------
Total.............................................. $6,868,761 $6,598,427
========== ==========
LIABILITIES AND TRUST CORPUS
Trust expenses payable................................. $ 232,493 $ 499,110
Other payables (Note 4)................................ 750,725 652,175
Trust corpus (14,579,345 units of beneficial interest
authorized and outstanding).......................... 5,885,543 5,447,142
---------- ----------
Total.............................................. $6,868,761 $6,598,427
========== ==========
</TABLE>
STATEMENTS OF DISTRIBUTABLE INCOME
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Royalty income......................... $22,173,492 $16,088,936 $18,669,739
Interest income........................ 142,079 108,213 75,510
----------- ----------- -----------
Total.................................. 22,315,571 16,197,149 18,745,249
General and administrative expenses
(Note 6)............................. 1,343,248 1,367,310 1,303,952
----------- ----------- -----------
Distributable income................... $20,972,323 $14,829,839 $17,441,297
=========== =========== ===========
Distributable income per unit
(14,579,345 units) (Note 1).......... $1.44 $1.02 $1.20
Distributions per unit (Note 3)........ $1.37 $1.03 $1.20
</TABLE>
STATEMENTS OF CHANGES IN TRUST CORPUS
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Trust corpus, beginning of year...... $ 5,447,142 $ 6,129,697 $ 6,801,613
Amortization of royalty interests.... (543,094) (536,164) (648,815)
------------ ------------ ------------
Distributable income................. 20,972,323 4,829,839 17,441,297
Distributions to unit holders
(Note 3)........................... (19,990,828) (14,976,230) (17,464,398)
------------ ------------ ------------
Trust corpus, end of year............ $ 5,885,543 $ 5,447,142 $ 6,129,697
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
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 landowner's
royalties, overriding royalty interests, minerals (other than executive rights,
bonuses and delay rentals), production payments and any other similar,
nonparticipatory interest, 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 Sabine's shareholders of record on
December 23, 1982, on the basis of one Unit for each share of Sabine's
outstanding common stock. In May 1988, Sabine was acquired by Pacific
Enterprises, 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 Enterprises,
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 Sabine's 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. NationsBank of Texas, N.A., as trustee (the "Trustee"), acts as
trustee of the Trust. 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 and
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).
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.
<PAGE>
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 Trustee's holding record title to
the Royalties located in Louisiana.
Pursuant to the terms of the escrow agreements 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 escrow agents and
are paid to and received by the Trust only on the next monthly record date. The
escrow agents have agreed to endeavor to assure that they incur and pay 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 and the escrow agents are 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 agents 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.
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 generally accepted accounting principles:
.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 (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 the accounting period. Reserves for liabilities that are
contingent or uncertain in amount may also be established if considered
necessary.
<PAGE>
.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 generally accepted accounting principles 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.
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.
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of. SFAS No. 121 requires the review of long-lived assets and
certain identifiable intangibles for impairment. If an impairment event occurs
and it is determined that the carrying value of the asset may not be
recoverable, an impairment loss will be recognized as measured by the amount by
which the carrying amount of the asset exceeds the fair value of the asset. The
Trust adopted SFAS No. 121 effective January 1, 1996 and such adoption did not
have any impact on the distributable income or financial position of the Trust.
FEDERAL INCOME TAXES
The Internal Revenue Service has ruled that the Trust would be 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 Trust's 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.
3. DISTRIBUTIONS 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
<PAGE>
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 Trust's oil and gas
production consists of gross sales of production less applicable severance
taxes.
4. OTHER PAYABLES
Other payables consist of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
---- ----
<S> <C> <C>
Funds due to (from) payors for royalties
erroneously forwarded to the Trust................ $ -0- $ (71)
Royalty receipts in suspense pending
verification of ownership interest or title....... $750,725 $652,246
-------- --------
Total............................................... $750,725 $652,175
======== ========
</TABLE>
The Trustee believes that these amounts represent an ordinary operating
condition of the Trust and that they will be paid or released in the normal
course of business.
5. SUBSEQUENT EVENTS
Subsequent to December 31, 1996, the Trust declared the following distributions:
Monthly
Record Payment Distribution
Date Date per Unit
January 15 January 29 $.12625
February 18 February 28 .18552
March 17 March 31 .16251
6. TRUSTEE'S FEES AND EXPENSES
Fees and expenses for the years ended December 31, associated with the Trustee's
services for the Trust pursuant to the Trust Agreement, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Trustee's fee...................$205,750 $187,966 $178,457
Escrow agent's fee ............. 617,264 563,908 535,376
-------- -------- --------
Total fees and expenses.........$823,014 $751,874 $713,833
======== ======== ========
</TABLE>
7. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth the royalty income, distributable income and
distributable income per Unit of the Trust for each quarter in the years ended
December 31, 1996 and 1995 (in thousands, except per Unit amounts):
<TABLE>
<CAPTION>
Calendar Royalty Distributable Distributable
Quarter Income Income Income per Unit
<S> <C> <C> <C>
1996
First...................... $5,171 $4,862 $.33
Second..................... 5,970 5,554 .38
Third...................... 5,921 5,673 .39
Fourth..................... 5,111 4,883 .34
------- ------- -----
$22,173 $20,972 $1.44
======= ======= =====
1995
First...................... $4,297 $3,967 $.27
Second..................... 4,541 4,187 .29
Third...................... 4,253 3,990 .27
Fourth..................... 2,998 2,686 .19
------- ------- -----
$16,089 $14,830 $1.02
======= ======= =====
</TABLE>
8. SUPPLEMENTAL OIL AND GAS INFORMATION (UNAUDITED)
RESERVE QUANTITIES
<PAGE>
Information regarding estimates of the proved oil and gas reserves attributable
to the Trust are based on reports prepared by DeGolyer and MacNaughton,
independent petroleum engineering consultants. Estimates were prepared in
accordance with Statement of Financial Accounting Standards No. 69 and the
guidelines established by the Securities and Exchange Commission.
Oil and gas reserve quantities (all located in the United States) are
estimates based on information available at the time of their preparation. Such
estimates are subject to change as additional information becomes
available. Reserves actually recovered, and the timing of the production of
those reserves, may differ substantially from original estimates. The following
schedule presents changes in the Trust's total proved reserves (in
thousands):
<TABLE>
<CAPTION>
Oil (Barrels) Gas(Mcf)
<S> <C> <C>
January 1, 1994................................ 5,734 35,877
Revisions of previous estimates............. 469 5,565
Production.................................. (546) (5,970)
----- ------
December 31, 1994.............................. 5,657 35,472
Revisions of previous estimates............. 462 6,628
Production.................................. (581) (5,651)
----- ------
December 31, 1995.............................. 5,538 36,449
Revisions of previous estimates............. 1,010 2,980
Production.................................. (573) (5,729)
----- ------
December 31, 1996.............................. 5,975 33,700
===== ======
</TABLE>
Estimated quantities of proved developed reserves of oil and gas as of the
dates indicated were as follows (in thousands):
<TABLE>
<CAPTION>
Oil (Barrels) Gas(Mcf)
<S> <C> <C>
Proved developed reserves:
January 1, 1994............................. 5,184 35,453
December 31, 1994........................... 5,176 35,135
December 31, 1995........................... 5,061 35,606
December 31, 1996........................... 5,885 33,572
</TABLE>
DISCLOSURE OF A STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The following is a summary of a standardized measure (in thousands) of
discounted future net cash flows related to the Trust's total proved oil and gas
reserve quantities. Information presented is based upon a valuation of proved
reserves by using discounted cash flows based upon current oil and gas prices
and severance and ad valorem taxes, if any, and economic conditions,
discounted at the required rate of 10 percent. As the Trust is not subject to
taxation at the trust level, no provision for income taxes has been made in the
following disclosure. The impact of changes in current prices on reserves could
vary significantly from year to year. Accordingly, the information presented
below should not be viewed as an estimate of the fair market value
of the Trust's oil and gas properties nor should it be viewed as indicative of
any trends.
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Future net cash inflows................. $175,010 $131,627 $131,187
Discount of future net cash
flows at 10%........................... (80,383) (62,362) (60,999)
-------- -------- --------
Standardized measure of
discounted future net
cash flows............................. $94,627 $69,265 $70,188
======= ======= =======
</TABLE>
The change in the standardized measure of discounted future net cash flows for
the years ended December 31, 1996, 1995 and 1994 is as follows (in
<PAGE>
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Standardized measure of
discounted future net
cash flows, January 1...... $69,265 $70,188 $76,989
Royalty income, net of
severance and
ad valorem taxes........... (22,173) (16,089) (18,670)
Changes in prices, net of
related costs............. 25,715 (470) (4,115)
Revisions of previous
estimates and other........ 14,894 8,617 8,285
Accretion of discount........ 6,926 7,019 7,699
------- ------- -------
Standardized measure of
discounted future net
cash flows, December 31,.. $94,627 $69,265 $70,188
======= ======= =======
</TABLE>
Subsequent to year end, the price of oil and gas decreased significantly. As
of March 21, 1997, published natural gas prices were approximately $1.53 per
MMbtu and published oil prices were approximately $20.16 per barrel as compared
to prices utilized in the Trust's calculation of its year end standardized
measure of discounted future net cash flow. This use of current prices when
applied will result in a lower standardized measure of discounted future net
cash flows.
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE UNIT HOLDERS OF SABINE ROYALTY TRUST:
We have audited the accompanying statements of fees and expenses (as defined in
Exhibit C to the Sabine Royalty Trust Agreement) paid by Sabine Royalty Trust to
NationsBank of Texas, N.A., as trustee and escrow agent, for the years ended
December 31, 1996, 1995 and 1994. These statements are the responsibility of the
Trustee's management. Our responsibility is to express an opinion on these
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the statements of fees and expenses are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statements of fees and expenses.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the statements of fees and expenses audited by us present
fairly, in all material respects, the fees and expenses paid by Sabine Royalty
Trust to NationsBank of Texas, N.A., as trustee and escrow agent, for the years
ended December 31, 1996, 1995 and 1994, in conformity with the Trust
Agreement.
/SIG/PRICE WATERHOUSE LLP
Dallas, Texas
March 25, 1997
<PAGE>
STATEMENTS OF FEES AND EXPENSES
STATEMENTS OF FEES AND EXPENSES PAID BY SABINE ROYALTY TRUST TO
NATIONSBANK OF TEXAS, N.A., AS
TRUSTEE AND ESCROW AGENT, FOR EACH OF THE THREE YEARS IN THE
PERIOD ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Trustee's fee.................. $205,750 $187,966 $178,457
Escrow agent's fee............. 617,264 563,908 535,376
-------- -------- --------
Total fees paid................ 823,014 751,874 713,833
Reimbursements for expenses ... -- -- --
-------- -------- --------
Total fees and expenses paid
to NationsBank
of Texas, N.A................. $823,014 $751,874 $713,833
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
NOTES
1. Sabine Royalty Trust (the "Trust") is an express trust formed under the
laws of Texas by the Sabine Corporation Royalty Trust Agreement (the "Trust
Agreement") made and entered into effective as of December 31, 1982, between
Sabine Corporation ("Sabine"), as trustor, and InterFirst Bank Dallas, N.A.
("InterFirst"), as trustee (the "Trustee"). Contemporaneously with the execution
of the Trust Agreement, Sabine, the Trustee and InterFirst, as escrow agent (the
"Escrow Agent"), entered into an escrow agreement which establishes an escrow
(the "Escrow"). Prior to distribution of units of beneficial interest (the
"Units") in the Trust to Sabine's shareholders, Sabine transferred to the Trust
royalty and mineral interests, including landowner's royalties, overriding
royalty interests, minerals (other than executive rights, bonuses and delay
rentals), production payments and other similar, non-participatory interests, in
certain producing and proved undeveloped oil and gas properties in six states
(the "Royalty Properties").
In May 1988, Sabine was acquired by Pacific Enterprise ("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 Sabine's
rights and obligations with respect to the Trust.
In connection with the transfer of the Royalty Properties 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
amd gas assets to a third party. The sale did not include the executive rights
relating to the Royalty Properties, and Pacific (USA)'s ownership of such rights
was not affected by the sale.
In June 1987, InterFirst was merged with RepublicBank Dallas, National
Association. RepublicBank Dallas, National Association was the survivor of the
merger and, in connection therewith, changed its name to First RepublicBank
Dallas, National Association. First RepublicBank Dallas, National Association
("First Republic"), as successor to InterFirst, served as Trustee of the Trust
and as Escrow Agent from June 1987 until July 1988. On July 29, 1988, First
Republic was declared insolvent by the Federal Deposit Insurance Corporation
(the "FDIC") and certain assets and liabilities of First Republic were
transferred to NCNB Texas National Bank ("NCNB Texas"), which was established as
a bridge bank by the FDIC pursuant to authority granted under the Competitive
Equality Banking Act of 1987. NCNB Texas was subsequently acquired from the FDIC
by NCNB Corporation. The name of NCNB Texas was changed effective December 31,
1991 to NationsBank of Texas, N.A. (the "Bank"). The Bank, as successor to First
Republic, now serves as Trustee of the Trust and as Escrow Agent. The
compensation agreement under the Trust Agreement provides for a "cost plus" fee
payable to the Bank for all services rendered in its capacities as
<PAGE>
Trustee and as Escrow Agent. Generally, the fees payable to the Bank are
calculated by dividing the expenses incurred by the Bank, as Trustee and as
Escrow Agent, solely for services provided by the Bank in the administration of
the Trust and the Escrow by seven-tenths (0.7). Professional and other
noncontributing (out-of-pocket) expenses incurred by the Bank, as Trustee or
as Escrow Agent, as the case may be, in the performance of its duties in the
foregoing capacities are charged to the Trust or the Escrow, as the case may be,
at cost. These expenses do not contribute to the fees payable to the Bank
described above. Annually, the Trustee must estimate Trust and and publish this
amount in the Trust's first quarterly report to Unit holders. The Trustee can be
penalized by forfeiture of reimbursement for part of its expenses if such
expenses exceed the estimate. The Trustee also can earn a bonus by administering
the Trust for total costs that are lower than the estimate.
