FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 0-15408
Southwest Royalties, Inc. Income Fund V
(Exact name of registrant as specified
in its limited partnership agreement)
Tennessee 75-2104619
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
407 N. Big Spring, Suite 300
Midland, Texas 79701
(Address of principal executive offices)
(915) 686-9927
(Registrant's telephone number,
including area code)
Indicate by check mark whether 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
The total number of pages contained in this report is 14.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed financial statements included herein have been
prepared by the Registrant (herein also referred to as the "Partnership") in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
necessary for a fair presentation have been included and are of a normal
recurring nature. The financial statements should be read in conjunction
with the audited financial statements and the notes thereto for the year
ended December 31, 1994 which are found in the Registrant's Form 10-K Report
for 1994 filed with the Securities and Exchange Commission. The December 31,
1994 balance sheet included herein has been taken from the Registrant's 1994
Form 10-K Report. Operating results for the three and six month periods
ended June 30, 1995 are not necessarily indicative of the results that may be
expected for the full year.
Southwest Royalties, Inc. Income Fund V
Balance Sheets
June 30, December 31,
1995 1994
----------- ------------
(unaudited)
Assets
Current assets:
Cash $ 28,392 16,645
Receivable from Managing General Partner 86,773 103,629
--------- ---------
Total current assets 115,165 120,274
--------- ---------
Oil and gas properties - using the full
cost method of accounting 6,173,729 6,173,729
Less accumulated depreciation,
depletion and amortization 4,615,520 4,491,520
--------- ---------
Net oil and gas properties 1,558,209 1,682,209
--------- ---------
$ 1,673,374 1,802,483
========= =========
Liabilities and Partners' Equity
Current liabilities:
Accounts payable $ 500 680
Distributions payable 44 -
--------- ---------
Total current liabilities 544 680
--------- ---------
Partners' equity:
General partners (509,816) (497,419)
Limited partners 2,182,646 2,299,222
--------- ---------
Total partners' equity 1,672,830 1,801,803
--------- ---------
$ 1,673,374 1,802,483
========= =========
Southwest Royalties, Inc. Income Fund V
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
Revenues
Income from net profits interests $ 93,032 82,414 155,387 142,493
Interest income from operations 247 281 422 427
------ ------- ------- -------
93,279 82,695 155,809 142,920
------ ------- ------- -------
Expenses
General and administrative 30,488 31,022 66,282 67,679
Depreciation, depletion and
amortization 63,000 72,000 124,000 138,000
------ ------- ------- -------
93,488 103,022 190,282 205,679
------ ------- ------- -------
Net loss $ (209) (20,327) (34,473) (62,759)
====== ======= ======= =======
Net loss allocated to:
Managing General Partner $ (19) (1,829) (3,102) (5,648)
====== ======= ======= =======
General Partner $ (2) (204) (345) (628)
====== ======= ======= =======
Limited Partners $ (188) (18,294) (31,026) (56,483)
====== ======= ======= =======
Per limited partner unit $ (.03) (2.44) (4.14) (7.53)
====== ======= ======= =======
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
1995 1994
---- ----
Cash flows from operating activities:
Cash received from income from net
profits interests $ 172,243 150,888
Cash paid to suppliers (66,462) (45,596)
Interest received 422 427
------- -------
Net cash provided by operating
activities 106,203 105,719
------- -------
Cash flows provided by investing activities:
Cash received from sale of oil and gas
property interest - 3,749
------- -------
Cash flows used in financing activities:
Distributions to partners (94,456) (83,511)
------- -------
Net increase in cash 11,747 25,957
Cash -
beginning of period 16,645 413
------- -------
end of period $ 28,392 26,370
======= =======
(continued)
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
1995 1994
---- ----
Reconciliation of net loss to
net cash provided by operating
activities:
Net loss $ (34,473) (62,759)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation, depletion and amortization 124,000 138,000
Decrease in accounts receivable 16,856 8,395
Increase (decrease) in accounts payable (180) 22,083
------- -------
Net cash provided by operating
activities $ 106,203 105,719
======= =======
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Royalties, Inc. Income Fund V was organized as a Tennessee limited
partnership on May 1, 1986, after receipt from investors of $1,000,000 in
limited partner capital contributions. The offering of limited partnership
interests began on January 22, 1986 and concluded on July 22, 1986, with
total limited partner contributions of $7,500,000.
The Partnership was formed to acquire royalty and net profits interests in
producing oil and gas properties, to produce and market crude oil and natural
gas produced from such properties, and to distribute the net proceeds from
operations to the limited and general partners. Net revenues from producing
oil and gas properties are not reinvested in other revenue producing assets
except to the extent that production facilities and wells are improved or
reworked or where methods are employed to improve or enable more efficient
recovery of oil and gas reserves.
