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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, 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 note 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
nine month periods ended September 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
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ - 16,380
Receivable from Managing General Partner 114,722 190,242
Distribution receivable 288 -
--------- ---------
Total current assets 115,010 206,622
--------- ---------
Oil and gas properties - using the
full cost method of accounting 6,159,438 6,159,438
Less accumulated depreciation,
depletion and amortization 4,908,520 4,808,520
--------- ---------
Net oil and gas properties 1,250,918 1,350,918
--------- ---------
$1,365,928 1,557,540
========= =========
Liabilities and Partners' Equity
Current liabilities
Distribution payable $ - 84
Bank overdraft 1,729 -
--------- ---------
Total current liabilities 1,729 84
--------- ---------
Partners' equity
General partners (539,774) (520,448)
Limited partners 1,903,973 2,077,904
--------- ---------
Total partners' equity 1,364,199 1,557,456
--------- ---------
$1,365,928 1,557,540
========= =========
Southwest Royalties, Inc. Income Fund V
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues
Income from net profits
interests $ 50,064 96,828 265,428 239,175
Interest 72 256 788 745
------ ------ ------- -------
50,136 97,084 266,216 239,920
------ ------ ------- -------
Expenses
General and administrative 27,637 28,427 90,473 91,241
Depreciation, depletion and
amortization 32,000 46,000 100,000 113,000
------ ------ ------- -------
59,637 74,427 190,473 204,241
------ ------ ------- -------
Net income (loss) $ (9,501) 22,657 75,743 35,679
====== ====== ======= =======
Net income (loss) allocated to:
Managing General Partner $ (854) 2,040 6,817 3,211
====== ====== ======= =======
General Partner $ (96) 226 757 357
====== ====== ======= =======
Limited Partners $ (8,551) 20,391 68,169 32,111
====== ====== ======= =======
Per limited partner unit $ (1.14) 2.72 9.09 4.28
====== ====== ======= =======
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities
Cash received from income from net
profits interests $ 340,948 236,703
Cash paid to suppliers (90,473) (91,241)
Interest received 788 745
------- -------
Net cash provided by operating activities 251,263 146,207
------- -------
Cash flows provided by investing activities
Cash received from sale of oil and gas
property interest - 12,500
------- -------
Cash flows from financing activities
Distributions to partners (269,372) (165,989)
Bank overdraft 1,729 -
------- -------
Net cash used in financing activities (267,643) (165,989)
- ------- -------
Net decrease in cash and cash equivalents (16,380) (7,282)
Beginning of period 16,380 24,788
------- -------
End of period $ - 17,506
======= =======
(continued)
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows, continued
(unaudited)
Nine Months Ended
September 30,
1997 1996
Reconciliation of net income to net cash
provided by operating activities
Net income $ 75,743 35,679
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, depletion and amortization 100,000 113,000
(Increase) decrease in receivables 75,520 (2,472)
------- -------
Net cash provided by operating activities $ 251,263 146,207
======= =======
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 September 30, 1997 and 1996
The following table provides certain information regarding performance
factors for the quarters ended September 30, 1997 and 1996:
Three Months
Ended Percentage
September 30, Increase
1997 1996 (Decrease)
Average price per barrel of oil $ 18.42 22.01 (16%)
Average price per mcf of gas $ 2.33 2.20 6%
Oil production in barrels 8,300 8,600 (3%)
Gas production in mcf 41,700 37,200 12%
Income from net profits interests $ 50,064 96,828 (48%)
Partnership distributions $ 30,000 45,000 (33%)
Limited partner distributions $ 27,000 40,500 (33%)
Per unit distribution to limited partners $ 3.60 5.40 (33%)
Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests decreased to $50,064
from $96,828 for the quarters ended September 30, 1997 and 1996,
respectively, a decrease of 48%. The principal factors affecting the
comparison of the quarters ended September 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 September 30, 1997 as compared to
the quarter ended September 30, 1996 by 16%, or $3.59 per barrel,
resulting in a decrease of approximately $30,900 in income from net
profits interests. Oil sales represented 61% of total oil and gas
sales during the quarter ended September 30, 1997 as compared to 70%
during the quarter ended September 30, 1996.
The average price for an mcf of gas received by the Partnership
increased during the same period by 6%, or $.13 per mcf, resulting in
an increase of approximately $4,800 in income from net profits
interests.
The net total decrease in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$26,100. 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 September 30, 1997 as compared to the quarter ended
September 30, 1996, resulting in a decrease of approximately $5,500 in
income from net profits interests.
Gas production increased approximately 4,500 mcf or 12% during the same
period, resulting in an increase of approximately $10,500 in income
from net profits interests.
The net total increase in income from net profits interests due to the
change in production is approximately $5,000. The increase in
production is primarily attributable to the re-opening of a previously
shut-in well and the successful workovers on three wells.
3. Lease operating costs and production taxes were 15% higher, or
approximately $26,700 more during the quarter ended September 30, 1997
as compared to the quarter ended September 30, 1996. The increase in
lease operating costs and production taxes is primarily attributable to
workover costs incurred in 1997 as compared to 1996 and lease operating
costs the Managing General Partner failed to bill the Partnership on
one lease for a three year period. The increase in lease operating
costs was partially offset by a refund of three years of gas production
tax.