2. Escrow Agent's fees and Trustee's fees consist of a profit margin plus
all fully allocated costs incurred by the Bank, as Trustee and as Escrow Agent,
in performing administrative services to the Trust as specified in the Trust
Agreement.
Administrative costs do not include any professional and related expenses
to third parties.
All costs incurred by the Bank in its capacities as Trustee and as Escrow
Agent are accumulated in one account. Fees based thereon are allocated between
the Trustee function and the Escrow Agent function according to the actual
administrative services rendered by the Bank in each capacity. Any
determinations by the Bank as to the allocation of the fee between the Trustee
and the Escrow Agent are conclusive and binding on the Unit holders and Pacific
(USA), but in no event does the Bank's allocation affect the aggregate fee
payable to the Bank.
3. The Bank did not earn a bonus for 1996, 1995 or 1994; therefore, none
will be taken in 1997 and none was taken in 1996 or 1995.
A total of $145,397 of Trustee's fees and Escrow Agent's fees paid to the
Bank in January and February 1997 was based on expenses incurred in 1996. Of
this amount, $71,008 is included in the 1996 statement and the remaining $74,389
will be included in the subsequent year's statement.
Similarly, a total of $129,746 of Trustee's fees and Escrow Agent's fees
paid to the Bank in January and February 1996 was based on expenses incurred in
1995. Of this amount, $67,675 is included in the 1995 statement, and the
remaining $62,071 is reflected in the 1996 statement. A total of $120,912 of
Trustee's fees and Escrow Agent's fees paid to the Bank in January and February
1995 was based on expenses incurred in 1994. Of this amount, $60,648 is included
in the 1994 statement and the remaining $60,264 is included in the 1995
statement.
<PAGE>
EXHIBIT 23
[LETTERHEAD OF DEGOLYER AND MACNAUGHTON APPEARS HERE]
March 24, 1997
Sabine Royalty Trust
NationsBank of Texas, N.A.
NationsBank Plaza-12th Floor
901 Main Street
Dallas, Texas 75202
Gentlemen:
We hereby consent to the inclusion of our letter report dated February 28,
1997, concerning the reserves and revenue, as of January 1, 1997, of certain
royalty interests owned by Sabine Royalty Trust in the Annual Report on Form
10-K for the year ended December 31, 1996, of the Sabine Royalty Trust to be
filed with the Securities and Exchange Commission. We also consent to the
references to our firm under "Reserves" in Item 2 of the Form 10-K.
Very truly, yours,
/s/ Degolyer and MacNaughton
DeGOLYER and MacNAUGHTON
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,321,723
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3,321,723
<PP&E> 22,395,185
<DEPRECIATION> 18,848,147
<TOTAL-ASSETS> 6,868,761
<CURRENT-LIABILITIES> 983,218
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,885,543
<TOTAL-LIABILITY-AND-EQUITY> 6,868,761
<SALES> 22,173,492
<TOTAL-REVENUES> 22,315,571
<CGS> 0
<TOTAL-COSTS> 1,343,248
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 20,972,323
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,972,323
<EPS-PRIMARY> 1.44
<EPS-DILUTED> 0
</TABLE>
<PAGE>
EXHIBIT 99
[LOGO OF SABINE ROYALTY TRUST APPEARS HERE]
TAX INFORMATION
1996
This booklet contains tax information relevant to ownership of
Units of Sabine Royalty Trust and should be retained.
<PAGE>
SABINE ROYALTY TRUST
MARCH 1, 1997
TO UNIT HOLDERS:
This booklet provides 1996 tax information which will allow you to determine
your pro rata share of income and deductions attributable to your investment
in Sabine Royalty Trust (the "Trust"). Each Unit holder is encouraged to read
the entire booklet very carefully.
The material included in this booklet enables you to compute the information
to be included in your Federal and state income tax returns. This booklet is
the only information source for Unit holders to determine their share of the
items of income and expense of the Trust for the entire 1996 calendar year.
The Trust does not file nor does it furnish a Form 1099 to Unit holders
(except where Federal backup withholding is required). Unit holders should
retain this booklet as part of their tax records.
The material herein is not intended and should not be construed as
professional tax or legal advice. Unit holders are encouraged to consult their
own tax advisors concerning its use.
Very truly yours,
Sabine Royalty Trust,
By NationsBank of Texas N.A., Trustee
1-800-365-6541
<PAGE>
SABINE ROYALTY TRUST
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1996 TAX INFORMATION
. Reading the Income and Expense Schedules................................. 1
. Identifying Which Income and Expense Schedules to Use.................... 1
. Applying the Data From the Income and Expense Schedules.................. 1
. Computing Depletion...................................................... 1
. Sale or Exchange of Units................................................ 3
. Classification of Investment............................................. 3
. Nonresident Foreign Unit Holders......................................... 3
. Backup Withholding....................................................... 3
. State Income Tax......................................................... 3
. Table of 1996 Monthly Record Dates and Cash Distributions Per Unit....... 3
. Tax Computation Worksheet................................................ 4
. Supplement to Tax Computation Worksheet.................................. 5
. Tax Information Schedules................................................ 6
. .Form 1041, Grantor Trust for Calendar Year 1996....................... 6
. .Form 1041, Grantor Trust for January 1996............................. 7
. .Form 1041, Grantor Trust for February 1996............................ 8
. .Form 1041, Grantor Trust for March 1996............................... 9
. .Form 1041, Grantor Trust for April 1996............................... 10
. .Form 1041, Grantor Trust for May 1996................................. 11
. .Form 1041, Grantor Trust for June 1996................................ 12
. .Form 1041, Grantor Trust for July 1996................................ 13
. .Form 1041, Grantor Trust for August 1996.............................. 14
. .Form 1041, Grantor Trust for September 1996........................... 15
. .Form 1041, Grantor Trust for October 1996............................. 16
. .Form 1041, Grantor Trust for November 1996............................ 17
. .Form 1041, Grantor Trust for December 1996............................ 18
. .Depletion Schedule I.................................................. 19
. .Depletion Schedule II................................................. 19
. .Depletion Schedule III................................................ 20
. .Depletion Schedule IV................................................. 20
. .Depletion Schedule V.................................................. 21
. .Depletion Schedule VI................................................. 21
. .Depletion Schedule VII................................................ 22
. .Depletion Schedule VIII............................................... 22
. .Depletion Schedule IX................................................. 23
. .Depletion Schedule X.................................................. 23
. .Depletion Schedule XI................................................. 24
. .Depletion Schedule XII................................................ 24
. .Depletion Schedule XIII............................................... 25
. .Depletion Schedule XIV................................................ 25
. .Depletion Schedule XV................................................. 26
. .Depletion Schedule XVI................................................ 27
. Sample Tax Forms for Individual Unit Holders............................. 28
. Comprehensive Example.................................................... 30
DISCUSSION OF TAX CONSIDERATIONS PERTAINING TO THE OWNERSHIP OF UNITS IN
SABINE ROYALTY TRUST
. Effect of Tax Reform..................................................... A-1
. Taxation of the Original Distribution of Units........................... A-1
. Tax Background Information............................................... A-1
. .Effect of Escrow Arrangement.......................................... A-2
. Depletion................................................................ A-2
. .Cost Depletion........................................................ A-2
. .Percentage Depletion.................................................. A-3
. Nonresident Foreign Unit Holders......................................... A-3
. Sale or Exchange of Units................................................ A-4
. Backup Withholding....................................................... A-4
. State Income Tax......................................................... A-4
</TABLE>
(SRT 1996 TAX)
<PAGE>
SABINE ROYALTY TRUST
1996 TAX INFORMATION
READING THE INCOME AND EXPENSE SCHEDULES
The accompanying income and expense schedules reflect tax information
attributable to Sabine Royalty Trust (the "Trust") for 1996. This information
has been assembled on a per Unit basis and is expressed in decimal fractions
of one dollar. A cumulative schedule for the twelve months ended December 31,
1996, and separate noncumulative schedules for the months of January through
December 1996 are enclosed. Separate depletion schedules are enclosed which
provide the necessary information for Unit holders to compute cost depletion
with respect to their interests in the Trust.
IDENTIFYING WHICH INCOME AND EXPENSE SCHEDULES TO USE
Pursuant to the terms of the Trust agreement and the escrow agreement, the
Trust receives income and incurs expenses only on Monthly Record Dates.
Furthermore, only Unit holders of record on Monthly Record Dates are entitled
to cash distributions. On the basis of these agreements, both cash and accrual
basis Unit holders should be considered as realizing income and incurring
expenses only on Monthly Record Dates. Therefore, if you were not the Unit
holder of record of the Units on a specified Monthly Record Date, you should
not use the tax information for the month in which that Monthly Record Date
falls. A table of Monthly Record Dates and cash distributions per Unit is
included on page 3.
The appropriate schedules to be used by a Unit holder will depend upon (i)
the date the Unit holder became a holder of record of the Units, (ii) if
applicable, the date the Unit holder ceased to be the holder of record of the
Units, and (iii) the tax year end of the Unit holder. For instance, a Unit
holder reporting on the calendar year basis who acquired Units and became a
Unit holder of record on June 17, 1996 and who still owned only those Units on
December 16, 1996 must use each of the separate monthly schedules for June
through December 1996, and Depletion Schedule XVI for such Units. However,
Unit holders reporting on a calendar year basis who became Unit holders of
record prior to January 16, 1996 and who continued to own only those Units on
December 16, 1996, must use only the cumulative schedule for calendar year
1996 and the appropriate depletion schedule(s).
APPLYING THE DATA FROM THE INCOME AND EXPENSE SCHEDULES
The tax data, other than depletion, specifically applicable to a Unit holder
may be determined by multiplying the appropriate decimal fractions times the
number of Units owned. Unit holders who must use the separate monthly income
and expense schedules should combine the individual income and expense factors
from the monthly schedules for each month during which the Units were owned on
a Monthly Record Date. For a worksheet approach to computing these decimal
fractions, see the Supplement to Tax Computation Worksheet on page 5.
COMPUTING DEPLETION
Depletion schedules are included which provide information for Unit holders
to compute cost depletion deductions with respect to their interests in the
Trust. To compute depletion for any taxable period, Unit holders should
multiply the depletion factor indicated on the relevant schedule times their
original tax basis in the respective Unit(s), reduced by the cost depletion
that was allowable as a deduction (whether or not deducted) in prior calendar
years during which they owned the Units. A factor for percentage depletion is
not included, as cost depletion exceeded the percentage depletion calculated.
(SRT 1996 TAX)
1
<PAGE>
Noncorporate Unit holders who acquired Units in the original distribution
from Sabine Corporation ("Sabine") should use Depletion Schedule I to compute
1996 depletion on those Units. Corporate Unit holders that acquired Units in
the original distribution from Sabine should use Depletion Schedule II to
compute 1996 depletion on those Units. The proper depletion schedule to be
utilized for Units owned is reflected below.
<TABLE>
<CAPTION>
DATE(S) UNITS DEPLETION SCHEDULE
WERE ACQUIRED TO BE UTILIZED
------------- ------------------
<S> <C>
Original Distribution See preceding paragraph
Before12/16/83 I
12/16/83--12/17/84 III
12/18/84--12/16/85 IV
12/17/85-- 3/17/86 V
3/18/86--12/15/86 VI
12/16/86--12/15/87 VII
12/16/87--12/15/88 VIII
12/16/88--12/15/89 IX
12/16/89--12/17/90 X
12/18/90--12/16/91 XI
12/17/91--12/15/92 XII
12/16/92--12/15/93 XIII
12/16/93--12/15/94 XIV
12/16/94--12/15/95 XV
12/16/95--12/16/96 XVI
12/17/96--12/31/96 No 1996 depletion allowed
</TABLE>
As discussed at page A-3 in the back portion of this booklet, the composite
depletion factors are determined on the basis of a weighted average ratio of
current production from each Trust property to the estimated future production
from such property. This method of weighting the depletion factors permits the
presentation of a single depletion factor for all Unit holders acquiring Units
during a period in which there is no substantial change in the relative fair
market values of the Trust properties. Primarily as a result of the decline in
oil prices which occurred during 1986, there was a change in the relative fair
market values of the Trust properties. Accordingly, two mutually exclusive
depletion schedules are included herein reflecting the composite depletion
factors required to compute depletion for Units acquired in 1986. The proper
depletion schedule to use in computing 1996 depletion is dependent upon the
date upon which the Units were acquired as reflected in the preceding
paragraph.
The amount of depletion attributable to a specific state may be determined
by multiplying the depletion factor indicated for the particular state times
the Federal tax basis in the Unit(s) held, reduced by prior calendar years'
allowable Federal depletion, if any. The Federal and state depletion factors
contained on Depletion Schedule I through Depletion Schedule XV are presented
on a cumulative basis for 1996. However, the Federal and state depletion
factors contained on Depletion Schedule XVI are summarized separately; and the
state factors are presented on a noncumulative basis. If you are using
Depletion Schedule XVI for your state income tax return(s), you may either
calculate the applicable state depletion for each month and add the monthly
depletion amounts together, or you may add together the applicable monthly
depletion factors for the relevant state and multiply this created composite
depletion factor times your adjusted basis in your Units. The result should be
the same using either method.
