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 September 30, 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 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, 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 and nine month periods
ended September 30, 1996 are not necessarily indicative of the results that
may be expected for the full year.
Southwest Royalties, Inc. Income Fund V
Balance Sheets
September 30, December 31,
1996 1995
------------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 17,506 24,788
Receivable from Managing
General Partner 112,018 109,546
Distribution receivable - 47
--------- ---------
Total current assets 129,524 134,381
--------- ---------
Oil and gas properties - using the
full cost method of accounting 6,159,438 6,171,938
Less accumulated depreciation,
depletion and amortization 4,789,520 4,676,520
--------- ---------
Net oil and gas properties 1,369,918 1,495,418
--------- ---------
$ 1,499,442 1,629,799
========= =========
Liabilities and Partners' Equity
Current liability - Distribution payable $ 77 -
--------- ---------
Partners' equity:
General partners (526,257) (514,025)
Limited partners 2,025,622 2,143,824
--------- ---------
Total partners' equity 1,499,365 1,629,799
--------- ---------
$ 1,499,442 1,629,799
========= =========
Southwest Royalties, Inc. Income Fund V
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues
Income from net profits
interests $ 96,828 63,644 239,175 219,030
Interest 256 351 745 773
------- ------- ------- -------
97,084 63,995 239,920 219,803
------- ------- ------- -------
Expenses
General and administrative 28,427 27,363 91,241 93,644
Depreciation, depletion and
amortization 46,000 52,000 113,000 176,000
------- ------- ------- -------
74,427 79,363 204,241 269,644
------- ------- ------- -------
Net income (loss) $ 22,657 (15,368) 35,679 (49,841)
======= ======= ======= =======
Net income (loss) allocated to:
Managing General Partner $ 2,040 (1,382) 3,211 (4,486)
======= ======= ======= =======
General Partner $ 226 (155) 357 (498)
======= ======= ======= =======
Limited Partners $ 20,391 (13,831) 32,111 (44,857)
======= ======= ======= =======
Per limited partner
unit $ 2.72 (1.84) 4.28 (5.98)
======= ======= ======= =======
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Cash received from income from net
profits interests $ 236,703 251,353
Cash paid to suppliers (91,241) (94,324)
Interest received 745 773
-------- -------
Net cash provided by operating activities 146,207 157,802
-------- -------
Cash flows provided by investing activities:
Cash received from sale of oil
and gas property interest 12,500 -
-------- -------
Cash flows used in financing activities:
Distributions to partners (165,989) (132,964)
-------- -------
Net increase (decrease) in cash and
cash equivalents (7,282) 24,838
Beginning of period 24,788 16,645
-------- -------
End of period $ 17,506 41,483
======== =======
(continued)
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows, continued
(unaudited)
Nine Months Ended
September 30,
1996 1995
Reconciliation of net income (loss)
to net cash provided by operating
activities:
Net income (loss) $ 35,679 (49,841)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion and
amortization 113,000 176,000
(Increase) decrease in receivables (2,472) 32,323
Decrease in payables - (680)
-------- -------
Net cash provided by operating
activities $ 146,207 157,802
======== =======
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 September 30, 1996 and 1995
The following table provides certain information regarding performance
factors for the quarters ended September 30, 1996 and 1995:
Three Months
Ended Percentage
September 30, Increase
1996 1995 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 22.01 16.65 32%
Average price per mcf of gas $ 2.20 1.76 25%
Oil production in barrels 8,600 7,700 12%
Gas production in mcf 37,200 47,400 (22%)
Income from net profits interests $ 96,828 63,644 52%
Partnership distributions $ 45,000 38,500 17%
Limited partner distributions $ 40,500 34,650 17%
Per unit distribution to limited
partners $ 5.40 4.62 17%
Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests increased to $96,828 from
$63,644 for the quarters ended September 30, 1996 and 1995, respectively, an
increase of 52%. The principal factors affecting the comparison of the
quarters ended September 30, 1996 and 1995 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended September 30, 1996 as compared to the
quarter ended September 30, 1995 by 32%, or $5.36 per barrel, resulting
in an increase of approximately $41,300 in income from net profits
interests. Oil sales represented 70% of total oil and gas sales during
the quarter ended September 30, 1996 as compared to 60% during the
quarter ended September 30, 1995.
The average price for an mcf of gas received by the Partnership increased
during the same period by 25%, or $.44 per mcf, resulting in an increase
of approximately $20,900 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 $62,200.
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 increased approximately 900 barrels or 12% during the
quarter ended September 30, 1996 as compared to the quarter ended
September 30, 1995, resulting in an increase of approximately $19,800 in
income from net profits interests.
Gas production decreased approximately 10,200 mcf or 22% during the same
period, resulting in a decrease of approximately $22,400 in income from
net profits interests.
The net total decrease in income from net profits interests due to the
change in production is approximately $2,600. The decrease is a result
of property sales, downhole problems causing the loss of one well and
another well being shut-in due to mechanical failures that are
uneconomical to repair. The increase in oil production is primarily
attributable to a successful waterflood.
3. Lease operating costs and production taxes were 17% higher, or
approximately $25,600 more during the quarter ended September 30, 1996 as
compared to the quarter ended September 30, 1995. The increase is a
result of workover expense incurred in 1996 on one well.
