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 0-16493
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 17.
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 Oil & Gas Income Fund VII-A, L.P.
Balance Sheets
Restated
June 30, December 31,
1997 1996
-------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 14,892 4,240
Receivable from Managing General Partner - 3,883
--------- ---------
Total current assets 14,892 8,123
--------- ---------
Oil and gas properties - using the
full cost method of accounting 4,613,731 4,609,211
Less accumulated depreciation,
depletion and amortization 3,399,737 3,333,737
--------- ---------
Net oil and gas properties 1,213,994 1,275,474
--------- ---------
$ 1,228,886 1,283,597
========= =========
Liabilities and Partners' Equity
Current liabilities:
Payable to Managing General Partner $ 7,568 -
Accounts payable 1,637 -
Distribution payable 233 122
--------- ---------
Total current liabilities 9,438 122
--------- ---------
Partners' equity:
General partners (519,730) (513,327)
Limited partners 1,739,178 1,796,802
--------- ---------
Total partners' equity 1,219,448 1,283,475
--------- ---------
$ 1,228,886 1,283,597
========= =========
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
Restated Restated
1997 1996 1997 1996
Revenues
Oil and gas $ 236,287 279,542 493,326 555,493
Interest 192 497 416 855
------- ------- ------- -------
236,479 280,039 493,742 556,348
------- ------- ------- -------
Expenses
Production 110,765 126,776 230,110 239,962
General and administrative 28,797 27,691 65,159 64,504
Depreciation, depletion and
amortization 32,000 41,000 66,000 81,000
------- ------- ------- -------
171,562 195,467 361,269 385,466
------- ------- ------- -------
Net income $ 64,917 84,572 132,473 170,882
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 5,843 7,611 11,923 15,379
======= ======= ======= =======
General Partner $ 649 846 1,324 1,709
======= ======= ======= =======
Limited partners $ 58,425 76,115 119,226 153,794
======= ======= ======= =======
Per limited partner unit $ 3.90 5.07 7.95 10.25
======= ======= ======= =======
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
Restated
1997 1996
Cash flows from operating activities:
Cash received from oil and gas sales $ 546,853 553,048
Cash paid to suppliers (335,708) (293,099)
Interest received 416 855
------- --------
Net cash provided by operating activities 211,561 260,804
------- --------
Cash flows from investing activities:
Additions to oil and gas properties (4,642) (3,542)
Cash received from sale of oil and gas property 122 4,140
------- --------
Net cash provided by (used in) investing
activities (4,520) 598
------- --------
Cash flows used in financing activities:
Distributions to partners (196,389) (290,769)
------- --------
Net increase (decrease) in cash and cash
equivalents 10,652 (29,367)
Beginning of period 4,240 44,954
------- --------
End of period $ 14,892 15,587
======= ========
(continued)
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
Restated
1997 1996
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 132,473 170,882
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 66,000 81,000
(Increase) decrease in receivables 53,527 (2,445)
Increase (decrease) in payables (40,439) 11,367
------- -------
Net cash provided by operating activities $ 211,561 260,804
======= =======
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 anticipates performing workovers
during the next two years to enhance production. The Partnership may undergo
an increase later in 1997 and possibly another increase in 1998. Thereafter,
the Partnership could possibly experience a normal decline of 8% to 10% per
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 $ 18.36 20.82 (12%)
Average price per mcf of gas $ 2.23 2.39 (7%)
Oil production in barrels 9,000 10,100 (11%)
Gas production in mcf 31,800 29,000 10%
Gross oil and gas revenue $ 236,287 279,542 (15%)
Net oil and gas revenue $ 125,522 152,766 (18%)
Total cost and expense $ 171,562 195,467 (12%)
Partnership distributions $ 45,000 138,000 (67%)
Limited partner distributions $ 40,500 124,200 (67%)
Per unit distribution to limited
partners $ 2.70 8.28 (67%)
Number of limited partner units 15,000 15,000
Revenues
The Partnership's oil and gas revenues decreased to $236,287 from $279,542
for the quarters ended June 30, 1997 and 1996, respectively, a decrease of
15%. 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 12%, or $2.46 per barrel, resulting in a
decrease of approximately $24,800 in revenues. Oil sales represented 70%
of total oil and gas sales during the quarter ended June 30, 1997 as
compared to 75% during the quarter ended June 30, 1996.
The average price for an mcf of gas received by the Partnership decreased
during the same period by 7%, or $.16 per mcf, resulting in a decrease of
approximately $4,600 in revenues.