Different depletion schedules may be required to be used for Units acquired
in different years by a Unit holder. Therefore, Unit holders are encouraged to
maintain records indicating the date of acquisition and the acquisition price
for each Unit or lot of Units acquired.
(SRT 1996 TAX)
2
<PAGE>
SALE OR EXCHANGE OF UNITS
A discussion concerning the tax consequences associated with the sale or
exchange of Units is presented on page A-4 in the back portion of this
booklet.
CLASSIFICATION OF INVESTMENT
Tax Reform measures enacted in 1986 and 1987 require items of income and
expense to be categorized as "passive," "active" or "portfolio" in nature. An
explanation of the application of these rules to the items of income and
expense reported by the Trust are contained on page A-1 in the back portion of
this booklet.
NONRESIDENT FOREIGN UNIT HOLDERS
Nonresident alien individual and foreign corporation Unit holders ("Foreign
Taxpayer(s)") are subject to special tax rules with respect to their
investments in the Trust. These rules are outlined beginning on page A-3 in
the back portion of this booklet.
BACKUP WITHHOLDING
Unit holders who have had amounts withheld in 1996 pursuant to the Federal
backup withholding provisions should have received a Form 1099-MISC from the
Trust. The Form 1099-MISC reflects the total Federal income tax withheld from
distributions. The amount reported on the Form 1099-MISC should not be
included as additional income in computing taxable income, as such amount is
already included in the per Unit income items on the income and expense
schedules. The Federal income tax withheld, as reported on the Form 1099-MISC,
should be considered as a credit by the Unit holder in computing any Federal
income tax liability. Individual Unit holders should include the amount of
backup withholding on line 52 of page 2 of the 1996 Form 1040. For a further
discussion of backup withholding, see page A-4 in the back portion of this
booklet.
STATE INCOME TAX
Since the Trust holds royalty interests and receives income that is
attributable to various states, Unit holders may be obligated to file a return
and may have a tax liability in states in addition to their state of
residence. The accompanying schedules have been prepared in such a manner that
income and deductions attributable to the various states may be determined by
each Unit holder. State income tax matters are more fully discussed on page A-
5 in the back portion of this booklet.
TABLE OF 1996 MONTHLY RECORD DATES AND CASH DISTRIBUTIONS PER UNIT
Unit holders, as reflected in the transfer books of the Trust on a Monthly
Record Date, received the following per Unit cash distributions for 19956 The
per Unit cash distributions reflected below have not been reduced by any taxes
that may have been withheld from distributions to Foreign Taxpayers or from
distributions to Unit holders subject to the Federal backup withholding rules.
The distribution checks were dated and mailed on the corresponding Date
Payable.
<TABLE>
<CAPTION>
MONTHLY RECORD DISTRIBUTION
DATE DATE PAYABLE PER UNIT
-------------- ------------ ------------
<S> <C> <C>
January 16, 1996 January 30, 1996 $.06285
February 15, 1996 February 29, 1996 $.09896
March 15, 1996 March 29, 1996 $.11159
April 15, 1996 April 29, 1996 $.11751
May 15, 1996 May 29, 1996 $.12000
June 17, 1996 June 28, 1996 $.11966
July 15, 1996 July 29, 1996 $.16629
August 15, 1996 August 29, 1996 $.14052
September 16, 1996 September 30, 1996 $.11492
October 15, 1996 October 29, 1996 $.13109
November 15, 1996 November 29, 1996 $.10630
December 16, 1996 December 30, 1996 $.08144
</TABLE>
(SRT 1996 TAX)
3
<PAGE>
SABINE ROYALTY TRUST
TAX COMPUTATION WORKSHEET
1996
(RETAIN THIS WORKPAPER AS PART OF YOUR PERMANENT TAX RECORDS)
PART I
INCOME AND EXPENSE
<TABLE>
<CAPTION>
A B C
AMOUNTS PER UNIT
NUMBER OF FROM APPROPRIATE
UNITS OWNED SCHEDULE(S) WHERE TO REFLECT ON
ITEM (NOTE 1) (NOTE 2) TOTALS 1996 FORM 1040 (NOTE 3)
- ---- ----------- ---------------- ------ -----------------------
<S> <C> <C> <C> <C> <C> <C>
Gross Royalty Income.... ___________ X ________________ = ______ Line 4, Part I, Schedule E
Severance Tax........... ___________ X ________________ = ______ Line 16, Part I, Schedule E
Interest Income......... ___________ X ________________ = ______ Line 1, Part I, Schedule B
Administrative Ex-
pense.................. ___________ X _________________ = ______ Line 18, Part I, Schedule E
</TABLE>
PART II
COST DEPLETION (NOTE 4)
<TABLE>
<CAPTION>
COST DEPLETION
ALLOWABLE IN PRIOR ADJUSTED BASIS FOR APPROPRIATE 1996
CALENDAR YEARS COST DEPLETION COST DEPLETION FACTOR
ORIGINAL BASIS (NOTE 5) PURPOSES (NOTE 4) 1996 COST DEPLETION*
- -------------- ------------------ ------------------ --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
______________ - __________________ = __________________ X _____________________ = ____________________
</TABLE>
*Reflect cost depletion on 1996 Form 1040, line 20, Part 1, Schedule E (Note
3).
PART III
COMPUTATION OF GAIN OR (LOSS) FOR UNITS SOLD
<TABLE>
<CAPTION>
NET WHERE TO REFLECT ON
SALES ADJUSTED BASIS GAIN 1996 FORM 1040
PRICE (NOTE 6) (LOSS) (NOTE 3)
----- -------------- ------ -------------------
<S> <C> <C> <C> <C> <C>
______________ - _______________ = __________ Form 4797
</TABLE>
NOTES
- -----
(1) In order to correctly calculate total income and expense to be reported on
your 1996 Federal and, if applicable, state income tax returns, it is
recommended that you reproduce and complete a separate Tax Computation
Worksheet for each block of Units acquired at different times. Only the
total of each item of income and expense obtained by adding the separate
Tax Computation Worksheet totals, if more than one is required, should be
reported on your applicable 1996 income tax returns.
(2) If you did not become a Unit holder of record of any Unit(s) or did not
cease to be a Unit holder of record of any Unit(s) during the period from
January 16, 1996 through December 16, 1996, then the amounts reflected on
the cumulative schedule for 1996 should be used to complete Part I. If any
Units were held of record for only part of the period defined above, the
Supplement to Tax Computation Worksheet on page 5 should be used to derive
the income and expense factors to be inserted in column B.
(3) The Trustee believes that individual Unit holders owning the Units as an
investment should report the amounts determined in this manner. The U.S.
Corporation Income Tax Return (Form 1120) does not require that royalty
income and related expenses be separately identified on any specific
schedules. Note: Schedule D should be utilized to report the Sale of Units
acquired before January 1, 1987. (See "Sale or Exchange of Units" on page
A-4.)
(4) The appropriate depletion schedule(s) to be utilized is generally
dependent upon the date on which the Units were acquired. See "Computing
Cost Depletion" on page 1 to determine the proper schedule(s) to be used.
(5) Cost depletion allowable in prior calendar years cannot be computed from
the schedules contained in this booklet. Depletion schedules contained in
prior years' Sabine Royalty Trust Tax Information Booklet(s) should be
used in order to determine the appropriate cost depletion amount(s)
allowable in prior calendar years.
(6) The adjusted basis is equal to the cost or other basis of the Unit(s) less
the cost depletion allowable from the date of acquisition through the date
of sale (whether or not deducted).
(SRT 1996 TAX)
4
<PAGE>
SABINE ROYALTY TRUST
SUPPLEMENT TO TAX COMPUTATION WORKSHEET
1996
FOR UNITS HELD FOR ONLY PART OF THE YEAR
This worksheet should be used by Unit holders who became holders of record
of Units or ceased to be holders of record of Units during the period from
January 16, 1996 through December 16, 1996. This worksheet is designed to
assist Unit holders in determining the proper income and expense factors to be
used on the Tax Computation Worksheet-- Part I, under the heading entitled
"Amounts Per Unit from Appropriate Schedule(s)". In order to complete this
schedule, Unit holders should insert only the individual income and expense
factors from the monthly schedules (pages 7-18) for each month during which
the Units were owned on a Monthly Record Date. (See page 3 for a list of
Monthly Record Dates).
<TABLE>
<CAPTION>
MONTH(S) DURING WHICH UNITS WERE OWNED ON A MONTHLY RECORD DATE CALCULATED
---------------------------------------------------------------------------------------------- FACTOR
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER PER UNIT*
------- -------- ------ ------ ------ ------ ------ ------ --------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Royalty
Income.........
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Severance Tax...
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Interest
Income.........
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Administrative
Expense........
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
</TABLE>
- -------
* This column of calculated factors per Unit should be inserted in column B of
the Income and Expense section (Part I) of the Tax Computation Worksheet on
page 4.
(SRT 1996 TAX)
5
<PAGE>
CUMULATIVE 1996
SABINE ROYALTY TRUST
EIN 75-6297143
FORM 1041, GRANTOR TRUST
Federal and State Income Tax Information
See Instructions for Use
SECTION I
INCOME AND EXPENSE PER UNIT
<TABLE>
<CAPTION>
OTHER INCOME
ROYALTY INCOME AND EXPENSE AND EXPENSE
----------------------------- ------------------------
NET
GROSS SEVERANCE ROYALTY INTEREST ADMINISTRATIVE
SOURCE INCOME TAX PAYMENTS INCOME EXPENSE
------ --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C>
Florida................. $0.036362 $ .006982 $0.029380 $ * $ 0.004074
Louisiana............... 0.197677 .007700 0.189977 0.001806 0.023743
Mississippi............. 0.055401 .003997 0.051404 * 0.006264
New Mexico.............. 0.094449 .008850 0.085599 * 0.010354
Oklahoma................ 0.321542 .024457 0.297085 * 0.036707
Texas................... 0.945460 .050058 0.895402 0.007942 0.106323
--------- --------- --------- --------- ----------
TOTAL................. $1.650891 $ .102044 $1.548847 $0.009748 $ 0.187465
========= ========= ========= ========= ==========
</TABLE>
SECTION II
RECONCILIATION OF CASH DISTRIBUTIONS PER UNIT
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ----------
<S> <C>
1. Total Net Royalty Payments ..................................... $ 1.548847
2. Interest Income ................................................ 0.009748
3. Administrative Expense ......................................... (0.187465)
----------
4. Cash Distribution Per Unit** ................................... $ 1.371130
==========
</TABLE>
- --------
* Revenue attributable to these states was invested and earned interest
income. Since the investments were made in Dallas, Texas, and the interest
was paid there, such interest is included in the Texas interest income.
** Includes amounts withheld by the Trust from distributions to nonresident
alien individuals and foreign corporations and remitted directly to the
United States Treasury. This also includes amounts withheld pursuant to the
backup withholding provisions.
(SRT 1996 TAX)
6
<PAGE>
FOR JANUARY 1996
SABINE ROYALTY TRUST
EIN 75-6297143
FORM 1041, GRANTOR TRUST
Federal and State Income Tax Information
See Instructions for Use
SECTION I
INCOME AND EXPENSE PER UNIT
<TABLE>
<CAPTION>
OTHER INCOME
ROYALTY INCOME AND EXPENSE AND EXPENSE
--------------------------- -----------------------
NET
GROSS SEVERANCE ROYALTY INTEREST ADMINISTRATIVE
SOURCE INCOME TAX PAYMENTS INCOME EXPENSE
------ -------- --------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Florida.................... $.002447 $ .000177 $.002270 $ * $.000818
Louisiana.................. .006966 .000360 .006606 .000125 .002615
Mississippi................ .003999 .000172 .003827 * .001337
New Mexico................. .003299 .000269 .003030 * .001103
Oklahoma................... .029328 .001979 .027349 * .009807
Texas...................... .056365 .002755 .053610 .000560 .018847
-------- --------- -------- -------- --------
TOTAL.................... $.102404 $ .005712 $.096692 $.000685 $.034527
======== ========= ======== ======== ========
</TABLE>
SECTION II
RECONCILIATION OF CASH DISTRIBUTIONS PER UNIT
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- --------
<S> <C>
1. Total Net Royalty Payments ........................................ $.096692
2. Interest Income ................................................... .000685
3. Administrative Expense ............................................ (.034527)
--------
4. Cash Distribution Per Unit** ...................................... $.062850
========
</TABLE>
- --------
* Revenue attributable to these states was invested and earned interest
income. Since the investments were made in Dallas, Texas, and the interest
was paid there, such interest is included in the Texas interest income.
** Includes amounts withheld by the Trust from distributions to nonresident
alien individuals and foreign corporations and remitted directly to the
United States Treasury. This also includes amounts withheld pursuant to the
backup withholding provisions.
