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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 June 30, 2001
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 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, 2000 which are found in the Registrant's Form
10-K Report for 2000 filed with the Securities and Exchange Commission.
The December 31, 2000 balance sheet included herein has been taken from the
Registrant's 2000 Form 10-K Report. Operating results for the three and
six month periods ended June 30, 2001 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
June 30, December 31,
2001 2000
--------- ------------
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 54,424 68,661
Receivable from Managing General Partner 117,730 129,834
--------- ---------
Total current assets 172,154 198,495
--------- ---------
Oil and gas properties - using the
full-cost method of accounting 4,505,045 4,503,306
Less accumulated depreciation,
depletion and amortization 4,032,691 4,005,691
--------- ---------
Net oil and gas properties 472,354 497,615
--------- ---------
$ 644,508 696,110
========= =========
Liabilities and Partners' Equity
--------------------------------
Current liability - Distribution payable $ 81 1,693
--------- ---------
Partners' equity:
General partners (570,012) (565,013)
Limited partners 1,214,439 1,259,430
--------- ---------
Total partners' equity 644,427 694,417
--------- ---------
$ 644,508 696,110
========= =========
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
Revenues
--------
Oil and gas $ 225,236 242,805 460,225 446,856
Interest 1,451 1,055 2,509 1,793
------- ------- ------- -------
226,687 243,860 462,734 448,649
------- ------- ------- -------
Expenses
--------
Production 78,870 85,123 152,497 149,902
General and administrative 29,539 32,322 58,217 62,200
Depreciation, depletion and
amortization 16,000 6,000 27,000 21,000
------- ------- ------- -------
124,409 123,445 237,714 233,102
------- ------- ------- -------
Net income $ 102,278 120,415 225,020 215,547
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 9,205 10,837 20,252 19,399
======= ======= ======= =======
General Partner $ 1,023 1,204 2,250 2,156
======= ======= ======= =======
Limited partners $ 92,050 108,374 202,518 193,992
======= ======= ======= =======
Per limited partner unit $ 6.14 7.22 13.50 12.93
======= ======= ======= =======
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
2001 2000
---- ----
Cash flows from operating activities:
Cash received from oil and gas sales $ 487,117 409,871
Cash paid to suppliers (225,502) (212,816)
Interest received 2,509 1,793
-------- --------
Net cash provided by operating activities 264,124 198,848
-------- --------
Cash flows from investing activities:
Sale of oil and gas properties 100 -
Additions to oil and gas properties (1,839) (5,909)
-------- --------
Net cash used in investing activities (1,739) (5,909)
-------- --------
Cash flows used in financing activities:
Distributions to partners (276,622) (184,871)
-------- --------
Net (decrease) increase in cash
(14,237) 8,068
Beginning of period 68,661 59,465
-------- --------
End of period $ 54,424 67,533
======== ========
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 225,020 215,547
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 27,000 21,000
Decrease (increase) in receivables 26,892 (36,985)
Decrease in payables (14,788) (714)
-------- -------
Net cash provided by operating activities $ 264,124 198,848
======== =======
Southwest Oil & Gas Income Fund VII-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
1. Organization
Southwest Oil & Gas Income Fund VII-A, L.P. was organized under the
laws of the state of Delaware on January 30, 1987, for the purpose of
acquiring producing oil and gas properties and to produce and market
crude oil and natural gas produced from such properties for a term of
50 years, unless terminated at an earlier date as provided for in the
Partnership Agreement. The Partnership sells its oil and gas
production to a variety of purchasers with the prices it receives
being dependent upon the oil and gas economy. Southwest Royalties,
Inc. serves as the Managing General Partner and H. H. Wommack, III, as
the individual general partner. Revenues, costs and expenses are
allocated as follows:
Limited General
Partners Partners
-------- --------
Interest income on capital contributions 100% -
Oil and gas sales 90% 10%
All other revenues 90% 10%
Organization and offering costs (1) 100% -
Amortization of organization costs 100% -
Property acquisition costs 100% -
Gain/loss on property dispositions 90% 10%
Operating and administrative costs (2) 90% 10%
Depreciation, depletion and amortization
of oil and gas properties 90% 10%
All other costs 90% 10%
(1)All organization costs in excess of 3% of initial capital
contributions will be paid by the Managing General Partner and
will be treated as a capital contribution. The Partnership paid
the Managing General Partner an amount equal to 3% of initial
capital contributions for such organization costs.