Costs and Expenses
Total costs and expenses decreased to $59,637 from $74,427 for the quarters
ended September 30, 1997 and 1996, respectively, a decrease of 20%. 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 $800 during the quarter ended September 30, 1997 as
compared to the quarter ended September 30, 1996.
2. Depletion expense decreased to $32,000 for the quarter ended September
30, 1997 from $46,000 for the same period in 1996. This represents a
decrease of 30%. 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. Contributing
factors to the decline in depletion expense between the comparative
periods were the decrease in gross oil and gas revenue and the increase
in the price of oil used to determine the Partnership's reserves for
January 1, 1997 as compared to 1996.
B. General Comparison of the Nine Month Periods Ended September 30, 1997
and 1996
The following table provides certain information regarding performance
factors for the nine month periods ended September 30, 1997 and 1996:
Nine Months
Ended Percentage
September 30, Increase
1997 1996 (Decrease)
Average price per barrel of oil $ 19.55 21.05 (7%)
Average price per mcf of gas $ 2.34 2.24 4%
Oil production in barrels 25,900 19,800 31%
Gas production in mcf 122,600 111,100 10%
Income from net profits interests $ 265,428 239,175 11%
Partnership distributions $ 269,000 166,113 62%
Limited partner distributions $ 242,100 150,313 61%
Per unit distribution to limited partners $ 32.28 20.04 61%
Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests increased to $265,428
from $239,175 for the nine months ended September 30, 1997 and 1996,
respectively, an increase of 11%. The principal factors affecting the
comparison of the nine months ended September 30, 1997 and 1996 are as
follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the nine months ended September 30, 1997 as compared
to the nine months ended September 30, 1996 by 7%, or $1.50 per barrel,
resulting in a decrease of approximately $29,700 in income from net
profits interests. Oil sales represented 64% of total oil and gas
sales during the nine months ended September 30, 1997 as compared to
63% during the nine months ended September 30, 1996.
The average price for an mcf of gas received by the Partnership
increased during the same period by 4%, or $.10 per mcf, resulting in
an increase of approximately $11,100 in income from net profits
interests.
The net total decrease in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$18,600. 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 increased approximately 6,100 barrels or 31% during the
nine months ended September 30, 1997 as compared to the nine months
ended September 30, 1996, resulting in an increase of approximately
$119,300 in income from net profits interests.
Gas production increased approximately 11,500 mcf or 10% during the
same period, resulting in an increase of approximately $26,900 in
income from net profits interests.
The total increase in income from net profits interests due to the
change in production is approximately $146,200. The increase in
production is primarily attributable to the re-opening of a previously
shut-in well and the successful workovers on three wells.
3. Lease operating costs and production taxes were 24% higher, or
approximately $101,700 more during the nine months ended September 30,
1997 as compared to the nine months ended September 30, 1996. The
increase in lease operating costs and production taxes is primarily
attributable to workover costs incurred in 1997 as compared to 1996 and
lease operating costs the Managing General Partner failed to bill the
Partnership on one lease for a three year period. The increase in
lease operating costs was partially offset by a refund of three years
of gas production tax.
Costs and Expenses
Total costs and expenses decreased to $190,473 from $204,241 for the nine
months ended September 30, 1997 and 1996, respectively, a decrease of 7%.
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 1%
or approximately $800 during the nine months ended September 30, 1997
as compared to the nine months ended September 30, 1996.
2. Depletion expense decreased to $100,000 for the nine months ended
September 30, 1997 from $113,000 for the same period in 1996. This
represents a decrease of 12%. 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. A
contributing factor to the decline in depletion expense between the
comparative periods was the increase in the price of oil used to
determine the Partnership's reserves for January 1, 1997 as compared to
1996.
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 $251,300 in
the nine months ended September 30, 1997 as compared to approximately
$146,200 in the nine months ended September 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 nine
months ended September 30, 1997 as compared to $12,500 in the nine months
ended September 30, 1996.
Cash flows used in financing activities were approximately $267,600 in the
nine months ended September 30, 1997 as compared to approximately $166,000
in the nine months ended September 30, 1996. The primary use of financing
activities was the distributions to partners.
Total distributions during the nine months ended September 30, 1997 were
$269,000 of which $242,100 was distributed to the limited partners and
$26,900 to the general partners. The per unit distribution to limited
partners during the nine months ended September 30, 1997 was $32.28. 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.
The source for the 1997 distributions of $269,000 was oil and gas
operations of approximately $251,300, with the balance from available cash
on hand at the beginning of the period. The sources for the 1996
distributions of $166,113 were oil and gas operations of approximately
$146,200 and the change in 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 $7,145,043 have been made to the partners. As of September 30, 1997,
$6,414,170 or $855.34 per limited partner unit has been distributed to the
limited partners, representing an 86% return of the capital contributed.
As of September 30, 1997, 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.
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) 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, 1997