(SRT 1996 TAX)
7
<PAGE>
FOR FEBRUARY 1996
SABINE ROYALTY TRUST
EIN 75-6297143
FORM 1041, GRANTOR TRUST
Federal and State Income Tax Information
See Instructions for Use
SECTION I
INCOME AND EXPENSE PER UNIT
<TABLE>
<CAPTION>
OTHER INCOME
ROYALTY INCOME AND EXPENSE AND EXPENSE
--------------------------- -----------------------
NET
GROSS SEVERANCE ROYALTY INTEREST ADMINISTRATIVE
SOURCE INCOME TAX PAYMENTS INCOME EXPENSE
------ -------- --------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Florida.................... $.002360 $ .000554 $.001806 $ * $.000150
Louisiana.................. .007691 .000513 .007178 .000162 .000776
Mississippi................ .004379 .000309 .004070 * .000279
New Mexico................. .009553 .001217 .008336 * .000609
Oklahoma................... .023754 .002158 .021596 * .001514
Texas...................... .066907 .004140 .062767 .000638 .004265
-------- --------- -------- -------- --------
TOTAL.................... $.114644 $ .008891 $.105753 $.000800 $.007593
======== ========= ======== ======== ========
</TABLE>
SECTION II
RECONCILIATION OF CASH DISTRIBUTIONS PER UNIT
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- --------
<S> <C>
1. Total Net Royalty Payments......................................... $.105753
2. Interest Income.................................................... .000800
3. Administrative Expense............................................. (.007593)
--------
4. Cash Distribution Per Unit**....................................... $.098960
========
</TABLE>
- --------
* Revenue attributable to these states was invested and earned interest
income. Since the investments were made in Dallas, Texas, and the interest
was paid there, such interest is included in the Texas interest income.
** Includes amounts withheld by the Trust from distributions to nonresident
alien individuals and foreign corporations and remitted directly to the
United States Treasury. This also includes amounts withheld pursuant to the
backup withholding provisions.
(SRT 1996 TAX)
8
<PAGE>
FOR MARCH 1996
SABINE ROYALTY TRUST
EIN 75-6297143
FORM 1041, GRANTOR TRUST
Federal and State Income Tax Information
See Instructions for Use
SECTION I
INCOME AND EXPENSE PER UNIT
<TABLE>
<CAPTION>
OTHER INCOME
ROYALTY INCOME AND EXPENSE AND EXPENSE
--------------------------- ------------------------
NET
GROSS SEVERANCE ROYALTY INTEREST ADMINISTRATIVE
SOURCE INCOME TAX PAYMENTS INCOME EXPENSE
------ -------- --------- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Florida................... $.003127 $ .000721 $.002406 $ * $.000156
Louisiana................. .008515 .000459 .008056 .000131 .000711
Mississippi............... .003788 .000382 .003406 * .000189
New Mexico................ .006769 .000600 .006169 * .000338
Oklahoma.................. .033524 .002942 .030582 * .001674
Texas..................... .070772 .003963 .066809 .000634 .003535
-------- --------- -------- --------- --------
TOTAL................... $.126495 $ .009067 $.117428 $ .000765 $.006603
======== ========= ======== ========= ========
</TABLE>
SECTION II
RECONCILIATION OF CASH DISTRIBUTIONS PER UNIT
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ----------
<S> <C>
1. Total Net Royalty Payments ..................................... $ .117428
2. Interest Income ................................................ .000765
3. Administrative Expense ......................................... (.006603)
----------
4. Cash Distribution Per Unit ** .................................. $ .111590
==========
</TABLE>
- --------
* Revenue attributable to these states was invested and earned interest
income. Since the investments were made in Dallas, Texas, and the interest
was paid there, such interest is included in the Texas interest income.
** Includes amounts withheld by the Trust from distributions to nonresident
alien individuals and foreign corporations and remitted directly to the
United States Treasury. This also includes amounts withheld pursuant to the
backup withholding provisions.
(SRT 1996 TAX)
9
<PAGE>
FOR APRIL 1996
SABINE ROYALTY TRUST
EIN 75-6297143
FORM 1041, GRANTOR TRUST
Federal and State Income Tax Information
See Instructions for Use
SECTION I
INCOME AND EXPENSE PER UNIT
<TABLE>
<CAPTION>
OTHER INCOME
ROYALTY INCOME AND EXPENSE AND EXPENSE
--------------------------- ------------------------
NET
GROSS SEVERANCE ROYALTY INTEREST ADMINISTRATIVE
SOURCE INCOME TAX PAYMENTS INCOME EXPENSE
------ -------- --------- -------- --------- --------------
<S> <C> <C> <C> <C> <C>
Florida................... $.003961 $.000783 $.003178 $ * $.000268
Louisiana................. .011404 .000463 .010941 .000128 .001059
Mississippi............... .004241 .000304 .003937 * .000287
New Mexico................ .007847 .000686 .007161 * .000531
Oklahoma.................. .022203 .001898 .020305 * .001501
Texas..................... .085284 .004684 .080600 .000672 .005766
-------- -------- -------- --------- --------
TOTAL................... $.134940 $.008818 $.126122 $ .000800 $.009412
======== ======== ======== ========= ========
</TABLE>
SECTION II
RECONCILIATION OF CASH DISTRIBUTIONS PER UNIT
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ---------
<S> <C>
1. Total Net Royalty Payments....................................... $ .126122
2. Interest Income.................................................. .000800
3. Administrative Expense........................................... (.009412)
---------
4. Cash Distribution Per Unit **.................................... $ .117510
=========
</TABLE>
- --------
* Revenue attributable to these states was invested and earned interest
income. Since the investments were made in Dallas, Texas, and the interest
was paid there, such interest is included in the Texas interest income.
** Includes amounts withheld by the Trust from distributions to nonresident
alien individuals and foreign corporations and remitted directly to the
United States Treasury. This also includes amounts withheld pursuant to the
backup withholding provisions.
(SRT 1996 TAX)
10
<PAGE>
FOR MAY 1996
SABINE ROYALTY TRUST
EIN 75-6297143
FORM 1041, GRANTOR TRUST
Federal and State Income Tax Information
See Instructions for Use
SECTION I
INCOME AND EXPENSE PER UNIT
<TABLE>
<CAPTION>
OTHER INCOME
ROYALTY INCOME AND EXPENSE AND EXPENSE
--------------------------- -----------------------
NET
GROSS SEVERANCE ROYALTY INTEREST ADMINISTRATIVE
SOURCE INCOME TAX PAYMENTS INCOME EXPENSE
------ -------- --------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Florida.................... $.003192 $.001259 $.001933 $ * $.000542
Louisiana.................. .018098 .000529 .017569 .000192 .003362
Mississippi................ .008691 .000502 .008189 * .001477
New Mexico................. .012485 .001035 .011450 * .002122
Oklahoma................... .026770 .002079 .024691 * .004549
Texas...................... .086093 .004095 .081998 .000661 .014631
-------- -------- -------- -------- --------
TOTAL.................... $.155329 $.009499 $.145830 $.000853 $.026683
======== ======== ======== ======== ========
</TABLE>
SECTION II
RECONCILIATION OF CASH DISTRIBUTIONS PER UNIT
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ---------
<S> <C>
1. Total Net Royalty Payments....................................... $ .145830
2. Interest Income.................................................. .000853
3. Administrative Expense........................................... (.026683)
---------
4. Cash Distribution Per Unit**..................................... $ .120000
=========
</TABLE>
- --------
* Revenue attributable to these states was invested and earned interest
income. Since the investments were made in Dallas, Texas, and the interest
was paid there, such interest is included in the Texas interest income.
** Includes amounts withheld by the Trust from distributions to nonresident
alien individuals and foreign corporations and remitted directly to the
United States Treasury. This also includes amounts withheld pursuant to the
backup withholding provisions.
(SRT 1996 TAX)
11
<PAGE>
FOR JUNE 1996
SABINE ROYALTY TRUST
EIN 75-6297143
FORM 1041, GRANTOR TRUST
Federal and State Income Tax Information
See Instructions for Use
SECTION I
INCOME AND EXPENSE PER UNIT
<TABLE>
<CAPTION>
OTHER INCOME
ROYALTY INCOME AND EXPENSE AND EXPENSE
--------------------------- -----------------------
NET
GROSS SEVERANCE ROYALTY INTEREST ADMINISTRATIVE
SOURCE INCOME TAX PAYMENTS INCOME EXPENSE
------ -------- --------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Florida.................... $.002649 $.000217 $.002432 $ * $.000227
Louisiana.................. .010098 .000388 .009710 .000165 .001152
Mississippi................ .006470 .000433 .006037 * .000555
New Mexico................. .008352 .000749 .007603 * .000716
Oklahoma................... .028885 .001959 .026926 * .002476
Texas...................... .082791 .004458 .078333 .000676 .007096
-------- -------- -------- -------- --------
TOTAL.................... $.139245 $.008204 $.131041 $.000841 $.012222
======== ======== ======== ======== ========
</TABLE>
SECTION II
RECONCILIATION OF CASH DISTRIBUTIONS PER UNIT
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ---------
<S> <C>
1. Total Net Royalty Payments........................................ $ .131041
2. Interest Income................................................... .000841
3. Administrative Expense............................................ (.012222)
---------
4. Cash Distribution Per Unit**...................................... $ .119660
=========
</TABLE>
- --------
* Revenue attributable to these states was invested and earned interest
income. Since the investments were made in Dallas, Texas, and the interest
was paid there, such interest is included in the Texas interest income.
** Includes amounts withheld by the Trust from distributions to nonresident
alien individuals and foreign corporations and remitted directly to the
United States Treasury. This also includes amounts withheld pursuant to the
backup withholding provisions.
(SRT 1996 TAX)
12
<PAGE>
FOR JULY 1996
SABINE ROYALTY TRUST
EIN 75-6297143
FORM 1041, GRANTOR TRUST
Federal and State Income Tax Information
See Instructions for Use
SECTION I
INCOME AND EXPENSE PER UNIT
<TABLE>
<CAPTION>
OTHER INCOME
ROYALTY INCOME AND EXPENSE AND EXPENSE
--------------------------- -----------------------
NET
GROSS SEVERANCE ROYALTY INTEREST ADMINISTRATIVE
SOURCE INCOME TAX PAYMENTS INCOME EXPENSE
------ -------- --------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Florida.................... $.003177 $.000224 $.002953 $ * $.000182
Louisiana.................. .045237 .001538 .043699 .000222 .002873
Mississippi................ .005420 .000508 .004912 * .000310
New Mexico................. .008656 .000616 .008040 * .000495
Oklahoma................... .029593 .001605 .027988 * .001692
Texas...................... .092767 .004042 .088725 .000609 .005306
-------- -------- -------- -------- --------
TOTAL.................... $.184850 $.008533 $.176317 $.000831 $.010858
======== ======== ======== ======== ========
</TABLE>
SECTION II
RECONCILIATION OF CASH DISTRIBUTIONS PER UNIT
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ---------
<S> <C>
1. Total Net Royalty Payments........................................ $ .176317
2. Interest Income................................................... .000831
3. Administrative Expense............................................ (.010858)
---------
4. Cash Distribution Per Unit**...................................... $ .166290
=========
</TABLE>
- --------
* Revenue attributable to these states was invested and earned interest
income. Since the investments were made in Dallas, Texas, and the interest
was paid there, such interest is included in the Texas interest income.
** Includes amounts withheld by the Trust from distributions to nonresident
alien individuals and foreign corporations and remitted directly to the
United States Treasury. This also includes amounts withheld pursuant to the
backup withholding provisions.
(SRT 1996 TAX)
13
<PAGE>
FOR AUGUST 1996
SABINE ROYALTY TRUST
EIN 75-6297143
FORM 1041, GRANTOR TRUST
Federal and State Income Tax Information
See Instructions for Use
SECTION I
INCOME AND EXPENSE PER UNIT
<TABLE>
<CAPTION>
OTHER INCOME
ROYALTY INCOME AND EXPENSE AND EXPENSE
--------------------------- -----------------------
NET
GROSS SEVERANCE ROYALTY INTEREST ADMINISTRATIVE
SOURCE INCOME TAX PAYMENTS INCOME EXPENSE
------ -------- --------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Florida.................... $.002592 $.000491 $.002101 $ * $.000100
Louisiana.................. .024221 .000814 .023407 .000158 .001217
Mississippi................ .003917 .000286 .003631 * .000150
New Mexico................. .007912 .000703 .007209 * .000304
Oklahoma................... .032897 .003011 .029886 * .001264
Texas...................... .084563 .004878 .079685 .000727 .003249
-------- -------- -------- -------- --------
TOTAL.................... $.156102 $.010183 $.145919 $.000885 $.006284
======== ======== ======== ======== ========
</TABLE>
SECTION II
RECONCILIATION OF CASH DISTRIBUTIONS PER UNIT
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ---------
<S> <C>
1. Total Net Royalty Payments........................................ $ .145919
2. Interest Income................................................... .000885
3. Administrative Expense............................................ (.006284)
---------
4. Cash Distribution Per Unit**...................................... $ .140520
=========
</TABLE>
- --------
* Revenue attributable to these states was invested and earned interest
income. Since the investments were made in Dallas, Texas, and the interest
was paid there, such interest is included in the Texas interest income.
** Includes amounts withheld by the Trust from distributions to nonresident
alien individuals and foreign corporations and remitted directly to the
United States Treasury. This also includes amounts withheld pursuant to the
backup withholding provisions.