(2)Administrative costs in any year which exceed 2% of capital
contributions shall be paid by the Managing General Partner and
will be treated as a capital contribution.
2. Summary of Significant Accounting Policies
The interim financial information as of June 30, 2001, and for the
three and six months ended June 30, 2001, is unaudited. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q pursuant
to the rules and regulations of the Securities and Exchange
Commission. However, in the opinion of management, these interim
financial statements include all the necessary adjustments to fairly
present the results of the interim periods and all such adjustments
are of a normal recurring nature. The interim consolidated financial
statements should be read in conjunction with the audited financial
statements for the year ended December 31, 2000.
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 2001. The Partnership could possibly experience a normal
decline of 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 June 30, 2001, the net capitalized costs did not
exceed the estimated present value of oil and gas reserves.
Results of Operations
A. General Comparison of the Quarters Ended June 30, 2001 and 2000
The following table provides certain information regarding performance
factors for the quarters ended June 30, 2001 and 2000:
Three Months
Ended Percentage
June 30, Increase
2001 2000 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 24.96 26.04 (4%)
Average price per mcf of gas $ 4.43 4.22 5%
Oil production in barrels 5,100 5,400 (6%)
Gas production in mcf 17,600 21,400 (18%)
Gross oil and gas revenue $ 225,236 242,805 (7%)
Net oil and gas revenue $ 146,366 157,682 (7%)
Total cost and expense $ 124,409 123,445 1%
Partnership distributions $ 125,000 100,000 25%
Limited partner distributions $ 112,500 90,000 25%
Per unit distribution to limited
partners $ 7.50 6.00 25%
Number of limited partner units 15,000 15,000
Revenues
The Partnership's oil and gas revenues decreased to $225,236 from $242,805
for the quarters ended June 30, 2001 and 2000, respectively, a decrease of
7%. The principal factors affecting the comparison of the quarters ended
June 30, 2001 and 2000 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended June 30, 2001 as compared to the
quarter ended June 30, 2000 by 4%, or $1.08 per barrel, resulting in a
decrease of approximately $5,500 in revenues. Oil sales represented
62% of total oil and gas sales during the quarter ended June 30, 2001
as compared to 61% during the quarter ended June 30, 2000.
The average price for an mcf of gas received by the Partnership
increased during the same period by 5%, or $.21 per mcf, resulting in
an increase of approximately $3,700 in revenues.
The net total decrease in revenues due to the change in prices received
from oil and gas production is approximately $1,800. 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 6% during the
quarter ended June 30, 2001 as compared to the quarter ended June 30,
2000, resulting in a decrease of approximately $7,800 in revenues.
Gas production decreased approximately 3,800 mcf or 18% during the same
period, resulting in a decrease of approximately $16,000 in revenues.
The total decrease in revenues due to the change in production is
approximately $23,800. The decrease in gas production is due to an
adjustment of gas balancing for a non-operated lease.
Costs and Expenses
Total costs and expenses increased to $124,409 from $123,445 for the
quarters ended June 30, 2001 and 2000, respectively, an increase of 1%.
The increase is the result of higher depletion expense, partially offset by
a decrease in lease operating costs and general and administrative expense.
1. Lease operating costs and production taxes were 7% lower, or
approximately $6,300 less during the quarter ended June 30, 2001 as
compared to the quarter ended June 30, 2000.
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 decreased 9%
or approximately $2,800 during the quarter ended June 30, 2001 as
compared to the quarter ended June 30, 2000.
3. Depletion expense increased to $16,000 for the quarter ended June 30,
2001 from $6,000 for the same period in 2000. This represents an
increase of 167%. 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 increase in depletion expense between the comparative
periods were the decrease in the price of oil and gas used to determine
the Partnership's reserves for July 1, 2001 as compared to 2000.
