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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, 1998
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 0-16493
Southwest Oil & Gas Income Fund VII-A, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2145576
(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 16.
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, 1997 which are found in the Registrant's Form
10-K Report for 1997 filed with the Securities and Exchange Commission.
The December 31, 1997 balance sheet included herein has been taken from the
Registrant's 1997 Form 10-K Report. Operating results for the three and
nine month periods ended September 30, 1998 are not necessarily indicative
of the results that may be expected for the full year.
Southwest Oil & Gas Income Fund VII-A, L.P.
Balance Sheets
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 21,756 29,210
Receivable from Managing General Partner 26,206 80,134
--------- ---------
Total current assets 47,962 109,344
--------- ---------
Oil and gas properties - using the
full cost method of accounting 4,620,662 4,619,742
Less accumulated depreciation,
depletion and amortization 3,640,737 3,539,737
--------- ---------
Net oil and gas properties 979,925 1,080,005
--------- ---------
$1,027,887 1,189,349
========= =========
Liabilities and Partners' Equity
Current liability - Distribution payable $ 472 4,315
--------- ---------
Partners' equity
General partners (538,898) (523,171)
Limited partners 1,566,313 1,708,205
--------- ---------
Total partners' equity 1,027,415 1,185,034
--------- ---------
$1,027,887 1,189,349
========= =========
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenues
Oil and gas $ 119,980 223,453 441,053 716,778
Interest 187 270 982 686
------- ------- ------- -------
120,167 223,723 442,035 717,464
------- ------- ------- -------
Expenses
Production 82,973 110,750 272,229 340,860
General and administrative 32,018 26,780 101,080 91,939
Depreciation, depletion and
amortization 18,000 30,000 101,000 96,000
------- ------- ------- -------
132,991 167,530 474,309 528,799
------- ------- ------- -------
Net income (loss) $ (12,824) 56,193 (32,274) 188,665
======= ======= ======= =======
Net income (loss) allocated to:
Managing General Partner $ (1,154) 5,057 (2,904) 16,980
======= ======= ======= =======
General Partner $ (128) 562 (323) 1,886
======= ======= ======= =======
Limited Partners $ (11,542) 50,574 (29,047) 169,799
======= ======= ======= =======
Per limited partner unit $ (.77) 3.37 (1.94) 11.32
======= ======= ======= =======
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
1998 1997
---- ----
Cash flows from operating activities
Cash received from oil and gas sales $ 497,495 777,678
Cash paid to suppliers (376,168) (515,448)
Interest received 982 686
------- -------
Net cash provided by operating activities 122,309 262,916
------- -------
Cash flows provided by investing activities
Additions to oil and gas properties (1,832) (9,248)
Cash received from sale of oil and gas property 913 122
------- -------
Net cash used in investing activities (919) (9,126)
------- -------
Cash flows used in financing activities
Distributions to partners (128,844) (222,401)
------- -------
Net increase (decrease) in cash and cash
equivalents (7,454) 31,389
Beginning of period 29,210 4,240
------- -------
End of period $ 21,756 35,629
======= =======
(continued)
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Cash Flows, continued
(unaudited)
Nine Months Ended
September 30,
1998 1997
---- ----
Reconciliation of net income (loss) to net
cash provided by operating activities
Net income (loss) $ (32,274) 188,665
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation, depletion and amortization 101,000 96,000
Decrease in receivables 56,442 60,900
Decrease in payables (2,859) (82,649)
------- -------
Net cash provided by operating activities $ 122,309 262,916
======= =======
Southwest Oil & Gas Income Fund VII-A, L.P.
Notes to Financial Statements
Subsequent Events
The Partnership, subsequent to September 30, 1998 sold its interest in a
portion of non-operated oil and gas properties. The Partnership's
interests in the wells were sold for $128,929 net proceeds, after post
closing adjustments. The proceeds from the sale represented 12.54% of the
Partnership's total assets at December 31, 1997.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Oil & Gas Income Fund VII-A, L.P. was organized as a Delaware
limited partnership on January 30, 1987. The offering of limited
partnership interests began on March 4, 1987; minimum capital requirements
were met on April 28, 1987 and the offering concluded on September 21,
1987, with total limited partner contributions of $7,500,000.
The Partnership was formed to acquire 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 farmout arrangements, sale 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 does not anticipate performing
workovers during the next year. The Partnership could possibly experience
a normal decline of 8% to 10% per year.
Oil and Gas Properties
Oil and gas properties are accounted for at cost under the full-cost
method. Under this method, all productive and nonproductive costs incurred
in connection with the acquisition, exploration and development of oil and
gas reserves are capitalized. Gain or loss on the sale of oil and gas
properties is not recognized unless significant oil and gas reserves are
involved.
The Partnership's policy for depreciation, depletion and amortization of
oil and gas properties is computed under the units of revenue method.
Under the units of revenue method, depreciation, depletion and amortization
is computed on the basis of current gross revenues from production in
relation to future gross revenues, based on current prices, from estimated
production of proved oil and gas reserves.