(SRT 1996 TAX)
14
<PAGE>
FOR SEPTEMBER 1996
SABINE ROYALTY TRUST
EIN 75-6297143
FORM 1041, GRANTOR TRUST
Federal and State Income Tax Information
See Instructions for Use
SECTION I
INCOME AND EXPENSE PER UNIT
<TABLE>
<CAPTION>
OTHER INCOME
ROYALTY INCOME AND EXPENSE AND EXPENSE
--------------------------- -----------------------
NET
GROSS SEVERANCE ROYALTY INTEREST ADMINISTRATIVE
SOURCE INCOME TAX PAYMENTS INCOME EXPENSE
------ -------- --------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Florida.................... $.004452 $.001858 $.002594 $ * $.000224
Louisiana.................. .024896 .001178 .023718 .000165 .001538
Mississippi................ .005045 .000396 .004649 * .000254
New Mexico................. .006052 .000530 .005522 * .000304
Oklahoma................... .025529 .001805 .023724 * .001284
Texas...................... .065030 .004254 .060776 .000647 .003271
-------- -------- -------- -------- --------
TOTAL.................... $.131004 $.010021 $.120983 $.000812 $.006875
======== ======== ======== ======== ========
</TABLE>
SECTION II
RECONCILIATION OF CASH DISTRIBUTIONS PER UNIT
<TABLE>
<CAPTION>
ITEM AMOUNT
---- ---------
<S> <C>
1.Total Net Royalty Payments ........................................ $ .120983
2.Interest Income ................................................... .000812
3.Administrative Expense ............................................ (.006875)
---------
4.Cash Distribution Per Unit ** ..................................... $ .114920
=========
</TABLE>
- --------
* Revenue attributable to these states was invested and earned interest
income. Since the investments were made in Dallas, Texas, and the interest
was paid there, such interest is included in the Texas interest income.
** Includes amounts withheld by the Trust from distributions to nonresident
alien individuals and foreign corporations and remitted directly to the
United States Treasury. This also includes amounts withheld pursuant to the
backup withholding provisions.
(SRT 1996 TAX)
15
<PAGE>
FOR OCTOBER 1996
SABINE ROYALTY TRUST
EIN 75-6297143
FORM 1041, GRANTOR TRUST
Federal and State Income Tax Information
See Instructions for Use
SECTION I
INCOME AND EXPENSE PER UNIT
<TABLE>
<CAPTION>
OTHER INCOME
ROYALTY INCOME AND EXPENSE AND EXPENSE
--------------------------- -----------------------
NET
GROSS SEVERANCE ROYALTY INTEREST ADMINISTRATIVE
SOURCE INCOME TAX PAYMENTS INCOME EXPENSE
------ -------- --------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Florida.................... $.002736 $.000230 $.002506 $ * $.000116
Louisiana.................. .009482 .000371 .009111 .000091 .000847
Mississippi................ .003915 .000299 .003616 * .000167
New Mexico................. .008192 .000689 .007503 * .000349
Oklahoma................... .025681 .001968 .023713 * .001094
Texas...................... .095014 .004553 .090461 .000708 .004046
-------- -------- -------- -------- --------
TOTAL.................... $.145020 $.008110 $.136910 $.000799 $.006619
======== ======== ======== ======== ========
</TABLE>
SECTION II
RECONCILIATION OF CASH DISTRIBUTIONS PER UNIT
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ---------
<S> <C>
1. Total Net Royalty Payments....................................... $ .136910
2. Interest Income.................................................. .000799
3. Administrative Expense........................................... (.006619)
---------
4. Cash Distribution Per Unit**..................................... $ .131090
=========
</TABLE>
- --------
* Revenue attributable to these states was invested and earned interest
income. Since the investments were made in Dallas, Texas, and the interest
was paid there, such interest is included in the Texas interest income.
** Includes amounts withheld by the Trust from distributions to nonresident
alien individuals and foreign corporations and remitted directly to the
United States Treasury. This also includes amounts withheld pursuant to the
backup withholding provisions.
(SRT 1996 TAX)
16
<PAGE>
FOR NOVEMBER 1996
SABINE ROYALTY TRUST
EIN 75-6297143
FORM 1041, GRANTOR TRUST
Federal and State Income Tax Information
See Instructions for Use
SECTION I
INCOME AND EXPENSE PER UNIT
<TABLE>
<CAPTION>
OTHER INCOME
ROYALTY INCOME AND EXPENSE AND EXPENSE
--------------------------- -----------------------
NET
GROSS SEVERANCE ROYALTY INTEREST ADMINISTRATIVE
SOURCE INCOME TAX PAYMENTS INCOME EXPENSE
------ -------- --------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Florida.................... $.002760 $.000228 $.002532 $ * $.000616
Louisiana.................. .020992 .000649 .020343 .000162 .004967
Mississippi................ .002885 .000207 .002678 * .000643
New Mexico................. .008371 .001152 .007219 * .001867
Oklahoma................... .024038 .001745 .022293 * .005361
Texas...................... .088299 .004804 .083495 .000723 .019691
-------- -------- -------- -------- --------
TOTAL.................... $.147345 $.008785 $.138560 $.000885 $.033145
======== ======== ======== ======== ========
</TABLE>
SECTION II
RECONCILIATION OF CASH DISTRIBUTIONS PER UNIT
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ---------
<S> <C>
1. Total Net Royalty Payments ...................................... $ .138560
2. Interest Income ................................................. .000885
3. Administrative Expense .......................................... (.033145)
---------
4. Cash Distribution Per Unit ** ................................... $ .106300
=========
</TABLE>
- --------
* Revenue attributable to these states was invested and earned interest
income. Since the investments were made in Dallas, Texas, and the interest
was paid there, such interest is included in the Texas interest income.
** Includes amounts withheld by the Trust from distributions to nonresident
alien individuals and foreign corporations and remitted directly to the
United States Treasury. This also includes amounts withheld pursuant to the
backup withholding provisions.
(SRT 1996 TAX)
17
<PAGE>
FOR DECEMBER 1996
SABINE ROYALTY TRUST
EIN 75-6297143
FORM 1041, GRANTOR TRUST
Federal and State Income Tax Information
See Instructions for Use
SECTION I
INCOME AND EXPENSE PER UNIT
<TABLE>
<CAPTION>
OTHER INCOME
ROYALTY INCOME AND EXPENSE AND EXPENSE
--------------------------- -----------------------
NET
GROSS SEVERANCE ROYALTY INTEREST ADMINISTRATIVE
SOURCE INCOME TAX PAYMENTS INCOME EXPENSE
------ -------- --------- -------- -------- --------------
<S> <C> <C> <C> <C> <C>
Florida.................... $.002909 $ .000240 $.002669 $ * $.000675
Louisiana.................. .010077 .000438 .009639 .000105 .002626
Mississippi................ .002651 .000199 .002452 * .000616
New Mexico................. .006961 .000604 .006357 * .001616
Oklahoma................... .019340 .001308 .018032 * .004491
Texas...................... .071575 .003432 .068143 .000687 .016620
-------- --------- -------- -------- --------
TOTAL.................... $.113513 $ .006221 $.107292 $.000792 $.026644
======== ========= ======== ======== ========
</TABLE>
SECTION II
RECONCILIATION OF CASH DISTRIBUTIONS PER UNIT
<TABLE>
<CAPTION>
ITEM AMOUNT
- ---- ---------
<S> <C>
1. Total Net Royalty Payments........................................ $ .107292
2. Interest Income................................................... .000792
3. Administrative Expense............................................ (.026644)
---------
4. Cash Distribution Per Unit**...................................... $ .081440
=========
</TABLE>
- --------
* Revenue attributable to these states was invested and earned interest
income. Since the investments were made in Dallas, Texas, and the interest
was paid there, such interest is included in the Texas interest income.
** Includes amounts withheld by the Trust from distributions to nonresident
alien individuals and foreign corporations and remitted directly to the
United States Treasury. This also includes amounts withheld pursuant to the
backup withholding provisions.
(SRT 1996 TAX)
18
<PAGE>
SABINE ROYALTY TRUST
DEPLETION SCHEDULE I
The cumulative depletion factors reflected in Depletion Schedule I should be
used to compute 1996 federal and state depletion amounts attributable to Units
acquired by noncorporate Unit holders in the original distribution from Sabine
Corporation and all other Units purchased in 1983 by any Unit holder for which
the Unit holder was entitled to one or more 1983 monthly distributions. This
schedule should not be used to compute depletion amounts for any other Units
owned. (See the accompanying information for computation instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .011277 .025341 .038482 .053602 .069505 .081703 .095855 .109815 .122269 .135348 .147682 .157524
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... .000005 .000011 .000020 .000030 .000035 .000039 .000044 .000051 .000061 .000066 .000071 .000076
Louisiana....... .000539 .001478 .002165 .003189 .004310 .004986 .008070 .009868 .012754 .013517 .014943 .015692
Mississippi..... .000521 .001306 .001825 .002171 .002961 .003492 .003889 .004275 .004727 .005090 .005360 .005635
New Mexico...... .000093 .000350 .000558 .000770 .001085 .001324 .001488 .001682 .001827 .002026 .002205 .002352
Oklahoma........ .001118 .002668 .004344 .005184 .006293 .007526 .008681 .009958 .010957 .012022 .012916 .013722
Texas........... .009001 .019528 .029570 .042258 .054821 .064336 .073683 .083981 .091943 .102627 .112187 .120047
</TABLE>
DEPLETION SCHEDULE II
The cumulative depletion factors reflected in Depletion Schedule II should
be used to compute 1996 federal and state depletion amounts attributable to
Units acquired in the original distribution from Sabine Corporation by
corporate Unit holders. This schedule should not be used to compute depletion
amounts for any other Units owned. (See the accompanying information for
computation instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .012671 .029650 .044445 .060109 .078601 .092412 .111289 .127833 .145147 .158979 .172871 .183593
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... -- -- -- -- -- -- -- -- -- -- -- --
Louisiana....... .001355 .003716 .005443 .008016 .010833 .012532 .020285 .024805 .032061 .033978 .037562 .039445
Mississippi..... .002541 .006368 .008901 .010587 .014440 .017033 .018972 .020855 .023062 .024833 .026148 .027491
New Mexico...... .000114 .000427 .000681 .000939 .001323 .001614 .001814 .002050 .002226 .002468 .002686 .002865
Oklahoma........ .001613 .003848 .006265 .007477 .009077 .010854 .012519 .014360 .015800 .017336 .018625 .019787
Texas........... .007048 .015291 .023155 .033090 .042928 .050379 .057699 .065763 .071998 .080364 .087850 .094005
</TABLE>
(SRT 1996 TAX)
19
<PAGE>
SABINE ROYALTY TRUST
DEPLETION SCHEDULE III
The cumulative depletion factors reflected in Depletion Schedule III should
be used to compute 1996 federal and state depletion amounts attributable to
Units purchased for which the Unit holder initially became entitled to
distributions in 1984. This schedule should not be used to compute depletion
amounts for any other Units owned. (See the accompanying information for
computation instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .010655 .023954 .036335 .050738 .065833 .077341 .091388 .104885 .117291 .129685 .141579 .150956
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION FACTORS
Florida......... .000005 .000012 .000021 .000031 .000037 .000042 .000047 .000055 .000066 .000071 .000076 .000081
Louisiana....... .000656 .001799 .002635 .003881 .005245 .006068 .009822 .012011 .015525 .016453 .018188 .019100
Mississippi..... .000462 .001158 .001619 .001926 .002627 .003099 .003452 .003795 .004197 .004519 .004758 .005002
New Mexico...... .000059 .000221 .000352 .000485 .000683 .000833 .000936 .001058 .001149 .001274 .001386 .001479
Oklahoma........ .000981 .002340 .003810 .004547 .005520 .006601 .007614 .008733 .009609 .010543 .011327 .012034
Texas........... .008492 .018424 .027898 .039868 .051721 .060698 .069517 .079233 .086745 .096825 .105844 .113260
</TABLE>
DEPLETION SCHEDULE IV
The cumulative depletion factors reflected in Depletion Schedule IV should
be used to compute 1996 federal and state depletion amounts attributable to
Units purchased for which the Unit holder initially became entitled to
distributions in 1985. This schedule should not be used to compute depletion
amounts for any other Units owned. (See the accompanying information for
computation instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .011054 .024767 .037572 .052344 .067900 .079821 .093064 .106431 .118057 .130835 .142703 .152272
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... .000004 .000010 .000018 .000027 .000032 .000036 .000041 .000048 .000057 .000062 .000066 .000070
Louisiana....... .000399 .001094 .001602 .002360 .003189 .003689 .005971 .007302 .009438 .010002 .011057 .011611
Mississippi..... .000594 .001489 .002082 .002476 .003377 .003983 .004436 .004876 .005392 .005806 .006114 .006428
New Mexico...... .000090 .000338 .000539 .000743 .001047 .001277 .001435 .001622 .001761 .001953 .002125 .002267
Oklahoma........ .000977 .002331 .003796 .004530 .005499 .006576 .007585 .008701 .009574 .010505 .011286 .011990
Texas........... .008990 .019505 .029535 .042208 .054756 .064260 .073596 .083882 .091835 .102507 .112055 .119906
</TABLE>
(SRT 1996 TAX)
20
<PAGE>
SABINE ROYALTY TRUST
DEPLETION SCHEDULE V
The cumulative depletion factors reflected in Depletion Schedule V should be
used to compute 1996 federal and state depletion amounts attributable to Units
purchased for which the Unit holder initially became entitled to distributions
on the January 15, February 17 or March 17, 1986 Monthly Record Date. This
schedule should not be used to compute depletion amounts for any other Units
owned. (See the accompanying information for computation instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .010616 .023715 .036004 .050236 .065135 .076578 .088959 .101662 .112487 .124789 .136118 .145305
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... .000005 .000012 .000022 .000033 .000039 .000044 .000049 .000057 .000068 .000073 .000078 .000083
Louisiana....... .000306 .000838 .001227 .001807 .002442 .002825 .004574 .005593 .007230 .007662 .008470 .008895