The total decrease in revenues due to the change in prices received from
oil and gas production is approximately $29,400. 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 1,100 barrels or 11% during the
quarter ended June 30, 1997 as compared to the quarter ended June 30,
1996, resulting in a decrease of approximately $20,200 in revenues.
Gas production increased approximately 2,800 mcf or 10% during the same
period, resulting in an increase of approximately $6,200 in revenues.
The net total decrease in revenues due to the change in production is
approximately $14,000. The change in production is due to the accrual
effect in the second quarter of 1996. The estimates made, for the
quarter ended June 30, 1996, understated actual gas production received
thus skewing the comparative quarters for 1996 and 1997. When comparing
the quarter ended June 30, 1997 to the actual production for the quarter
ended June 30, 1996, gas production declined approximately 3,300 mcf or
10%. The decline in gas production is attributable to a well being
temporarily shut-in due to mechanical problems. The change in production
is also due to the natural decline in oil and gas production. Since the
Partnership does not drill or purchase additional oil and gas properties,
it is normal to expect production to continue to decline over the
remaining life of the wells.
Costs and Expenses
Total costs and expenses decreased to $171,562 from $195,467 for the quarters
ended June 30, 1997 and 1996, respectively, a decrease of 12%. 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 13% lower, or
approximately $16,000 less during the quarter ended June 30, 1997 as
compared to the quarter ended June 30, 1996.
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 4%
or approximately $1,100 during the quarter ended June 30, 1997 as
compared to the quarter ended June 30, 1996.
3. Depletion expense decreased to $32,000 for the quarter ended June 30,
1997 from $41,000 for the same period in 1996. This represents a
decrease of 22%. 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 oil and gas revenues and the increase in the price of oil and
gas used to determine the Partnership's reserves for January 1, 1997 as
compared to 1996.
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 19.38 4%
Average price per mcf of gas $ 2.44 2.23 9%
Oil production in barrels 17,200 21,400 (20%)
Gas production in mcf 60,600 63,000 (4%)
Gross oil and gas revenue $ 493,326 555,493 (11%)
Net oil and gas revenue $ 263,216 315,531 (17%)
Total cost and expense $ 361,269 385,466 (6%)
Partnership distribution $ 196,500 291,000 (32%)
Limited partner distributions $ 176,850 261,900 (32%)
Per unit distribution to limited
partners $ 11.79 17.46 (32%)
Number of limited partner units 15,000 15,000
Revenues
The Partnership's oil and gas revenues decreased to $493,326 from $555,493
for the six months ended June 30, 1997 and 1996, respectively, a decrease of
11%. 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
increased during the six months ended June 30, 1997 as compared to the
six months ended June 30, 1996 by 4%, or $.70 per barrel, resulting in an
increase of approximately $15,000 in revenues. Oil sales represented 70%
of total oil and gas sales during the six months ended June 30, 1997 as
compared to 75% 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 9%, or $.21 per mcf, resulting in an increase
of approximately $13,200 in revenues.
The total increase in revenues due to the change in prices received from
oil and gas production is approximately $28,200. 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 4,200 barrels or 20% during the
six months ended June 30, 1997 as compared to the six months ended June
30, 1996, resulting in a decrease of approximately $84,300 in revenues.
Gas production decreased approximately 2,400 mcf or 4% during the same
period, resulting in a decrease of approximately $5,900 in revenues.
The total decrease in revenues due to the change in production is
approximately $90,200. The decline in gas production is attributable to
a well being temporarily shut-in due to mechanical problems. The change
in production is also due to the natural decline in oil and gas
production. Since the Partnership does not drill or purchase additional
oil and gas properties, it is normal to expect production to continue to
decline over the remaining life of the wells.
Costs and Expenses
Total costs and expenses decreased to $361,269 from $385,466 for the six
months ended June 30, 1997 and 1996, respectively, a decrease of 6%. The
decrease is the result of lower depletion expense and lease operating costs,
partially offset by an increase in general and administrative expense.
1. Lease operating costs and production taxes were 4% lower, or
approximately $9,900 less during the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996.
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 1%
or approximately $700 during the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996.
3. Depletion expense decreased to $66,000 for the six months ended June 30,
1997 from $81,000 for the same period in 1996. This represents a
decrease of 19%. 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 oil and gas revenues and the increase in the price of oil and
gas 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 $211,600 in
the six months ended June 30, 1997 as compared to approximately $260,800 in
the six months ended June 30, 1996. The primary source of the 1997 cash flow
from operating activities was profitable operations.
Cash flows provided by or (used in) investing activities were approximately
$(4,500) in the six months ended June 30, 1997 as compared to approximately
$600 in the six months ended June 30, 1996. The principle use of the 1997
cash flow from investing activities was the additions to oil and gas
properties, partially offset by the sale of oil and gas properties.
