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 March 31, 1996
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 12.
PAGE
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, 1995 which are found in the Registrant's Form 10-K Report
for 1995 filed with the Securities and Exchange Commission. The December 31,
1995 balance sheet included herein has been taken from the Registrant's 1995
Form 10-K Report. Operating results for the three month period ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for the full year.
PAGE
Southwest Royalties, Inc. Income Fund V
Balance Sheets
March 31, December 31,
1996 1995
--------- ------------
(unaudited)
Assets
Current assets:
Cash and equivalents $ 22,586 24,788
Receivable from Managing
General Partner 95,111 109,546
Distribution receivable - 47
--------- ---------
Total current assets 117,697 134,381
--------- ---------
Oil and gas properties - using
the full-cost method of accounting 6,171,938 6,171,938
Less accumulated depreciation,
depletion and amortization 4,708,520 4,676,520
--------- ---------
Net oil and gas properties 1,463,418 1,495,418
--------- ---------
$ 1,581,115 1,629,799
========= =========
Liabilities and Partners' Equity
Current liabilities:
Accounts payable $ 4,350 -
Distributions payable 34 -
--------- ---------
Total current liabilities 4,384 -
--------- ---------
Partners' equity:
General partners (519,332) (514,025)
Limited partners 2,096,063 2,143,824
--------- ---------
Total partners' equity 1,576,731 1,629,799
--------- ---------
$ 1,581,115 1,629,799
========= =========
PAGE
Southwest Royalties, Inc. Income Fund V
Statements of Operations
(unaudited)
Three Months Ended
March 31,
1996 1995
---- ----
Revenues
Income from net profits
interests $ 78,621 62,354
Interest income from
operations 223 175
------- -------
78,844 62,529
------- -------
Expenses
General and administrative 34,912 35,793
Depreciation, depletion and
amortization 32,000 61,000
------- -------
66,912 96,793
------- -------
Net income (loss) $ 11,932 (34,264)
======= =======
Net income (loss) allocated to:
Managing General Partner $ 1,074 (3,084)
======= =======
General partner $ 119 (343)
======= =======
Limited partners $ 10,739 (30,837)
======= =======
Per limited partner unit $ 1.43 (4.11)
======= =======
PAGE
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows
(unaudited)
Three Months Ended
March 31,
1996 1995
---- ----
Cash flows from operating activities:
Cash received from income from net
profits interests $ 93,056 67,058
Cash paid to suppliers (30,562) (29,903)
Interest received 223 175
------- -------
Net cash provided by operating
activities 62,717 37,330
------- -------
Cash flows used in financing activities:
Distributions to partners (64,919) (37,985)
------- -------
Net decrease in cash (2,202) (655)
Cash and cash equivalents:
Beginning of period 24,788 16,645
------- -------
End of period $ 22,586 15,990
======= =======
(continued)
PAGE
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows, continued
(unaudited)
Three Months Ended
March 31,
1996 1995
---- ----
Reconciliation of net income (loss) to
net cash provided by operating
activities:
Net income (loss) $ 11,932 (34,264)
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation, depletion and
amortization 32,000 61,000
Decrease in receivables 14,435 4,704
Increase in payables 4,350 5,890
------- -------
Net cash provided by operating
activities $ 62,717 37,330
======= =======
PAGE
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.
PAGE
Results of Operations
A. General Comparison of the Quarters Ended March 31, 1996 and 1995
The following table provides certain information regarding performance
factors for the quarters ended March 31, 1996 and 1995:
Three Months
Ended Percentage
March 31, Increase
1996 1995 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 19.24 17.39 11%
Average price per mcf of gas $ 2.14 2.12 1%
Oil production in barrels 5,700 7,900 (28%)
Gas production in mcf 36,800 51,800 (29%)
Income from net profits interests $ 78,621 62,354 26%
Partnership distributions $ 65,000 38,000 71%
Limited partner distributions $ 58,500 34,700 69%
Per unit distribution to limited
partners $ 7.80 4.63 69%
Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests increased to $78,621 from
$62,354 for the quarters ended March 31, 1996 and 1995, respectively, an
increase of 26%. The principal factors affecting the comparison of the
quarters ended March 31, 1996 and 1995 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended March 31, 1996 as compared to the
quarter ended March 31, 1995 by 11%, or $1.85 per barrel, resulting in an
increase of approximately $14,600 in income from net profits interests.
Oil sales represented 58% of total oil and gas sales during the quarter
ended March 31, 1996 as compared to 56% during the quarter ended
March 31, 1995.
The average price for an mcf of gas received by the Partnership increased
during the same period by 1%, or $.02 per mcf, resulting in an increase
of approximately $1,000 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 $15,600.
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 2,200 barrels or 28% during the
quarter ended March 31, 1996 as compared to the quarter ended March 31,
1995, resulting in a decrease of approximately $42,300 in income from net
profits interests.
Gas production decreased approximately 15,000 mcf or 29% during the same
period, resulting in a decrease of approximately $32,100 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $74,400. The decrease is a result of
increased downtime due to mechanical failures.
3. Lease operating costs and production taxes were 40% lower, or
approximately $74,400 less during the quarter ended March 31, 1996 as
compared to the quarter ended March 31, 1995. The decrease is a result
of workover costs incurred in 1995.
Costs and Expenses
Total costs and expenses decreased to $66,912 from $96,793 for the quarters
ended March 31, 1996 and 1995, respectively, a decrease of 31%. The decrease
is the result of lower general and administrative expense and depletion
expense.
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 $900 during the quarter ended March 31, 1996 as compared to
the quarter ended March 31, 1995.
2. Depletion expense decreased to $32,000 for the quarter ended March 31,
1996 from $61,000 for the same period in 1995. This represents a
decrease of 48%. 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. As
noted above, oil and gas revenues declined due to a decrease in
production for the quarter ended March 31, 1996 as compared to the same
period for 1995. Depletion reflected a comparable decline.
PAGE
Liquidity and Capital Resources
The primary source of cash is from operations, the receipt of income from
interests 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 $62,700 in the
three months ended March 31, 1996 as compared to approximately $37,300 in the
three months ended March 31, 1995. The primary source of the 1996 cash flow
from operating activities was profitable operations.
Cash flows used in financing activities were approximately $64,900 in the
three months ended March 31, 1996 as compared to approximately $38,000 in the
three months ended March 31, 1995. The only use in financing activities was
the distributions to partners.
Total distributions during the three months ended March 31, 1996 were $65,000
of which $58,500 was distributed to the limited partners and $6,500 to the
general partners. The per unit distribution to limited partners during the
three months ended March 31, 1996 was $7.80. Total distributions during the
three months ended March 31, 1995 were $38,000 of which $34,700 was
distributed to the limited partners and $3,300 to the general partners. The
per unit distribution to limited partners during the three months ended March
31, 1995 was $4.63.
The source for the 1996 distributions of $65,000 was oil and gas operations
of approximately $62,700, with the balance from available cash on hand at the
beginning of the period. The source for the 1995 distributions of $38,000
was oil and gas operations of approximately $37,300, with the balance from
available cash on hand at the beginning of the period.
Since inception of the Partnership, cumulative monthly cash distributions of
$6,654,930 have been made to the partners. As of March 31, 1996, $5,972,257
or $796.41 per limited partner unit has been distributed to the limited
partners, representing an 80% return of the capital contributed.
As of March 31, 1996, the Partnership had approximately $113,300 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.
PAGE
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.
PAGE
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
By: /s/ Bill E. Coggin
------------------------------
Bill E. Coggin, Vice President
and Chief Financial Officer
Date: May 11, 1996