Mississippi..... .000491 .001231 .001721 .002047 .002792 .003293 .003668 .004032 .004459 .004801 .005055 .005315
New Mexico...... .000092 .000345 .000550 .000759 .001069 .001304 .001465 .001656 .001798 .001994 .002170 .002315
Oklahoma........ .000910 .002171 .003535 .004219 .005122 .006125 .007065 .008104 .008917 .009784 .010511 .011167
Texas........... .008812 .019118 .028949 .041371 .053671 .062987 .072138 .082220 .090015 .100475 .109834 .117530
</TABLE>
DEPLETION SCHEDULE VI
The cumulative depletion factors reflected in Depletion Schedule VI should
be used to compute 1996 federal and state depletion amounts attributable to
Units purchased for which the Unit holder initially became entitled to
distributions after the March 17, 1986 Monthly Record Date and before the
January 15, 1987 Monthly Record Date. This schedule should not be used to
compute depletion amounts for any other units owned. (See the accompanying
information for computation instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .010160 .022759 .034538 .048188 .062523 .073507 .085628 .097914 .108540 .120332 .131267 .140091
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... .000005 .000011 .000020 .000030 .000035 .000039 .000044 .000051 .000061 .000066 .000070 .000074
Louisiana....... .000350 .000960 .001406 .002071 .002799 .003238 .005240 .006407 .008281 .008776 .009701 .010187
Mississippi..... .000495 .001240 .001733 .002061 .002811 .003316 .003693 .004059 .004489 .004834 .005090 .005352
New Mexico...... .000104 .000390 .000622 .000858 .001208 .001474 .001656 .001872 .002033 .002254 .002453 .002617
Oklahoma........ .000859 .002049 .003336 .003981 .004833 .005779 .006666 .007646 .008413 .009231 .009917 .010536
Texas........... .008347 .018109 .027421 .039187 .050837 .059661 .068329 .077879 .085263 .095171 .104036 .111325
</TABLE>
(SRT 1996 TAX)
21
<PAGE>
SABINE ROYALTY TRUST
DEPLETION SCHEDULE VII
The cumulative depletion factors reflected in Depletion Schedule VII should
be used to compute 1996 federal and state depletion amounts attributable to
Units purchased for which the Unit holder initially became entitled to
distributions in 1987. This schedule should not be used to compute depletion
for any other Units owned. (See the accompanying information for computation
instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR ........ .010690 .023895 .036303 .050668 .065678 .077218 .089769 .102619 .113602 .126013 .137465 .146738
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... .000015 .000035 .000063 .000095 .000112 .000126 .000141 .000164 .000196 .000211 .000225 .000239
Louisiana....... .000322 .000883 .001294 .001906 .002576 .002980 .004824 .005899 .007624 .008080 .008932 .009380
Mississippi..... .000456 .001142 .001596 .001898 .002589 .003054 .003402 .003740 .004136 .004454 .004690 .004931
New Mexico...... .000101 .000378 .000603 .000832 .001171 .001429 .001606 .001815 .001971 .002185 .002378 .002537
Oklahoma........ .000942 .002247 .003658 .004366 .005300 .006338 .007310 .008385 .009226 .010123 .010876 .011554
Texas........... .008854 .019210 .029089 .041571 .053930 .063291 .072486 .082616 .090449 .100960 .110364 .118097
</TABLE>
DEPLETION SCHEDULE VIII
The cumulative depletion factors reflected in Depletion Schedule VIII should
be used to compute 1996 federal and state depletion amounts attributable to
Units purchased for which the Unit holder initially became entitled to
distributions in 1988. This schedule should not be used to compute depletion
for any other Units owned. (See the accompanying information for computation
instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .010814 .024216 .036847 .051318 .066451 .078140 .091009 .104103 .115375 .127919 .139538 .148927
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... .000019 .000044 .000080 .000120 .000141 .000159 .000178 .000207 .000247 .000266 .000284 .000302
Louisiana....... .000361 .000989 .001449 .002134 .002884 .003336 .005399 .006602 .008533 .009043 .009997 .010498
Mississippi..... .000417 .001046 .001462 .001739 .002372 .002798 .003116 .003425 .003788 .004079 .004295 .004516
New Mexico...... .000102 .000383 .000610 .000841 .001184 .001445 .001624 .001836 .001994 .002211 .002406 .002567
Oklahoma........ .001122 .002677 .004359 .005202 .006315 .007552 .008711 .009992 .010994 .012063 .012960 .013769
Texas........... .008793 .019077 .028887 .041282 .053555 .062850 .071981 .082041 .089819 .100257 .109596 .117275
</TABLE>
(SRT 1996 TAX)
22
<PAGE>
DEPLETION SCHEDULE IX
The cumulative depletion factors reflected in Depletion Schedule IX should
be used to compute 1996 federal and state depletion amounts attributable to
Units purchased for which the Unit holder initially became entitled to
distributions in 1989. This schedule should not be used to compute depletion
for any other Units owned. (See the accompanying information for computation
instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .010849 .024371 .037114 .051369 .066444 .078158 .090949 .103990 .115236 .127684 .139169 .148490
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... .000031 .000073 .000133 .000200 .000236 .000265 .000297 .000345 .000413 .000445 .000475 .000505
Louisiana....... .000346 .000948 .001389 .002046 .002765 .003198 .005176 .006329 .008180 .008669 .009583 .010063
Mississippi..... .000557 .001395 .001950 .002319 .003163 .003731 .004156 .004568 .005051 .005439 .005727 .006021
New Mexico...... .000095 .000356 .000567 .000782 .001101 .001344 .001510 .001707 .001854 .002056 .002237 .002386
Oklahoma........ .001359 .003242 .005278 .006299 .007647 .009144 .010547 .012098 .013311 .014605 .015691 .016670
Texas........... .008461 .018357 .027797 .039723 .051532 .060476 .069263 .078943 .086427 .096470 .105456 .112845
</TABLE>
DEPLETION SCHEDULE X
The cumulative depletion factors reflected in Depletion Schedule X should be
used to compute 1996 federal and state depletion amounts attributable to Units
purchased for which the Unit holder initially became entitled to distributions
in 1990. This schedule should not be used to compute depletion for any other
Units owned. (See the accompanying information for computation instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .010714 .024148 .036808 .051027 .066030 .077672 .090745 .103882 .115404 .127790 .139338 .148643
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... .000043 .000101 .000184 .000276 .000326 .000367 .000412 .000479 .000572 .000617 .000658 .000700
Louisiana....... .000425 .001165 .001707 .002514 .003398 .003931 .006363 .007781 .010057 .010658 .011782 .012373
Mississippi..... .000468 .001174 .001641 .001952 .002662 .003140 .003497 .003844 .004251 .004578 .004820 .005068
New Mexico...... .000127 .000478 .000762 .001051 .001481 .001807 .002031 .002296 .002493 .002764 .003008 .003209
Oklahoma........ .001344 .003207 .005222 .006232 .007566 .009048 .010436 .011971 .013171 .014452 .015526 .016494
Texas........... .008307 .018023 .027292 .039002 .050597 .059379 .068006 .077511 .084860 .094721 .103544 .110799
</TABLE>
(SRT 1996 TAX)
23
<PAGE>
SABINE ROYALTY TRUST
DEPLETION SCHEDULE XI
The cumulative depletion factors reflected in Depletion Schedule XI should
be used to compute 1996 federal and state depletion amounts attributable to
Units purchased for which the Unit holder initially became entitled to
distributions in 1991. This schedule should not be used to compute depletion
for any other Units owned. (See the accompanying information for computation
instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .010547 .024120 .036821 .050977 .066097 .077807 .091676 .105166 .117469 .129816 .141585 .150930
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... .000052 .000121 .000221 .000332 .000392 .000441 .000495 .000575 .000687 .000741 .000791 .000841
Louisiana....... .000610 .001672 .002449 .003607 .004874 .005638 .009126 .011159 .014423 .015285 .016897 .017744
Mississippi..... .000440 .001103 .001542 .001834 .002502 .002951 .003287 .003613 .003996 .004303 .004531 .004764
New Mexico...... .000265 .000995 .001586 .002188 .003082 .003760 .004226 .004777 .005188 .005752 .006259 .006677
Oklahoma........ .001441 .003438 .005597 .006680 .008109 .009697 .011185 .012830 .014117 .015490 .016642 .017680
Texas........... .007739 .016791 .025426 .036336 .047138 .055320 .063357 .072212 .079058 .088245 .096465 .103224
</TABLE>
DEPLETION SCHEDULE XII
The cumulative depletion factors reflected in Depletion Schedule XII should
be used to compute 1996 federal and state depletion amounts attributable to
Units purchased for which the Unit holder initially became entitled to
distributions in 1992. This schedule should not be used to compute depletion
for any other Units owned. (See the accompanying information for computation
instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .010706 .024439 .037480 .051411 .066407 .078294 .091028 .104103 .115275 .127669 .139064 .148348
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... .000027 .000064 .000117 .000176 .000208 .000234 .000263 .000305 .000364 .000392 .000418 .000444
Louisiana....... .000327 .000897 .001314 .001935 .002615 .003025 .004896 .005987 .007739 .008202 .009067 .009521
Mississippi..... .000413 .001035 .001447 .001721 .002347 .002768 .003083 .003389 .003748 .004036 .004250 .004468
New Mexico...... .000289 .001085 .001730 .002386 .003361 .004101 .004609 .005209 .005657 .006273 .006826 .007282
Oklahoma........ .001949 .004650 .007572 .009037 .010971 .013120 .015133 .017358 .019099 .020956 .022514 .023918
Texas........... .007701 .016708 .025300 .036156 .046905 .055046 .063044 .071855 .078668 .087810 .095989 .102715
</TABLE>
(SRT 1996 TAX)
24
<PAGE>
SABINE ROYALTY TRUST
DEPLETION SCHEDULE XIII
The cumulative depletion factors reflected in Depletion Schedule XIII should
be used to compute 1996 federal and state depletion amounts attributable to
Units purchased for which the Unit holder initially became entitled to
distributions in 1993. This schedule should not be used to compute depletion
for any other Units owned. (See the accompanying information for computation
instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .010834 .024974 .038258 .052667 .068182 .080314 .094950 .109037 .122082 .134746 .146906 .156532
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... .000083 .000194 .000354 .000531 .000626 .000704 .000790 .000918 .001097 .001182 .001261 .001341
Louisiana....... .000701 .001922 .002815 .004146 .005603 .006482 .010492 .012830 .016583 .017575 .019429 .020403
Mississippi..... .000428 .001073 .001500 .001784 .002433 .002870 .003197 .003514 .003886 .004184 .004406 .004632
New Mexico...... .000320 .001203 .001918 .002646 .003727 .004548 .005112 .005778 .006275 .006958 .007572 .008078
Oklahoma........ .001857 .004430 .007213 .008608 .010450 .012497 .014415 .016535 .018193 .019962 .021446 .022784
Texas........... .007445 .016152 .024458 .034952 .045343 .053213 .060944 .069462 .076048 .084885 .092792 .099294
</TABLE>
DEPLETION SCHEDULE XIV
The depletion factors reflected in Depletion Schedule XIV should be used to
compute 1996 federal and state depletion amounts attributable to Units
purchased for which the Unit holder initially became entitled to distributions
in 1994. This schedule should not be used to compute depletion for any other
Units owned. (See the accompanying information for computation instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .010857 .025135 .038468 .052995 .068604 .080707 .096925 .111733 .126368 .139028 .151656 .161410
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... .000138 .000323 .000589 .000884 .001043 .001173 .001317 .001531 .001830 .001973 .002105 .002238
Louisiana....... .001048 .002874 .004209 .006199 .008378 .009692 .015687 .019183 .024794 .026276 .029047 .030503
Mississippi..... .000471 .001180 .001649 .001961 .002675 .003155 .003514 .003863 .004272 .004600 .004844 .005093
New Mexico...... .000244 .000917 .001462 .002017 .002841 .003467 .003897 .004405 .004784 .005305 .005773 .006158
Oklahoma........ .001898 .004528 .007372 .008798 .010680 .012772 .014732 .016898 .018592 .020400 .021917 .023284
Texas........... .007058 .015313 .023187 .033136 .042987 .050448 .057778 .065853 .072096 .080474 .087970 .094134
</TABLE>
(SRT 1995 TAX)
25
<PAGE>
SABINE ROYALTY TRUST
DEPLETION SCHEDULE XV
The depletion factors reflected in Depletion Schedule XV should be used to
compute 1996 federal and state depletion amounts attributable to Units
purchased for which the Unit holder initially became entitled to distributions
in 1995. This schedule should not be used to compute depletion for any other
Units owned. (See the accompanying information for computation instructions.)
<TABLE>
<CAPTION>
LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
----------------------------------------------------------------------------------------------------
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FEDERAL
DEPLETION
FACTOR......... .010957 .025280 .038814 .053179 .068639 .080777 .095517 .109701 .123105 .135676 .147750 .157353
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
STATE DEPLETION
FACTORS
Florida......... .000253 .000592 .001080 .001620 .001911 .002149 .002412 .002803 .003351 .003612 .003854 .004097
Louisiana....... .000720 .001973 .002890 .004256 .005752 .006654 .010771 .013171 .017024 .018042 .019945 .020945
Mississippi..... .000637 .001597 .002232 .002655 .003621 .004271 .004757 .005229 .005782 .006226 .006556 .006893
New Mexico...... .000248 .000933 .001488 .002053 .002892 .003529 .003966 .004483 .004868 .005398 .005874 .006266
Oklahoma........ .002058 .004909 .007993 .009539 .011580 .013848 .015973 .018322 .020159 .022119 .023764 .025246
Texas........... .007041 .015276 .023131 .033056 .042883 .050326 .057638 .065693 .071921 .080279 .087757 .093906
</TABLE>
(SRT 1996 TAX)
26
<PAGE>
SABINE ROYALTY TRUST
DEPLETION SCHEDULE XVI
The cumulative depletion factors reflected in Depletion Schedule XVI should
be used to compute 1996 federal and state depletion amounts attributable to
Units purchased for which the Unit holder initially became entitled to
distributions in 1996. This schedule should not be used to compute depletion
for any other Units owned. (See the accompanying information for computation
instructions.)
