Sabine Royalty Trust: Outlook Bullish for 9.5%-Yielder Despite Industry Headwinds
November 6, 2024
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Oil prices have taken a beating of late, but by all accounts, market bears are overreacting, and the outlook for crude remains robust.
The recent price declines in West Texas Intermediate (WTI) and Brent Crude came after the October 26 Israeli air strikes on Iran, which targeted military targets and not the country’s oil infrastructure.
WTI tumbled more than six percent to near $67.00 per barrel. Brent, meanwhile, fell a similar amount to below $72.00 per barrel. (Source: “Oil Plunges as Israel Limits Iran Strike to Military Targets,” BNN Bloomberg, October 27, 2024.)
The move lower is hardly surprising, especially when you factor in the big runup in crude oil prices in early October that pushed WTI above $75.00 per barrel. The recent drop in oil prices has essentially removed the so-called war premium from earlier this month.
While lackluster demand from China is a factor in recent industry headwinds, there are two big issues that could influence the price of oil as we head into 2025: the U.S. presidential election; and an Organization of the Petroleum Exporting Countries (OPEC) meeting in early December.
A Donald Trump presidential victory would be bullish for crude oil, while continued weak oil prices point to lower output from OPEC. Both of these events would lead to higher crude oil prices over the coming months.
Now, this doesn’t mean that oil is going to rocket to $90.00 per barrel, but because of market fundamentals, a range of $75.00 to $80.00 is not out of the question. And that should be good news for oil and gas stocks like Sabine Royalty Trust (NYSE:SBR).
About Sabine Royalty Trust
Dallas-Texas-based Sabine Royalty Trust is an oil and gas trust that has royalty and mineral interests in producing and undeveloped oil and gas properties located in Florida, Louisiana, Mississippi, New Mexico, Oklahoma, and Texas. (Source: “About Us,” Sabine Royalty Trust, last accessed October 29, 2024.)
That means that the trust has no real operations or capital expenses. It was formed in 1982 by Sabine Corporation and, as a trust, Sabine Royalty is primarily used as a flow-through entity for royalties. Virtually all of the royalty income it receives gets passed on to unitholders. That also means it isn’t exploring for or investing in new wells.
When the trust was formed in 1982, it had estimated reserves of approximately nine million barrels of oil and 62 billion cubic feet of gas. At that time, Sabine Royalty Trust was expected to have a lifespan of nine to 10 years and to be fully depleted by 1993.
That didn’t happen.
Since then, the trust has produced roughly 24 million barrels of oil and 307 billion cubic feet of gas. This has resulted in Sabine Royalty paying out roughly $1.679 billion to unitholders. With current reserve estimates of 7.9 million barrels of oil and 46.4 billion cubic feet of gas remaining, Sabine Royalty Trust believes its properties still have a lifespan of an additional eight to 10 years. (Source: “Form-10K,” United States Securities and Exchange Commission, February 29, 2024.)
Announces October Cash Distribution of $0.43/Unit
Sabine Royalty’s expected revenues are directly dependent upon the price of oil and gas, as well as the quantities produced.
In October, the trust declared a monthly cash distribution of $0.43584 per unit, or $6.06 per unit on an annual basis, for a forward yield of 9.5%. (Source: “SABINE ROYALTY TRUST ANNOUNCES MONTHLY CASH DISTRIBUTION FOR OCTOBER 2024,” Sabine Royalty Trust, October 4, 2024.)
The distribution reflects the oil production from July 2024 and gas production from June 2024. So, the current price of oil and gas is not reflected in Sabine Royalty’s financial results for around three months.
During the production period, the company generated 64,075 barrels of oil at $79.00 per barrel and 1,182,039 thousand cubic feet (Mcf) of gas at $1.81 per Mcf of gas. In the prior month, Sabine Royalty produced 64,743 barrels of oil at $78.14 per barrel and 1,359,603 Mcf of gas at $1.52 per Mcf of gas, resulting in a September payout of $0.42131 per unit.
As expected, the distribution changes from year to year, too.
| Year | Distribution |
| 2023 | $6.38 |
| 2022 | $8.61 |
| 2021 | $3.21 |
| 2020 | $2.39 |
| 2019 | $3.01 |
| 2018 | $3.34 |
| 2017 | $2.36 |
So far this year, Sabine Royalty has distributed $4.62 per unit. With two more months to report, it appears as though the trust’s annual payout will be less than it was in 2022 and 2023, but still far more than it paid out from 2014 through 2021. (Source: “Cash Distributions,” Sabine Royalty Trust, last accessed October 29, 2024.)
The company’s reliable, ultra-high-yielding monthly dividend could help unitholders weather market uncertainty and volatility, which can be reflected in its share price. As of this writing, SBR stock is down 3.7% in 2024, but it has rallied 15.5% over the last 12 months.
Trading at $60.76 per unit, there is lots of upside potential for SBR, having hit a record high of $77.59 on January 18, 2023.
Chart courtesy of StockCharts.com
The Lowdown on Sabine Royalty Trust
Sabine Royalty Trust is an oil and gas midstream company with a reliable monthly dividend.
How reliable?
Well, Sabine continued to reward unitholders throughout the 2020 health crisis.
Sabine Royalty units are also up significantly from where they were before the pandemic. Since the start of 2020, SBR units have rallied 137.6%. They have underperformed in 2024, but the longer-term outlook for the broader oil and gas industry remains robust.