B. General Comparison of the Six Month Periods Ended June 30, 2001 and
2000
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 2001 and 2000:
Six Months
Ended Percentage
June 30, Increase
2001 2000 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 25.89 26.31 (2%)
Average price per mcf of gas $ 5.36 3.72 44%
Oil production in barrels 9,800 11,000 (11%)
Gas production in mcf 38,500 42,300 (9%)
Gross oil and gas revenue $ 460,225 446,856 3%
Net oil and gas revenue $ 307,728 296,954 4%
Partnership distribution $ 275,010 185,000 49%
Limited partner distributions $ 247,509 166,500 49%
Per unit distribution to limited
partners $ 16.50 11.10 49%
Number of limited partner units 15,000 15,000
Revenues
The Partnership's oil and gas revenues increased to $460,225 from $446,856
for the six months ended June 30, 2001 and 2000, respectively, an increase
of 3%. The principal factors affecting the comparison of the six months
ended June 30, 2001 and 2000 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the six months ended June 30, 2001 as compared to the
six months ended June 30, 2000 by 2%, or $.42 per barrel, resulting in
a decrease of approximately $4,100 in revenues. Oil sales represented
55% of total oil and gas sales during the six months ended June 30,
2001 as compared to 65% during the six months ended June 30, 2000.
The average price for an mcf of gas received by the Partnership
increased during the same period by 44%, or $1.64 per mcf, resulting in
an increase of approximately $63,100 in revenues.
The net total increase in revenues due to the change in prices received
from oil and gas production is approximately $59,000. 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 1,200 barrels or 11% during the
six months ended June 30, 2001 as compared to the six months ended June
30, 2000, resulting in a decrease of approximately $31,600 in revenues.
Gas production decreased approximately 3,800 mcf or 9% during the same
period, resulting in a decrease of approximately $14,100 in revenues.
The total decrease in revenues due to the change in production is
approximately $45,700.
Costs and Expenses
Total costs and expenses increased to $237,714 from $233,102 for the six
months ended June 30, 2001 and 2000, respectively, an increase of 2%. The
increase is the result of higher lease operating costs and depletion
expense, partially offset by a decrease in general and administrative
expense.
1. Lease operating costs and production taxes were 2% higher, or
approximately $2,600 more during the six months ended June 30, 2001 as
compared to the six months ended June 30, 2000.
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 decreased 6%
or approximately $4,000 during the six months ended June 30, 2001 as
compared to the six months ended June 30, 2000.
3. Depletion expense increased to $27,000 for the six months ended June
30, 2001 from $21,000 for the same period in 2000. This represents an
increase of 29%. 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 increase in depletion expense between the comparative
periods were the decrease in the price of oil and gas used to determine
the Partnership's reserves for July 1, 2001 as compared to 2000, and
the increase in oil and gas revenues received by the Partnership during
2001 as compared to 2000.
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 $264,100 in
the six months ended June 30, 2001 as compared to approximately $198,800 in
the six months ended June 30, 2000. The primary source of the 2001 cash
flow from operating activities was profitable operations.
Cash flows used in investing activities were approximately $1,700 in the
six months ended June 30, 2001 as compared to approximately $5,900 in the
six months ended June 30, 2000. The principle use of the 2001 cash flow
from investing activities was the additions to oil and gas properties.
Cash flows used in financing activities were approximately $276,600 in the
six months ended June 30, 2001 as compared to approximately $184,900 in the
six months ended June 30, 2000. The only use in financing activities was
the distributions to partners.
Total distributions during the six months ended June 30, 2001 were $275,010
of which $247,509 was distributed to the limited partners and $27,501 to
the general partners. The per unit distribution to limited partners during
the six months ended June 30, 2001 was $16.50. Total distributions during
the six months ended June 30, 2000 were $185,000 of which $166,500 was
distributed to the limited partners and $18,500 to the general partners.
The per unit distribution to limited partners during the six months ended
June 30, 2000 was $11.10.
The source for the 2001 distributions of $275,010 was oil and gas
operations of approximately $264,100, with the balance from available cash
on hand at the beginning of the period. The sources for the 2000
distributions of $185,000 were oil and gas operations of approximately
$198,800 less the change in oil and gas properties of approximately $5,900,
resulting in excess cash for contingencies or subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions
of $10,653,740 have been made to the partners. As of June 30, 2001,
$9,606,580 or $640.44 per limited partner unit has been distributed to the
limited partners, representing a 128% return of the capital contributed.
As of June 30, 2001, the Partnership had approximately $172,100 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is not a party to any derivative or
embedded derivative instruments.
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) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended June 30, 2001.
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: August 15, 2001