<TABLE>
<CAPTION>
FIRST MONTH IN
WHICH UNITS WERE
OWNED ON THE LAST MONTH IN WHICH UNITS WERE OWNED ON THE MONTHLY RECORD DATE IN 1996
MONTHLY RECORD ----------------------------------------------------------------------------------------------------
DATE IN 1996 JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
- ----------------- ------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
January.......... .010869 .025218 .038880 .053245 .068705 .080843 .095583 .109767 .123171 .135742 .147816 .157419
February......... -- .014349 .028011 .042376 .057836 .069974 .084714 .098898 .112302 .124873 .136947 .146550
March............ -- -- .013662 .028027 .043487 .055625 .070365 .084549 .097953 .110524 .122598 .132201
April............ -- -- -- .014365 .029825 .041963 .056703 .070887 .084291 .096862 .108936 .118539
May.............. -- -- -- -- .015460 .027598 .042338 .056522 .069926 .082497 .094571 .104174
June............. -- -- -- -- -- .012138 .026878 .041062 .054466 .067037 .079111 .088714
July............. -- -- -- -- -- -- .014740 .028924 .042328 .054899 .066973 .076576
August........... -- -- -- -- -- -- -- .014184 .027588 .040159 .052233 .061836
September........ -- -- -- -- -- -- -- -- .013404 .025975 .038049 .047652
October.......... -- -- -- -- -- -- -- -- -- .012571 .024645 .034248
November......... -- -- -- -- -- -- -- -- -- -- .012074 .021677
December......... -- -- -- -- -- -- -- -- -- -- -- .009603
<CAPTION>
STATE DEPLETION
FACTORS JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER
- ----------------- ------- -------- ------- ------- ------- ------- ------- ------- --------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Florida.......... .000226 .000302 .000435 .000540 .000291 .000238 .000263 .000391 .000548 .000261 .000242 .000243
Louisiana........ .000800 .001394 .001020 .001366 .001496 .000902 .004117 .002400 .003853 .001018 .001903 .001000
Mississippi...... .000479 .000721 .000477 .000423 .000966 .000650 .000486 .000472 .000553 .000444 .000330 .000337
New Mexico....... .000268 .000738 .000598 .000565 .000839 .000637 .000437 .000517 .000385 .000530 .000476 .000392
Oklahoma......... .002568 .003559 .003849 .001546 .002041 .002268 .002125 .002349 .001837 .001960 .001645 .001482
Texas............ .006528 .007635 .007283 .009925 .009827 .007443 .007312 .008055 .006228 .008358 .007478 .006149
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
TOTAL........... .010869 .014349 .013662 .014365 .015460 .012138 .014740 .014184 .013404 .012571 .012074 .009603
======= ======= ======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(SRT 1996 TAX)
27
<PAGE>
[SAMPLE TAX FORM APPEARS HERE]
28
<PAGE>
[SAMPLE TAX FORM APPEARS HERE]
29
<PAGE>
COMPREHENSIVE EXAMPLE 1
The following example illustrates the computations necessary for an
individual to determine income and expense attributable to Units acquired in
March of 1984 and held throughout 1996.
COMPUTATION OF INCOME AND EXPENSE FOR UNITS OWNED ON ALL MONTHLY RECORD DATES
IN 1996
SABINE ROYALTY TRUST
TAX COMPUTATION WORKSHEET
1996
(RETAIN THIS WORKPAPER AS PART OF YOUR PERMANENT TAX RECORDS)
PART I
INCOME AND EXPENSE
<TABLE>
<CAPTION>
A B C
AMOUNTS PER UNIT
NUMBER OF FROM APPROPRIATE
UNITS OWNED SCHEDULE(S) WHERE TO REFLECT ON
ITEM (NOTE 1) (NOTE 2) TOTALS 1996 FORM 1040 (NOTE 3)
---- ----------- ---------------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross Royalty Income.... 100 X $1.650891 = $165.09 Line 4, Part I, Schedule E
---------- -------------- ----------
Severance Tax........... 100 X $ .102044 = $ 10.20 Line 16, Part I, Schedule E
---------- -------------- ----------
Interest Income......... 100 X $ .009748 = $ .97 Line 1, Part I, Schedule B
---------- -------------- ----------
Administrative Expense.. 100 X $ .187465 = $ 18.75 Line 18, Part I, Schedule E
---------- -------------- ----------
</TABLE>
PART II
COST DEPLETION (NOTE 4)
<TABLE>
<CAPTION>
COST DEPLETION
ALLOWABLE IN PRIOR ADJUSTED BASIS FOR
CALENDAR YEARS COST DEPLETION APPROPRIATE 1996
OIGINAL BASISR (NOTE 5) PURPOSES COST DEPLETION FACTOR 1996 COST DEPLETION*
-------------- ------------------ ------------------ --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,100.00 - $1,573.99 = $526.01 X .150956 = $79.40
---------- ------------- -------------- ---------------- ----------------
</TABLE>
*Reflect cost depletion on 1996 Form 1040, line 20, Part 1, Schedule E (Note 3).
PART III
COMPUTATION OF GAIN OR (LOSS) FOR UNITS SOLD
<TABLE>
<CAPTION>
WHERE TO REFLECT ON
NET SALES ADJUSTED BASIS GAIN 1996 FORM 1040
PRICE (NOTE 6) (LOSS) (NOTE 3)
---------- -------------- ------ --- -------------------
<S> <C> <C> <C> <C> <C> <C>
Not Appli-
cable - -- = -- Form 4797
---------- ----------- --- ---
</TABLE>
See Page 4 for Applicable Notes.
(SRT 1996 TAX)
30
<PAGE>
COMPREHENSIVE EXAMPLE 2
The following example illustrates the computations necessary for an
individual to determine income and expenses and gain or loss on units disposed
of during 1996.
<TABLE>
<CAPTION>
ACQUISITION UNITS ORIGINAL SALES UNITS SALES
DATE ACQUIRED BASIS DATE SOLD PRICE
- ----------- -------- -------- ----- ----- -----
<S> <C> <C> <C> <C> <C>
03-21-84 100 $2,100.00 04-3-96 100 $1,275.00
</TABLE>
COMPUTATION OF INCOME AND EXPENSE FOR UNITS SOLD IN 1996
SABINE ROYALTY TRUST
TAX COMPUTATION WORKSHEET
1996
(RETAIN THIS WORKPAPER AS PART OF YOUR PERMANENT TAX RECORDS)
PART I
INCOME AND EXPENSE
<TABLE>
<CAPTION>
A B C
AMOUNTS PER UNIT
NUMBER OF FROM APPROPRIATE
UNITS OWNED SCHEDULE(S) WHERE TO REFLECT ON
ITEM (NOTE 1) (NOTE 2) TOTALS 1996 FORM 1040 (NOTE 3)
---- ----------- ---------------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross Royalty Income.... 100 X $.343543 = $34.35 Line 4, Part I, Schedule E
---------- -------------- ----------
Severance Tax........... 100 X $.02367 = $ 2.37 Line 16, Part I, Schedule E
---------- -------------- ----------
Interest Income......... 100 X $.002250 = $ .23 Line 1, Part I, Schedule B
---------- -------------- ----------
Administrative Expense.. 100 X $.048723 = $ 4.87 Line 18, Part I, Schedule E
---------- -------------- ----------
</TABLE>
PART II
COST DEPLETION (NOTE 4)
<TABLE>
<CAPTION>
COST DEPLETION
ALLOWABLE IN PRIOR ADJUSTED BASIS FOR
CALENDAR YEARS COST DEPLETION APPROPRIATE 1996
OIGINAL BASISR (NOTE 5) PURPOSES COST DEPLETION FACTOR 1996 COST DEPLETION*
-------------- ------------------ ------------------ --------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$2,100.00 - $1,573.99 = $526.01 X .036335 = $19.11
---------- ------------- -------------- ---------------- ----------------
</TABLE>
*Reflect cost depletion on 1996 Form 1040, line 20, Part 1, Schedule E (Note 3).
PART III
COMPUTATION OF GAIN OR (LOSS) FOR UNITS SOLD
<TABLE>
<CAPTION>
WHERE TO REFLECT ON
NET SALES ADJUSTED BASIS GAIN 1996 FORM 1040
PRICE (NOTE 6) (LOSS) (NOTE 3)
--------- -------------- ------- -------------------
<S> <C> <C> <C> <C> <C> <C>
$1,275.00 - $506.90 = $768.10 Form 4797
--------- ------------ -------
</TABLE>
See Page 4 for Applicable Notes.
(SRT 1996 TAX)
31
<PAGE>
COMPREHENSIVE EXAMPLE 2
(CONTINUED)
SABINE ROYALTY TRUST
SUPPLEMENT TO TAX COMPUTATION WORKSHEET
1996
FOR UNITS HELD FOR ONLY PART OF THE YEAR
This worksheet should be used by Unit holders who became holders of record
of Units or ceased to be holders of record of Units during the period from
January 16, 1996 through December 16, 1996. This worksheet is designed to
assist Unit holders in determining the proper income and expense factors to be
used on the Tax Computation Worksheet-- Part I, under the heading entitled
"Amounts Per Unit from Appropriate Schedule(s)". In order to complete this
schedule, Unit holders should insert only the individual income and expense
factors from the monthly schedules (pages 7-18) for each month during which
the Units were owned on a Monthly Record Date. (See page 3 for a list of
Monthly Record Dates.)
<TABLE>
<CAPTION>
MONTH(S) DURING WHICH UNITS WERE OWNED ON A MONTHLY RECORD DATE CALCULATED
----------------------------------------------------------------------------------------------- FACTOR
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER PER UNIT*
------- -------- ------- ------ ------ ------ ------ ------ --------- ------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Gross Royalty
Income......... .102404 .114644 .126495 -- -- -- -- -- -- -- -- -- .343543
------- ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Severance Tax... .005712 .008891 .009067 -- -- -- -- -- -- -- -- -- .023670
------- ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Interest
Income......... .000685 .000800 .000765 -- -- -- -- -- -- -- -- -- .002250
------- ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
Administrative
Expense........ .034527 .007593 .006603 -- -- -- -- -- -- -- -- -- .048723
------- ------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------ -------
</TABLE>
- -------
* This column of calculated factors per Unit should be inserted in column B of
the Income and Expense section (Part I) of the Tax Computation Worksheet on
page 4.
(SRT 1996 TAX)
32
<PAGE>
SABINE ROYALTY TRUST
DISCUSSION OF TAX CONSIDERATIONS PERTAINING TO THE
OWNERSHIP OF UNITS IN SABINE ROYALTY TRUST
The tax law requires individuals, estates, trusts, closely held C
corporations and personal service corporations to categorize income and
expense into one of three classes, "active," "portfolio" or "passive", based
upon the nature of the activity and the involvement of the taxpayer in such
activity. Since the Trust is a grantor trust, the Unit holders are deemed to
hold the investment in the royalty interests directly and the proper
classification of the Trust income and expense will be dependent upon the
relevant facts and circumstances of each Unit holder. Generally, income or
loss resulting from an interest in the Trust is properly classified as
portfolio and as such can be reported as directed on the tax computation
worksheet (page 4). However, under certain limited circumstances a different
classification may be appropriate, accordingly Unit holders should consult
their tax advisor concerning this matter.
TAXATION OF THE ORIGINAL DISTRIBUTION OF UNITS
A detailed discussion of the Federal income tax consequences arising from
the original distribution of Units was included in the 1983 tax information
booklet of the Trust. The majority of that discussion was applicable only to
Unit holders who received Units in the distribution from Sabine Corporation
("Sabine"). Unit holders who desire a copy of this material may obtain copies
of the information by writing the Trustee of the Trust at:
Sabine Royalty Trust
1983 Tax Booklet
NationsBank of Texas N.A., Trustee
P.O. Box 830650
Dallas, Texas 75283-0650
TAX BACKGROUND INFORMATION
Sabine received a private letter ruling from the Internal Revenue Service,
dated May 2, 1983 (the "Ruling"), concerning certain tax considerations
relevant to the creation and continued existence of the Trust. Pursuant to the
Ruling, the Trust is classified for Federal income tax purposes as a "grantor
trust" and not as an association taxable as a corporation. A grantor trust is
not subject to Federal income tax. Instead, its beneficiaries (the Unit
holders in the case of the Trust) are generally considered to own the trust's
income and principal as though no trust were in existence. A grantor trust
simply files an information return reflecting all items of income and/or
deductions that will be included in the returns of the beneficiaries.
Accordingly, each Unit holder of the Trust is taxable on his pro rata share of
the Trust income and/or deductions.
The income received or accrued and deductions paid or incurred by the Trust
are deemed to be received or accrued and paid or incurred, respectively, by
each Unit holder at the same time as the Trust. Thus, the taxable year for
reporting a Unit holder's share of the Trust's income and deductions is
controlled by the Unit holder's taxable year and method of accounting rather
than the taxable year and method of accounting of the Trust. For example, a
cash basis Unit holder should recognize income attributable to his Units as
such income is received by the Trust; and deductions attributable to his Units
should be claimed when such deductions are paid by the Trust.
