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, 1997
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, 1996 which are found in the Registrant's Form 10-K Report
for 1996 filed with the Securities and Exchange Commission. The December 31,
1996 balance sheet included herein has been taken from the Registrant's 1996
Form 10-K Report. Operating results for the three and six month periods
ended June 30, 1997 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,
1997 1996
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 6,718 16,380
Receivable from Managing General Partner 115,051 190,242
---------- ---------
Total current assets 121,769 206,622
---------- ---------
Oil and gas properties - using the
full cost method of accounting 6,159,438 6,159,438
Less accumulated depreciation,
depletion and amortization (4,876,520) 4,808,520
---------- ---------
Net oil and gas properties 1,282,918 1,350,918
---------- ---------
$ 1,404,687 1,557,540
========== =========
Liabilities and Partners' Equity
Current liabilities
Distribution payable $ 86 84
Accounts payable 899 -
---------- ---------
Total current liabilities 985 84
---------- ---------
Partners' equity:
General partners (535,824) (520,448)
Limited partners 1,939,526 2,077,904
---------- ---------
Total partners' equity 1,403,702 1,557,456
---------- ---------
$ 1,404,687 1,557,540
========== =========
Southwest Royalties, Inc. Income Fund V
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues
Income from net profits
interests $ 77,772 63,725 215,365 142,346
Interest 280 265 716 489
------ ------ ------- -------
78,052 63,990 216,081 142,835
------ ------ ------- -------
Expenses
General and administrative 28,402 27,900 62,835 62,813
Depreciation, depletion and
amortization 33,000 35,000 68,000 67,000
------ ------ ------- -------
61,402 62,900 130,835 129,813
------ ------ ------- -------
Net income $ 16,650 1,090 85,246 13,022
====== ====== ======= =======
Net income allocated to:
Managing General Partner $ 1,500 99 7,672 1,172
====== ====== ======= =======
General Partner $ 166 10 853 130
====== ====== ======= =======
Limited Partners $ 14,984 981 76,721 11,720
====== ====== ======= =======
Per limited partner unit $ 2.00 .13 10.23 1.56
====== ====== ======= =======
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
1997 1996
Cash flows from operating activities:
Cash received from income from net
profits interests $ 290,556 167,375
Cash paid to suppliers (61,936) (62,813)
Interest received 716 489
-------- --------
Net cash provided by operating activities 229,336 105,051
-------- --------
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 (238,998) (121,035)
-------- --------
Net decrease in cash and cash equivalents (9,662) (3,484)
Beginning of period 16,380 24,788
-------- --------
End of period $ 6,718 21,304
======== ========
(continued)
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
1997 1996
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 85,246 13,022
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 68,000 67,000
Decrease in receivables 75,191 25,029
Increase in payables 899 -
------- -------
Net cash provided by operating activities $ 229,336 105,051
======= =======
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.
Based on current conditions, management anticipates performing workovers
during 1997 to enhance production. The Partnership may have a slight
increase in 1997 and 1998, but thereafter, the Partnership could possibly
experience a normal decline of 8% to 10% a year.
Results of Operations
A. General Comparison of the Quarters Ended June 30, 1997 and 1996
The following table provides certain information regarding performance
factors for the quarters ended June 30, 1997 and 1996:
Three Months
Ended Percentage
June 30, Increase
1997 1996 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 19.39 21.43 (10%)
Average price per mcf of gas $ 2.38 2.38 -
Oil production in barrels 8,600 5,500 56%
Gas production in mcf 41,500 37,100 12%
Income from net profits interests $ 77,772 63,725 22%
Partnership distributions $ 76,000 56,113 35%
Limited partner distributions $ 68,400 51,313 33%
Per unit distribution to limited
partners $ 9.12 6.84 33%
Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests increased to $77,772 from
$63,725 for the quarters ended June 30, 1997 and 1996, respectively, an
increase of 22%. The principal factors affecting the comparison of the
quarters ended June 30, 1997 and 1996 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended June 30, 1997 as compared to the
quarter ended June 30, 1996 by 10%, or $2.04 per barrel, resulting in a
decrease of approximately $11,200 in income from net profits interests.
Oil sales represented 63% of total oil and gas sales during the quarter
ended June 30, 1997 as compared to 57% during the quarter ended June 30,
1996.
The average price for an mcf of gas received by the Partnership remained
unchanged during the same period, resulting in no change in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in prices received from oil and gas production is approximately $11,200.
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 3,100 barrels or 56% during the
quarter ended June 30, 1997 as compared to the quarter ended June 30,
1996, resulting in an increase of approximately $60,100 in income from
net profits interests.
Gas production increased approximately 4,400 mcf or 12% during the same
period, resulting in an increase of approximately $10,500 in income from
net profits interests.
The total increase in income from net profits interests due to the change
in production is approximately $70,600. The increase is primarily
attributable to the successful workovers on three wells and the effects
of a successful waterflood.