Cash flows used in financing activities were approximately $196,400 in the
six months ended June 30, 1997 as compared to approximately $290,800 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 $196,500
of which $176,850 was distributed to the limited partners and $19,650 to the
general partners. The per unit distribution to limited partners during the
six months ended June 30, 1997 was $11.79. Total distributions during the
six months ended June 30, 1996 were $291,000 of which $261,900 was
distributed to the limited partners and $29,100 to the general partners. The
per unit distribution to limited partners during the six months ended June
30, 1996 was $17.46.
The source for the 1997 distributions of $196,500 was oil and gas operations
of approximately $211,600, partially offset by the net change in oil and gas
properties of approximately $4,500, resulting in excess cash for
contingencies or subsequent distributions. The sources for the 1996
distributions of $291,000 were oil and gas operations of approximately
$260,800 and the net change in oil and gas properties of approximately $600,
with the balance from available cash on hand at the beginning of the period.
Since inception of the Partnership, cumulative monthly cash distributions of
$9,467,032 have been made to the partners. As of June 30, 1997, $8,531,323
or $568.75 per limited partner unit has been distributed to the limited
partners, representing a 114% return of the capital contributed.
As of June 30, 1997, the Partnership had approximately $5,500 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.
Southwest Oil & Gas Income Fund VII-A, L. P.
Notes to Financial Statements
NOTE A - PRIOR PERIOD ADJUSTMENT
The Managing General Partner, who is a related party, failed to bill the
Partnership for lease operating expenses on one lease for a three year
period. This error resulted in the understatement of previously reported
production costs in the prior years. The error was corrected in the
Partnership's March 31, 1997 10-Q. The correction resulted in the following
changes to partners' equity as of December 31, 1996 and 1995.
Limited General
Partners Partners
Equity Equity
--------- --------
As previously reported, December 31, 1995 $ 2,066,098 (483,406)
Unrecorded production cost - 1994 (34,183) (3,798)
Unrecorded production cost - 1995 (47,899) (5,322)
--------- --------
December 31, 1995, as adjusted $ 1,984,016 (492,526)
========= ========
As previously reported, December 31, 1996 $ 1,906,851 (501,100)
Unrecorded production cost - 1994 (34,183) (3,798)
Unrecorded production cost - 1995 (47,899) (5,322)
Unrecorded production cost - 1996 (27,967) (3,107)
--------- --------
December 31, 1996, as adjusted $ 1,796,802 (513,327)
========= ========
(continued)
Southwest Oil & Gas Income Fund VII-A, L. P.
Notes to Financial Statements
NOTE A - PRIOR PERIOD ADJUSTMENT - CONTINUED
The following schedule shows the effect of the prior period adjustment,
before and after the restatement, to net income and distributions for the
years ended December 31, 1996, 1995 and 1994 and for the three and six month
periods ended June 30, 1996.
Before After
Prior Period Prior Period
Restatement Restatement
--------- --------
For the year ended December 31, 1994
Net Income $ 371,449 333,468
General partners 37,144 33,346
Limited partners 334,305 300,122
Per limited partner unit 22.29 20.01
Distribution
General partners 58,062 54,264
Limited partners 531,438 497,255
For the year ended December 31, 1995
Net Income 458,065 404,844
General partners 45,807 40,485
Limited partners 412,258 364,359
Per limited partner unit 27.48 24.29
Distribution
General partners 62,385 57,063
Limited partners 589,054 541,155
For the year ended December 31, 1996
Net Income 375,059 343,985
General partners 37,506 34,399
Limited partners 337,553 309,586
Per limited partner unit 22.50 20.64
Distribution
General partners 55,200 52,093
Limited partners 496,800 468,833
(continued)
Southwest Oil & Gas Income Fund VII-A, L. P.
Notes to Financial Statements
NOTE A - PRIOR PERIOD ADJUSTMENT - CONTINUED
Before After
Prior Period Prior Period
Restatement Restatement
--------- --------
For the three months ended June 30, 1996
Net Income 92,341 84,572
General partners 9,234 8,457
Limited partners 83,107 76,115
Per limited partner unit 5.54 5.07
Distribution
General partners 13,800 13,023
Limited partners 124,200 117,208
For the six months ended June 30, 1996
Net Income 186,419 170,882
General partners 18,642 17,088
Limited partners 167,777 153,794
Per limited partner unit 11.19 10.25
Distribution
General partners 29,100 27,546
Limited partners 261,900 247,917
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 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, 1997