(SRT 1996 TAX)
A-1
<PAGE>
Effect of Escrow Arrangement
The assets of the Trust include royalty and mineral interests in certain
producing and proved undeveloped oil and gas properties (the "Properties"),
which constitute economic interests in gross production of oil, gas and other
minerals free of the costs of production. The Properties are located in six
states and were not carved out of any of Sabine's working interests in
effecting the distribution. In order to facilitate creation of the Trust and
avoid the administrative expense and inconvenience of daily reporting to Unit
holders, the conveyances by Sabine of the Properties located in five of the
six states provided for the execution of an escrow agreement by Sabine, the
Trustee and InterFirst Bank Dallas, N.A., in its capacity as escrow agent. The
conveyances by Sabine of the Properties 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 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 Trustee's holding record title to the
Properties located in Louisiana.
Pursuant to the terms of the escrow agreement and the conveyances of the
Properties by Sabine, the proceeds of production from the Properties for each
calendar month, and interest thereon, are collected by the escrow agents and
are paid to and received by the Trust only on the next Monthly Record Date.
The escrow agents have agreed to endeavor to assure that they incur and pay
expenses for each calendar month only on the 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 the escrow
arrangement is recognized for Federal income tax purposes and the Trustee and
the escrow agents are able to control the timing of income and expenses, as
stated above, both cash and accrual basis Unit holders will be treated as
realizing income only on each Monthly Record Date. The Trustee is treating the
escrow arrangement as effective for tax purposes and the accompanying tax
information has been presented accordingly.
If the escrow arrangement is not recognized for Federal income tax purposes,
a mismatching of income and deductions could occur between a transferor and a
transferee upon the sale or exchange of Units. In addition, the Trustee would
be required to report the proceeds from production, interest income thereon
and any deductions to the Unit holders on a daily basis, resulting in a
substantial increase in the administrative expenses of the Trust.
DEPLETION
Cost Depletion
Pursuant to the previously mentioned Ruling, each Unit holder is entitled to
deduct cost depletion with respect to his pro rata interest in the Properties.
This cost depletion deduction is computed by reference to the Unit holder's
basis in each of his Units.
The deduction for cost depletion must be computed by a Unit holder with
respect to each separate property in the Trust. A Unit holder's tax basis in
each separate property generally must be determined at the time each Unit is
acquired by allocating such Unit holder's cost in each Unit among all
properties in the Trust based on their relative fair market values. However, a
corporate Unit holder that acquired Units in the distribution from Sabine must
determine its tax basis in each separate property in the Trust at the time of
the distribution by reference to Sabine's tax basis in each separate property
included in the distribution. The cost depletion deduction attributable to
each separate property is calculated for a taxable year by multiplying the tax
basis of the property times the decimal derived when estimated total
(SRT 1996 TAX)
A-2
<PAGE>
equivalent units of production (barrels of oil and MCF's of gas) expected to
be recovered from the property as of the beginning of the taxable year is
divided into the number of equivalent units produced and sold from such
property during the taxable year. The resulting deduction for cost depletion
cannot exceed the adjusted tax basis in the property. The composite depletion
factors presented herein were derived in a manner that encompasses this
separate property concept.
Percentage Depletion
Prior to the Revenue Reconciliation Act of 1990, Unit holders were
prohibited from claiming percentage depletion on transferred proven oil and
gas properties. Since substantially all of the properties were "proven
properties" on the date of the original distribution, the percentage depletion
deduction has limited applicability to Unit holders which became Unit holders
prior to October 12, 1990.
For Unit holders which become Unit owners from transfers of Units occurring
after October 11, 1990, the Revenue Reconciliation Act of 1990 repeals the
prohibition on claiming percentage depletion. A computation of percentage
depletion has been made with respect to the post October 11, 1990 transfers.
However, since cost depletion exceeds any otherwise allocable percentage
depletion, percentage depletion factors have not been presented by reference
to the number of units a Unit holder owns. Percentage depletion will continue
to be computed and compared to cost depletion on an annual basis for
applicable transfers occurring after October 11, 1990.
NONRESIDENT FOREIGN UNIT HOLDERS
Nonresident alien individual and foreign corporation Unit holders ("Foreign
Taxpayer(s)"), in general, are subject to tax on the gross income attributable
to the Trust at a rate equal to 30 percent (or the lower rate under any
applicable treaty) without any deductions. This tax is withheld by the Trust
and remitted directly to the United States Treasury. Foreign Taxpayers who
have had tax withheld in 1996 should have received a Form 1042S from the
Trust. The Form 1042S will reflect the total Federal income tax withheld from
distributions. The amount reported on the Form 1042S should not be included as
additional income in computing taxable income, as such amount is already
included in the per Unit income items on the income and expense schedules. The
Federal income tax withheld, as reported on the Form 1042S, should be
considered as a credit by the Unit holder in computing any Federal income tax
liability.
A Foreign Taxpayer holding income producing real property may elect to treat
the income from such real property as effectively connected with the conduct
of a United States trade or business. The income attributable to the
Properties is considered as income produced from real property. Therefore,
this election should be available to Foreign Taxpayers with respect to the
taxable income resulting from the ownership of Units. A Unit holder so
electing is entitled to claim all deductions with respect to such income, but
must file a United States income tax return to claim such deductions. This
election once made is generally irrevocable unless an applicable treaty allows
the election to be made periodically.
The Foreign Investment in Real Property Tax Act of 1980, as amended
("FIRPTA"), generally treats interests in trusts owning United States real
property as United States real property interests. However, pursuant to
applicable Treasury regulations, Units in Trust, for purposes of FIRPTA only,
are not considered United States real property interests unless they are owned
by a Unit holder having greater than a 5% interest in the Trust. Additionally,
certain reporting provisions are applicable with respect to Foreign Taxpayers
owning a greater than 5% interest in the Trust.
Generally, income tax is required to be withheld from any proceeds
distributed to Foreign Taxpayers at the rate of 10% of the amount realized by
Foreign Taxpayers upon the sale, exchange
(SRT 1996 TAX)
A-3
<PAGE>
or other disposition of a Unit. This withholding is required only when the
FIRPTA provisions apply, as described in the preceding paragraph. In addition,
distributions, if any, that represent the Foreign Taxpayer's allocable share
of gain realized upon the sale, exchange or other disposition of a United
States real property interest by the Trust, will generally be subject to
withholding tax at a 34% rate.
In order to avoid such withholding when the FIRPTA provisions apply, Foreign
Taxpayers will be required to furnish the applicable withholding agent with an
exemption statement certifying why such withholding is not required. Foreign
Taxpayers are encouraged to consult their own tax advisors concerning the tax
consequences of their investment in the Trust.
SALE OR EXCHANGE OF UNITS
Generally, a Unit Holder realizes gain or loss upon the sale or exchange of
any Unit measured by the difference between the amount realized from the sale
or exchange and the adjusted tax basis of such Unit. The adjusted tax basis of
a Unit is the original basis of such Unit reduced by depletion deductions
allowable (whether deducted or not) with respect to such Unit. Trust income
allocable to such Unit to the date of sale is taxable to the selling Unit
holder. The purchaser of a Unit is taxable on Trust income allocable to such
Unit from the date of purchase forward. For Federal income tax purposes, Trust
income should generally be allocable only to the holder of record of a Unit on
each Monthly Record Date. Gain or loss on the sale of a Unit by a Unit holder
who acquired the Unit(s) prior to January 1, 1987 who is not a "dealer" with
respect to such Unit, who holds it as a capital asset and who has held it for
the required amount of time will, in general, be treated as a long-term
capital gain or loss.
A Unit holder who is not a dealer who sells a Unit acquired on or after
January 1, 1987 must recapture the depletion deductions taken with respect to
such Unit by recognizing as ordinary income the lesser of (1) the depletion
deductions taken or (2) the amount realized upon the sale less the adjusted
basis of the Unit. Gain in excess of the recaptured depletion deduction will,
in general, be treated as a capital gain.
Units acquired after 1987 qualifying as capital assets must be owned more
than 1 year to qualify for long-term capital gain or loss treatment.
BACKUP WITHHOLDING
A payer is required under specified circumstances to withhold tax at the
rate of 31% on "reportable interest or dividend payments" and "other
reportable payments" (including certain oil and gas royalty payments).
Generally, this "backup withholding" is required on payments if the payee has
failed to furnish the payer a taxpayer identification number or if the payer
is notified by the Secretary of the Treasury to withhold taxes on such
payments with respect to the payee.
Amounts withheld by payers pursuant to the backup withholding provisions are
remitted to the Internal Revenue Service and are considered a credit against
the payee's Federal income tax liability. If the payee does not incur a
Federal income tax liability for the year in which the taxes are withheld, the
payee will be required to file the appropriate income tax return to claim a
refund of the taxes withheld.
STATE INCOME TAX
Unit holders may be required to file state income tax returns and may be
liable for state income tax as a result of their ownership of Units. The
Properties are located in Florida, Louisiana, Mississippi, New Mexico,
Oklahoma and Texas. The tax information included in this booklet is being
presented in
(SRT 1996 TAX)
A-4
<PAGE>
a manner to enable Unit holders to compute the income and deductions of the
Trust attributable to each of these states. Unit holders will need this
information to comply with the state income tax filing requirements in those
states imposing a state income tax. The laws pertaining to income tax in any
given state may vary from those of another state and from those applicable to
Federal income tax. Accordingly, Unit holders are urged to consult their own
tax advisors concerning this matter.
The Trustee has been informed that certain states have contacted Unit
holders regarding underpayments of the state income tax imposed on the Unit
holders' income from the Trust. Failure by Unit holders to properly report
their state tax liability could result in the direct withholding of state
taxes from Trust distributions. Accordingly, Unit holders are urged to
carefully review the various filing requirements of the states listed below in
order to determine if a current or prior year state income tax liability
exists as a result of the ownership of Units in the Trust.
The state of Texas does not impose an individual income tax; therefore, no
part of the income attributable to the Trust will be subject to state income
tax in Texas for individuals. However, corporations (and Limited Liability
Companies) doing business in Texas are subject to the Texas Franchise Tax
which now includes a calculation based on the corporation's taxable income for
Federal income tax purposes. The state of Florida imposes an income tax on
resident and nonresident corporations but not individuals. Each of the other
states in which the Properties are located imposes an income tax applicable to
both resident and nonresident individuals and corporations. Generally, the
state income tax in these states is computed as a percentage of taxable income
attributable to the particular state. Furthermore, even though there are
variances from state to state, taxable income for state purposes is often
computed in a manner similar to the computation of taxable income for Federal
income tax purposes.
All states have not adopted Federal law with respect to the percentage
method of computing depletion nor are such methods consistent among the
various states. It should be noted, however, that cost depletion is allowed by
those states indicated above which impose a state income tax. Included herein
is information to assist you in determining the respective allowable cost
depletion deductions by state.
The following table reflects calendar year corporate and individual income
tax return due dates for the states in which the Properties are located. The
state income tax return due dates for fiscal year taxpayers will generally
allow the same period of time following the end of their respective fiscal
years as is allowed for calendar year taxpayers. However, the Texas franchise
tax return is generally due for all corporations on May 15.
<TABLE>
<CAPTION>
CORPORATE INDIVIDUAL
STATE TAXPAYER TAXPAYER
----- --------- ----------
<S> <C> <C>
Texas May 15 Not Applicable
Florida April 1 Not Applicable
Louisiana April 15 May 15
Mississippi March 15 April 15
Oklahoma March 15 April 15
New Mexico March 15 April 15
</TABLE>
Unit holders should consult their own tax advisors concerning the type of
state income tax returns that may be required and their applicable due dates.
(SRT 1996 TAX)
A-5
<PAGE>
Following is a list of names and addresses of the various state taxing
authorities from which you may obtain additional information:
<TABLE>
<S> <C> <C>
Florida Florida Department of Revenue
5050 W. Tennessee Street, Bldg K
Tallahassee, Florida 32399-0135
(904) 488-6800
New Mexico Individuals: State of New Mexico
Taxation and Revenue Department
1200 Saint Francis Drive
P.O. Box 630
Santa Fe, New Mexico 87509-0630
(505) 827-0700, (505) 827-0830
Corporations: New Mexico Taxation and Revenue Department
Attention: Corporate Income and Franchise Tax
P.O Box 25127
Santa Fe, New Mexico 87504-5127
(505) 827-0939
Mississippi Mississippi State Tax Commission
Bureau of Revenue
P.O. Box 23050
Jackson, Mississippi 39225-3050
(601) 359-1105, (601) 359-1141
Louisiana Individuals: Department of Revenue and Taxation
State of Louisiana
P.O Box 3440
Baton Rouge, Louisiana 70823-3440
(504) 925-4611
Corporations: Secretary of Revenue and Taxation
State of Louisiana
P.O. Box 91011
Baton Rouge, Louisiana 70821-9011
(504) 925-4611
Oklahoma Individuals: Income Tax Division
Connors Bldg.
2501 N. Lincoln Blvd.
Oklahoma City, OK 73194
Corporations: Oklahoma Tax Commission
P.O. Box 26800
Oklahoma City, Oklahoma 73126-0800
(405) 521-3125
Texas Texas Comptroller of Public Accounts
Austin, Texas 78774-0100
(800) 252-5555
</TABLE>
(SRT 1996 TAX)
A-6