Increases or decreases in Partnership revenues and, therefore, distributions
to partners will depend primarily on changes in the prices received for
production, changes in volumes of production sold, increases and decreases in
lease operating expenses, enhanced recovery projects, offset drilling
activities pursuant to farm-out arrangements, sales of properties, and the
depletion of wells. Since wells deplete over time, production can generally
be expected to decline from year to year.
Well operating costs and general and administrative costs usually decrease
with production declines; however, these costs may not decrease
proportionately. Net income available for distribution to the partners is
therefore expected to fluctuate in later years based on these factors.
Results of Operations
A. General Comparison of the Quarters Ended June 30, 1995 and 1994
The following table provides certain information regarding performance
factors for the quarters ended June 30, 1995 and 1994:
Three Months
Ended Percentage
June 30, Increase
1995 1994 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 18.25 17.00 7%
Average price per mcf of gas $ 1.93 2.04 (5%)
Oil production in barrels * 8,300 8,600 (3%)
Gas production in mcf * 52,900 48,000 10%
Income from net profits interests $ 93,032 82,414 13%
Partnership distributions $ 56,500 44,000 28%
Limited partner distributions $ 50,850 39,600 28%
Per unit distribution to limited partners $ 6.78 5.28 28%
Number of limited partner units 7,499 7,499
*In the Form 10-Q, for the quarter ended June 30, 1994, the oil and gas
production volumes were calculated by rounding to the nearest 500 barrels or
mcf, respectively. In the Form 10-Q, for the quarter ended June 30, 1995,
the oil and gas production volumes were calculated by rounding to the nearest
100 barrels or mcf, respectively.
Revenues:
The Partnership's income from net profits interests increased to $93,032 from
$82,414 for the quarters ended June 30, 1995 and 1994, respectively, an
increase of 13%. The principal factors affecting the comparison of the
quarters ended June 30, 1995 and 1994 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended June 30, 1995 as compared to the
quarter ended June 30, 1994 by 7%, or $1.25 per barrel, resulting in an
increase of approximately $10,800 in income from net profits interests.
Oil sales represented 60% of total oil and gas sales during the quarters
ended June 30, 1995 and 1994.
The average price for an mcf of gas received by the Partnership decreased
during the same period by 5%, or $.11 per mcf, resulting in a decrease of
approximately $5,300 in income from net profits interests.
The net increase in income from net profits interests due to the change
in prices received from oil and gas production is approximately $5,500.
The market price for oil and gas has been extremely volatile over the
past decade, and management expects a certain amount of volatility to
continue in the foreseeable future.
2. Oil production decreased approximately 300 barrels or 3% during the
quarter ended June 30, 1995 as compared to the quarter ended June 30,
1994, resulting in a decrease of approximately $5,500 in income from net
profits interests.
Gas production increased approximately 4,900 mcf or 10% during the same
period, resulting in an increase of approximately $9,500 in income from
net profits interests.
The net increase in income from net profits interests due to the change
in production is approximately $4,000. The increase is a result of
increased gas production, due to a previously shut-in well being brought
back on line, and a successful workover performed on one well.
3. Lease operating costs and production taxes were 1% lower, or
approximately $1,100 less during the quarter ended June 30, 1995 as
compared to the quarter ended June 30, 1994.
Costs and Expenses:
Total costs and expenses decreased to $93,488 from $103,022 for the quarters
ended June 30, 1995 and 1994, respectively, a decrease of 9%. The decrease
is the result of a decrease in general and administrative expense and
depletion.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs decreased 2%
or approximately $500 during the quarter ended June 30, 1995 as compared
to the quarter ended June 30, 1994.
2. Depletion expense decreased to $63,000 for the quarter ended June 30,
1995 from $72,000 for the same period in 1994. This represents a
decrease of 13%. Depletion is calculated using the gross revenue method
of amortization based on a percentage of current period gross revenues to
total future gross oil and gas revenues, as estimated by the
Partnership's independent petroleum consultants. Consequently, depletion
will generally fluctuate in direct relation to oil and gas revenues.
Although oil and gas revenues increased for the quarter ended June 30,
1995 as compared to the quarter ended June 30, 1994, the decrease in
depletion expense is the result of the change in oil prices since 1994.
B. General Comparison of the Six Month Periods Ended June 30, 1995 and 1994
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 1995 and 1994:
Six Months
Ended Percentage
June 30, Increase
1995 1994 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 17.83 15.20 17%
Average price per mcf of gas $ 2.02 1.93 5%
Oil production in barrels * 16,200 16,800 (4%)
Gas production in mcf * 104,700 108,500 (4%)
Income from net profits interests $ 155,387 142,493 9%
Partnership distributions $ 94,500 83,500 13%
Limited partner distributions $ 85,550 75,150 14%
Per unit distribution to limited partners $ 11.41 10.02 14%
Number of limited partner units 7,499 7,499
*In the Form 10-Q, for the six months ended June 30, 1994, the oil and gas
production volumes were calculated by rounding to the nearest 500 barrels or
mcf, respectively. In the Form 10-Q, for the six months ended June 30, 1995,
the oil and gas production volumes were calculated by rounding to the nearest
100 barrels or mcf, respectively.