Costs and Expenses
Total costs and expenses decreased to $74,427 from $79,363 for the quarters
ended September 30, 1996 and 1995, respectively, a decrease of 6%. The
decrease is the result of lower depletion expense, offset by an increase in
general and administrative 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 increased 4%
or approximately $1,100 during the quarter ended September 30, 1996 as
compared to the quarter ended September 30, 1995.
2. Depletion expense decreased to $46,000 for the quarter ended September
30, 1996 from $52,000 for the same period in 1995. This represents a
decrease of 12%. 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. Two factors that
attributed to the decline in depletion expense between the comparative
periods were the increase in the price of oil and gas used to determine
the Partnership's reserves for January 1, 1996 as compared to 1995 and
the increase in property sales.
B. General Comparison of the Nine Month Periods Ended September 30, 1996 and
1995
The following table provides certain information regarding performance
factors for the nine month periods ended September 30, 1996 and 1995:
Nine Months
Ended Percentage
September 30, Increase
1996 1995 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 21.05 17.45 21%
Average price per mcf of gas $ 2.24 1.94 15%
Oil production in barrels 19,800 23,900 (17%)
Gas production in mcf 111,100 152,000 (27%)
Income from net profits interests $ 239,175 219,030 9%
Partnership distributions $ 166,113 133,000 25%
Limited partner distributions $ 150,313 120,200 25%
Per unit distribution to limited
partners $ 20.04 16.03 25%
Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests increased to $239,175
from $219,030 for the nine months ended September 30, 1996 and 1995,
respectively, an increase of 9%. The principal factors affecting the
comparison of the nine months ended September 30, 1996 and 1995 are as
follows:
1. The average price for a barrel of oil received by the Partnership
increased during the nine months ended September 30, 1996 as compared to
the nine months ended September 30, 1995 by 21%, or $3.60 per barrel,
resulting in an increase of approximately $86,000 in income from net
profits interests. Oil sales represented 63% of total oil and gas sales
during the nine months ended September 30, 1996 as compared to 59% during
the nine months ended September 30, 1995.
The average price for an mcf of gas received by the Partnership increased
during the same period by 15%, or $.30 per mcf, resulting in an increase
of approximately $45,600 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 $131,600.
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 4,100 barrels or 17% during the
nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995, resulting in a decrease of approximately $86,300 in
income from net profits interests.
Gas production decreased approximately 40,900 mcf or 27% during the same
period, resulting in a decrease of approximately $91,600 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $177,900. The decrease is a result of
property sales, downhole problems causing the loss of one well and
another well being shut-in due to mechanical failures that are
uneconomical to repair.
3. Lease operating costs and production taxes were 13% lower, or
approximately $66,100 less during the nine months ended September 30,
1996 as compared to the nine months ended September 30, 1995. The
decrease is a result of a well that was operational in 1995, but shut-in
during 1996. Also contributing to the decline, was a well that required
pump and rod repairs in 1995.
Costs and Expenses
Total costs and expenses decreased to $204,241 from $269,644 for the nine
months ended September 30, 1996 and 1995, respectively, a decrease of 24%.
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 3%
or approximately $2,400 during the nine months ended September 30, 1996
as compared to the nine months ended September 30, 1995.
2. Depletion expense decreased to $113,000 for the nine months ended
September 30, 1996 from $176,000 for the same period in 1995. This
represents a decrease of 36%. 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. Three factors
that attributed to the decline in depletion expense between the
comparative periods were the increase in the price of oil and gas used to
determine the Partnership's reserves for January 1, 1996 as compared to
1995, the increase in property sales and the decrease in oil and gas
revenues.
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 $146,200 in
the nine months ended September 30, 1996 as compared to approximately
$157,800 in the nine months ended September 30, 1995. The primary source of
the 1996 cash flow from operating activities was profitable operations.
Cash flows provided by investing activities were approximately $12,500 in the
nine months ended September 30, 1996 as compared to none in the nine months
ended September 30, 1995. The principle source of the 1996 cash flow from
investing activities was the sale of oil and gas properties.
Cash flows used in financing activities were approximately $165,989 in the
nine months ended September 30, 1996 as compared to approximately $132,964 in
the nine months ended September 30, 1995. The only use in financing
activities was the distributions to partners.
Total distributions during the nine months ended September 30, 1996 were
$166,113 of which $150,313 was distributed to the limited partners and
$15,800 to the general partners. The per unit distribution to limited
partners during the nine months ended September 30, 1996 was $20.04. Total
distributions during the nine months ended September 30, 1995 were $133,000
of which $120,200 was distributed to the limited partners and $12,800 to the
general partners. The per unit distribution to limited partners during the
nine months ended September 30, 1995 was $16.03.
The sources for the 1996 distributions of $166,113 were oil and gas
operations of approximately $146,200 and the sale of oil and gas properties
of approximately $12,500, with the balance from available cash on hand at the
beginning of the period. The source for the 1995 distributions of $133,000
was oil and gas operations of approximately $157,800, resulting in excess
cash for contingencies or subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions of
$6,756,043 have been made to the partners. As of September 30, 1996,
$6,064,070 or $808.65 per limited partner unit has been distributed to the
limited partners, representing an 81% return of the capital contributed.
As of September 30, 1996, the Partnership had approximately $129,400 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) Financial Data Schedule
(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
By: /s/ Bill E. Coggin
------------------------------
Bill E. Coggin, Vice President
and Chief Financial Officer
Date: November 15, 1996