Should the net capitalized costs exceed the estimated present value of oil
and gas reserves, discounted at 10%, such excess costs would be charged to
current expense. As of September 30, 1998, the net capitalized costs did
not exceed the estimated present value of oil and gas reserves. A
continuation of the oil price environment experienced during the first
three quarters of 1998 will have an adverse affect on the Company's
revenues and operating cash flow. Also, further declines in oil prices
could result in additional decreases in the carrying value of the Company's
oil and gas properties.
Results of Operations
A. General Comparison of the Quarters Ended September 30, 1998 and 1997
The following table provides certain information regarding performance
factors for the quarters ended September 30, 1998 and 1997:
Three Months
Ended Percentage
September 30, Increase
1998 1997 (Decrease)
---- ---- ---------
Average price per barrel of oil $ 11.41 17.45 (35%)
Average price per mcf of gas $ 1.96 2.23 (12%)
Oil production in barrels 6,100 8,900 (31%)
Gas production in mcf 25,706 30,600 (16%)
Gross oil and gas revenue $ 119,980 223,453 (46%)
Net oil and gas revenue $ 37,007 112,703 (67%)
Partnership distributions $ 11,345 30,000 (62%)
Limited partner distributions $ 10,245 27,000 (62%)
Per unit distribution to limited partners $ .68 1.80 (62%)
Number of limited partner units 15,000 15,000
Revenues
The Partnership's oil and gas revenues decreased to $119,980 from $223,453
for the quarters ended September 30, 1998 and 1997, respectively, a
decrease of 46%. The principal factors affecting the comparison of the
quarters ended September 30, 1998 and 1997 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended September 30, 1998 as compared to
the quarter ended September 30, 1997 by 35%, or $6.04 per barrel,
resulting in a decrease of approximately $53,800 in revenues. Oil
sales represented 58% of total oil and gas sales during the quarters
ended September 30, 1998 as compared to 69% during the quarter ended
September 30, 1997.
The average price for an mcf of gas received by the Partnership
decreased during the same period by 12%, or $.27 per mcf, resulting in
a decrease of approximately $8,200 in revenues.
The total decrease in revenues due to the change in prices received
from oil and gas production is approximately $62,000. 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 2,800 barrels or 31% during the
quarter ended September 30, 1998 as compared to the quarter ended
September 30, 1997, resulting in a decrease of approximately $31,900 in
revenues.
Gas production decreased approximately 4,900 mcf or 16% during the same
period, resulting in a decrease of approximately $9,600 in revenues.
The total decrease in revenues due to the change in production is
approximately $41,500. The decrease in production is due primarily to
a farm-out agreement, which decreased the Partnerships ownership
percentage on one well, sale of properties and natural decline.
Costs and Expenses
Total costs and expenses decreased to $132,991 from $167,530 for the
quarters ended September 30, 1998 and 1997, respectively, a decrease of
21%. The decrease is the result of lower lease operating costs and
depletion expense, partially offset by an increase in general and
administrative expense.
1. Lease operating costs and production taxes were 25% lower or
approximately $27,800 less during the quarter ended September 30, 1998 as
compared to the quarter ended September 30, 1997. The decline in costs is
primarily attributable to costs incurred in 1997 due to the failure of the
Managing General Partner to bill the Partnership on one lease for three-
year period.
2. General and administrative costs consist of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs increased
20% or approximately $5,200 during the quarter ended September 30, 1998
as compared to the quarter ended September 30, 1997.
3. Depletion expense decreased to $18,000 for the quarter ended September
30, 1998 from $30,000 for the same period in 1997. This represents a
decrease of 40%. 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 the price of oil and thus the decline in
gross oil and gas revenues.
B. General Comparison of the Nine Month Periods Ended September 30, 1998
and 1997
The following table provides certain information regarding performance
factors for the nine month periods ended September 30, 1998 and 1997:
Nine Months
Ended Percentage
September 30, Increase
1998 1997 (Decrease)
---- ---- ---------
Average price per barrel of oil $ 12.63 19.18 (34%)
Average price per mcf of gas $ 2.05 2.37 (14%)
Oil production in barrels 22,100 26,100 (15%)
Gas production in mcf 79,006 91,200 (13%)
Gross oil and gas revenue $ 441,053 716,778 (38%)
Net oil and gas revenue $ 168,824 375,918 (55%)
Partnership distribution $ 125,345 226,500 (45%)
Limited partner distributions $ 112,845 203,850 (45%)
Per unit distribution to limited partners $ 7.52 13.59 (45%)
Number of limited partner units 15,000 15,000
Revenues
The Partnership's oil and gas revenues decreased to $441,053 from $716,778
for the nine months ended September 30, 1998 and 1997, respectively, a
decrease of 38%. The principal factors affecting the comparison of the
nine months ended September 30, 1998 and 1997 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the nine months ended September 30, 1998 as compared
to the nine months ended September 30, 1997 by 34%, or $6.55 per
barrel, resulting in a decrease of approximately $171,000 in revenues.