Revenues:
The Partnership's income from net profits interests increased to $155,387
from $142,493 for the six months ended June 30, 1995 and 1994, respectively,
an increase of 9%. The principal factors affecting the comparison of the six
months ended June 30, 1995 and 1994 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the six months ended June 30, 1995 as compared to the
six months ended June 30, 1994 by 17%, or $2.63 per barrel, resulting in
an increase of approximately $44,200 in income from net profits
interests. Oil sales represented 58% of total oil and gas sales during
the six months ended June 30, 1995 as compared to 55% during the six
months ended June 30, 1994.
The average price for an mcf of gas received by the Partnership increased
during the same period by 5%, or $.09 per mcf, resulting in an increase
of approximately $9,800 in income from net profits interests.
The total increase in income from net profits interests due to the change
in prices received from oil and gas production is approximately $54,000.
The market price for oil and gas has been extremely volatile over the
past decade, and management expects a certain amount of volatility to
continue in the foreseeable future.
2. Oil production decreased approximately 600 barrels or 4% during the six
months ended June 30, 1995 as compared to the six months ended June 30,
1994, resulting in a decrease of approximately $10,700 in income from net
profits interests.
Gas production decreased approximately 3,800 mcf or 4% during the same
period, resulting in a decrease of approximately $7,700 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $18,400.
3. Lease operating costs and production taxes were 7% higher, or
approximately $23,200 more during the six months ended June 30, 1995 as
compared to the six months ended June 30, 1994. The increase is a result
of a previously shut-in well being brought back on line and a workover on
one well.
Costs and Expenses:
Total costs and expenses decreased to $190,282 from $205,679 for the six
months ended June 30, 1995 and 1994, respectively, a decrease of 7%. The
decrease is the result of a decrease in general and administrative expense
and depletion.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs decreased 2%
or approximately $1,400 during the six months ended June 30, 1995 as
compared to the six months ended June 30, 1994.
2. Depletion expense decreased to $124,000 for the six months ended June 30,
1995 from $138,000 for the same period in 1994. This represents a
decrease of 10%. Depletion is calculated using the gross revenue method
of amortization based on a percentage of current period gross revenues to
total future gross oil and gas revenues, as estimated by the
Partnership's independent petroleum consultants. Consequently, depletion
will generally fluctuate in direct relation to oil and gas revenues.
Although oil and gas revenues increased for the six months ended June 30,
1995 as compared to the six months ended June 30, 1994, the decrease in
depletion expense is the result of the change in oil prices since 1994.
Liquidity and Capital Resources:
The primary source of cash is from operations, the receipt of income from net
profits in oil and gas properties. The Partnership knows of no material
change, nor does it anticipate any such change.
Cash flows provided by operating activities were approximately $106,200 in
the six months ended June 30, 1995 as compared to approximately $105,700 in
the six months ended June 30, 1994. Primary source of the 1995 cash flow
from operating activities was profitable operations.
There were no cash flows provided by or used in investing activities in the
six months ended June 30, 1995 as compared to approximately $3,700 of cash
provided by the sale of oil and gas properties in the six months ended June
30, 1994.
Cash flows used in financing activities were approximately $94,500 in the six
months ended June 30, 1995 as compared to approximately $83,500 in the six
months ended June 30, 1994. The only use in financing activities was the
distributions to partners.
Total distributions during the six months ended June 30, 1995 were $94,500 of
which $85,550 was distributed to the limited partners and $8,950 was
distributed to the general partners. The per unit distribution to limited
partners during the six months ended June 30, 1995 was $11.41. Total
distributions during the six months ended June 30, 1994 were $83,500 of which
$75,150 was distributed to the limited partners and $8,350 was distributed to
the general partners. The per unit distribution to limited partners during
the six months ended June 30, 1994 was $10.02. The source for the 1995
distributions of $94,500 was oil and gas operations of approximately
$106,200, resulting in excess cash for contingencies or subsequent
distributions. The sources for the 1994 distributions of $83,500 were oil
and gas operations of approximately $105,700 and equipment sales of
approximately $3,700, resulting in excess cash for contingencies or
subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions of
$6,497,489 have been made to the partners. As of June 30, 1995, $5,830,466
or $777.50 per limited partner unit has been distributed to the limited
partners, representing a 78% return of the capital contributed.
As of June 30, 1995, the Partnership had approximately $114,600 in working
capital. The Managing General Partner knows of no unusual contractual
commitments and believes the revenues generated from operations are adequate
to meet the needs of the Partnership.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHWEST ROYALTIES, INC.
INCOME FUND V,
a Tennessee limited partnership
By: Southwest Royalties, Inc.
Managing General Partner
Date: August 2, 1995 By: /s/ Bill E. Coggin
------------------------------
Bill E. Coggin, Vice President
and Chief Financial Officer