3. Lease operating costs and production taxes were 31% higher, or
approximately $44,500 more during the quarter ended June 30, 1997 as
compared to the quarter ended June 30, 1996. The increase is primarily
attributable to workovers on three wells.
Costs and Expenses
Total costs and expenses decreased to $61,402 from $62,900 for the quarters
ended June 30, 1997 and 1996, respectively, a decrease of 2%. The decrease
is the result of lower depletion expense, partially 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 2%
or approximately $500 during the quarter ended June 30, 1997 as compared
to the quarter ended June 30, 1996.
2. Depletion expense decreased to $33,000 for the quarter ended June 30,
1997 from $35,000 for the same period in 1996. This represents a
decrease of 6%. Depletion is calculated using the units of 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.
B. General Comparison of the Six Month Periods Ended June 30, 1997 and 1996
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 1997 and 1996:
Six Months
Ended Percentage
June 30, Increase
1997 1996 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 20.08 20.32 (1%)
Average price per mcf of gas $ 2.35 2.26 4%
Oil production in barrels 17,600 11,200 57%
Gas production in mcf 80,900 73,900 9%
Income from net profits interests $ 215,365 142,346 51%
Partnership distributions $ 239,000 121,113 97%
Limited partner distributions $ 215,100 109,813 96%
Per unit distribution to limited
partners $ 28.68 14.64 96%
Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests increased to $215,365
from $142,346 for the six months ended June 30, 1997 and 1996, respectively,
an increase of 51%. The principal factors affecting the comparison of the
six months ended June 30, 1997 and 1996 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the six months ended June 30, 1997 as compared to the
six months ended June 30, 1996 by 1%, or $.24 per barrel, resulting in a
decrease of approximately $2,700 in income from net profits interests.
Oil sales represented 65% of total oil and gas sales during the six
months ended June 30, 1997 as compared to 58% during the six months ended
June 30, 1996.
The average price for an mcf of gas received by the Partnership increased
during the same period by 4%, or $.09 per mcf, resulting in an increase
of approximately $6,700 in income from net profits interests.
The net total increase in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$4,000. 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 increased approximately 6,400 barrels or 57% during the
six months ended June 30, 1997 as compared to the six months ended June
30, 1996, resulting in an increase of approximately $128,500 in income
from net profits interests.
Gas production increased approximately 7,000 mcf or 9% during the same
period, resulting in an increase of approximately $16,500 in income from
net profits interests.
The total increase in income from net profits interests due to the change
in production is approximately $145,000. The increase is primarily
attributable to the successful workovers on three wells and the effects
of a successful waterflood.
3. Lease operating costs and production taxes were 30% higher, or
approximately $75,000 more during the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996. The increase is
primarily attributable to workovers on three wells.
Costs and Expenses
Total costs and expenses increased to $130,835 from $129,813 for the six
months ended June 30, 1997 and 1996, respectively, an increase of 1%. The
increase is the result of higher 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 increased less
than 1% or approximately $20 during the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996.
2. Depletion expense increased to $68,000 for the six months ended June 30,
1997 from $67,000 for the same period in 1996. This represents an
increase of 1%. Depletion is calculated using the units of 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.
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 $229,300 in
the six months ended June 30, 1997 as compared to approximately $105,100 in
the six months ended June 30, 1996. The primary source of the 1997 cash flow
from operating activities was profitable operations.
There were no cash flows provided by investing activities in the six months
ended June 30, 1997 as compared to $12,500 in the six months ended June 30,
1996.
Cash flows used in financing activities were approximately $239,000 in the
six months ended June 30, 1997 as compared to approximately $121,000 in the
six months ended June 30, 1996. The only use in financing activities was the
distributions to partners.
Total distributions during the six months ended June 30, 1997 were $239,000
of which $215,100 was distributed to the limited partners and $23,900 to the
general partners. The per unit distribution to limited partners during the
six months ended June 30, 1997 was $28.68. Total distributions during the
six months ended June 30, 1996 were $121,113 of which $109,813 was
distributed to the limited partners and $11,300 to the general partners. The
per unit distribution to limited partners during the six months ended June
30, 1996 was $14.64.
The source for the 1997 distributions of $239,000 was oil and gas operations
of approximately $229,300, with the balance from available cash on hand at
the beginning of the period. The sources for the 1996 distributions of
$121,113 were oil and gas operations of approximately $105,100 and the sale
of oil and gas properties of $12,500, with the balance from available cash on
hand at the beginning of the period.
Since inception of the Partnership, cumulative monthly cash distributions of
$7,115,043 have been made to the partners. As of June 30, 1997, $6,387,170
or $851.74 per limited partner unit has been distributed to the limited
partners, representing an 85% return of the capital contributed.
As of June 30, 1997, the Partnership had approximately $120,800 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) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
On June 12, 1997, the Partnership filed Form 8-K and on June 24,
1997, the Partnership filed Form 8-K Amended, with respect to
Item 4, Changes in Registrant's Certifying Accountant.
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: August 15, 1997