Oil sales represented 63% of total oil and gas sales during the nine
months ended September 30, 1998 as compared to 70% during the nine
months ended September 30, 1997.
The average price for an mcf of gas received by the Partnership
decreased during the same period by 14%, or $.32 per mcf, resulting in
a decrease of approximately $29,200 in revenues.
The total decrease in revenues due to the change in prices received
from oil and gas production is approximately $200,200. 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 decreased approximately 4,000 barrels or 15% during the
nine months ended September 30, 1998 as compared to the nine months
ended September 30, 1997, resulting in a decrease of approximately
$50,500 in revenues.
Gas production decreased approximately 12,200 mcf or 13% during the
same period, resulting in a decrease of approximately $24,900 in
revenues.
The total decrease in revenues due to the change in production is
approximately $75,400.
Costs and Expenses
Total costs and expenses decreased to $474,309 from $528,799 for the nine
months ended September 30, 1998 and 1997, respectively, a decrease of 10%.
The decrease is the result of lower lease operating costs, partially offset
by an increase in general and administrative expense and depletion expense.
1. Lease operating costs and production taxes were 20% lower, or
approximately $68,600 less during the nine months ended September 30, 1998
as compared to the nine months ended September 30, 1997. The decline in
costs is primarily attributable to costs incurred in 1997 due to the
failure of the Managing General Partner to bill the Partnership on one
lease of a three year period.
2. General and administrative costs consist of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs increased
10% or approximately $9,100 during the nine months ended September 30,
1998 as compared to the nine months ended September 30, 1997.
3. Depletion expense increased to $101,000 for the nine months ended
September 30, 1998 from $96,000 for the same period in 1997. This
represents an increase of 5%. 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 $122,300 in
the nine months ended September 30, 1998 as compared to approximately
$262,900 in the nine months ended September 30, 1997. The primary source
of the 1998 cash flow from operating activities was profitable operations.
Cash flows used in investing activities were approximately $900 in the nine
months ended September 30, 1998 as compared to approximately $9,100 in the
nine months ended September 30, 1997. The principle use of the 1998 cash
flow from investing activities was the change in oil and gas properties.
Cash flows used in financing activities were approximately $128,800 in the
nine months ended September 30, 1998 as compared to approximately $222,400
in the nine months ended September 30, 1997. The only use in financing
activities was the distributions to partners.
Total distributions during the nine months ended September 30, 1998 were
$125,345 of which $112,845 was distributed to the limited partners and
$12,500 to the general partners. The per unit distribution to limited
partners during the nine months ended September 30, 1998 was $7.52. Total
distributions during the nine months ended September 30, 1997 were $226,500
of which $203,850 was distributed to the limited partners and $22,650 to
the general partners. The per unit distribution to limited partners during
the nine months ended September 30, 1997 was $13.59.
The source for the 1998 distributions of $125,345 was oil and gas
operations of approximately $122,300, partially offset by a change in oil
and gas properties of approximately $900, with the balance from available
cash on hand at the beginning of the period. The source for the 1997
distributions of $226,500 was oil and gas operations of approximately
$262,900, partially offset by a change in oil and gas properties of
approximately $9,100, resulting in excess cash for contingencies or
subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions
of $9,686,877 have been made to the partners. As of September 30, 1998,
$8,729,218 or $581.95 per limited partner unit has been distributed to the
limited partners, representing a 116% return of the capital contributed.
As of September 30, 1998, the Partnership had approximately $47,500 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.
Information Systems for the Year 2000
The Partnership relies on the Managing General Partner for their data
processing requirements. This includes use of a program designed and
implemented by Midland Southwest Software, the Managing General Partner's
software subsidiary. Midland Southwest Software currently has a year 2000
plan in effect. They have surveyed existing programs and hardware and
estimate a compliance date of early 1999. Determination of the total cost
in connection with the year 2000 compliance issue is difficult to determine
due to the fact that they are in the process of developing their new 1998
version of marketed oil and gas software, which has, from inception,
included year 2000 compliance. Third party software programs utilized by
the Managing General Partner are either in compliance or are not affected
by the year 2000, with the exception of the payroll service, which is
currently modifying its system to accurately handle the Year 2000 issue.
The Managing General Partner has not completed its evaluation of its
vendors or suppliers systems to determine the effect, if any, the non-
compliance of such systems would have on the operations of the Managing
General Partner. Plans are under way to perform an audit in late 1998 or
early 1999 to determine the effect of non-compliance of its vendors and
suppliers on the Managing General Partner and thus formulate a contingency
plan.
A potential source of risk includes, but is not limited to, the inability
of principal purchasers and suppliers to be year 2000 compliant, which
could have a material effect on the Managing General Partner's production,
cash flow and overall financial condition, notwithstanding the Managing
General Partner's actions to prepare its own information systems. The
Managing General Partner currently does not have a contingency plan in
place to cover any unforeseen problems encountered that relate to the year
2000, but intends to produce one before the end of the fiscal year.
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 Oil & Gas Income Fund VII-A,
L.P.
a Delaware 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, 1998