Page 17 of 17
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 0-16493
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 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 Oil & Gas Income Fund VII-A, L.P.
Balance Sheets
Restated
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 35,629 4,240
Receivable from Managing General Partner 25,632 3,883
- --------- ---------
Total current assets 61,261 8,123
--------- ---------
Oil and gas properties - using the
full cost method of accounting 4,618,337 4,609,211
Less accumulated depreciation,
depletion and amortization 3,429,737 3,333,737
--------- ---------
Net oil and gas properties 1,188,600 1,275,474
--------- ---------
$1,249,861 1,283,597
========= =========
Liabilities and Partners' Equity
Current liability - Distribution payable $ 4,221 122
--------- ---------
Partners' equity
General partners (517,111) (513,327)
Limited partners 1,762,751 1,796,802
--------- ---------
Total partners' equity 1,245,640 1,283,475
--------- ---------
$1,249,861 1,283,597
========= =========
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
Restated Restated
1997 1996 1997 1996
Revenues
Oil and gas $ 223,453 279,749 716,778 835,242
Interest 270 364 686 1,219
------- ------- ------- -------
223,723 280,113 717,464 836,461
------- ------- ------- -------
Expenses
Production 110,750 148,207 340,860 388,169
General and administrative 26,780 27,271 91,939 91,775
Depreciation, depletion and
amortization 30,000 39,000 96,000 120,000
------- ------- ------- -------
167,530 214,478 528,799 599,944
------- ------- ------- -------
Net income $ 56,193 65,635 188,665 236,517
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 5,057 5,906 16,980 21,286
======= ======= ======= =======
General Partner $ 562 657 1,886 2,365
======= ======= ======= =======
Limited Partners $ 50,574 59,072 169,799 212,866
======= ======= ======= =======
Per limited partner unit $ 3.37 3.94 11.32 14.19
======= ======= ======= =======
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
Restated
1997 1996
Cash flows from operating activities
Cash received from oil and gas sales $ 777,678 833,062
Cash paid to suppliers (515,448) (452,811)
Interest received 686 1,219
------- -------
Net cash provided by operating activities 262,916 381,470
------- -------
Cash flows provided by investing activities
Additions to oil and gas properties (9,248) (5,151)
Cash received from sale of oil and gas property 122 4,152
------- -------
Net cash used in investing activities (9,126) (999)
------- -------
Cash flows used in financing activities
Distributions to partners (222,401) (409,262)
------- -------
Net increase (decrease) in cash and cash
equivalents 31,389 (28,791)
Beginning of period 4,240 44,954
------- -------
End of period $ 35,629 16,163
======= =======
(continued)
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Cash Flows, continued
(unaudited)
Nine Months Ended
September 30,
Restated
1997 1996
Reconciliation of net income to net cash
provided by operating activities
Net income $ 188,665 236,517
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, depletion and amortization 96,000 120,000
(Increase) decrease in receivables 60,900 (2,180)
Increase (decrease) in payables (82,649) 27,133
------- -------
Net cash provided by operating activities $ 262,916 381,470
======= =======
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 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 $ 17.45 21.06 (17%)
Average price per mcf of gas $ 2.23 2.12 5%
Oil production in barrels 8,900 9,200 (3%)
Gas production in mcf 30,600 40,700 (25%)
Gross oil and gas revenue $ 223,453 279,749 (20%)
Net oil and gas revenue $ 112,703 131,542 (14%)
Partnership distributions $ 30,000 115,000 (74%)
Limited partner distributions $ 27,000 103,500 (74%)
Per unit distribution to limited partners $ 1.80 6.90 (74%)
Number of limited partner units 15,000 15,000
Revenues
The Partnership's oil and gas revenues decreased to $223,453 from $279,749
for the quarters ended September 30, 1997 and 1996, respectively, a
decrease of 20%. 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 17%, or $3.61 per barrel,
resulting in a decrease of approximately $33,200 in revenues. Oil
sales represented 69% of total oil and gas sales during the quarters
ended September 30, 1997 and 1996.
The average price for an mcf of gas received by the Partnership
increased during the same period by 5%, or $.11 per mcf, resulting in
an increase of approximately $4,500 in revenues.
The net total decrease in revenues due to the change in prices received
from oil and gas production is approximately $28,700. 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 $5,200 in
revenues.
Gas production decreased approximately 10,100 mcf or 25% during the
same period, resulting in a decrease of approximately $22,500 in
revenues.
The total decrease in revenues due to the change in production is
approximately $27,700. The change in production is due to the accrual
effect in the third quarter of 1996. The estimates made, for the
quarter ended September 30, 1996, overstated actual gas production sold
thus skewing the comparative quarters for 1996 and 1997. When
comparing the quarter ended September 30, 1997 to the actual production
for the quarter ended September 30, 1996, gas production declined
approximately 5,400 mcf or 15%. 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 $167,530 from $214,478 for the
quarters ended September 30, 1997 and 1996, respectively, a decrease of
22%. The decrease is the result of lower lease operating costs, general
and administrative expense and depletion expense.
1. Lease operating costs and production taxes were 25% lower or
approximately $37,500 less during the quarter ended September 30, 1997 as
compared to the quarter ended September 30, 1996. The decline in costs is
primarily attributable to workover costs incurred in 1996 on one well.
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
2% or approximately $500 during the quarter ended September 30, 1997 as
compared to the quarter ended September 30, 1996.
3. Depletion expense decreased to $30,000 for the quarter ended September
30, 1997 from $39,000 for the same period in 1996. This represents a
decrease of 23%. 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. Two contributing
factors to the decline in depletion expense between the comparative
periods were the increase in the price of oil used to determine the
Partnership's reserves for January 1, 1997 as compared to 1996 and the
decline in gross oil and gas revenues.
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 $ 19.18 19.88 (4%)
Average price per mcf of gas $ 2.37 2.19 8%
Oil production in barrels 26,100 30,600 (15%)
Gas production in mcf 91,200 103,700 (12%)
Gross oil and gas revenue $ 716,778 835,242 (14%)
Net oil and gas revenue $ 375,918 447,073 (16%)
Partnership distribution $ 226,500 406,000 (44%)
Limited partner distributions $ 203,850 365,400 (44%)
Per unit distribution to limited partners $ 13.59 24.36 (44%)
Number of limited partner units 15,000 15,000
Revenues
The Partnership's oil and gas revenues decreased to $716,778 from $835,242
for the nine months ended September 30, 1997 and 1996, respectively, a
decrease of 14%. 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 4%, or $.70 per barrel,
resulting in a decrease of approximately $21,400 in revenues. Oil
sales represented 70% of total oil and gas sales during the nine months
ended September 30, 1997 as compared to 73% 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 8%, or $.18 per mcf, resulting in
an increase of approximately $18,700 in revenues.
The net total decrease in revenues due to the change in prices received
from oil and gas production is approximately $2,700. 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 4,500 barrels or 15% during the
nine months ended September 30, 1997 as compared to the nine months
ended September 30, 1996, resulting in a decrease of approximately
$86,300 in revenues.
Gas production decreased approximately 12,500 mcf or 12% during the
same period, resulting in a decrease of approximately $29,600 in
revenues.
The total decrease in revenues due to the change in production is
approximately $115,900. 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 $528,799 from $599,944 for the nine
months ended September 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 12% lower, or
approximately $47,300 less during the nine months ended September 30, 1997
as compared to the nine months ended September 30, 1996. The decline in
costs is primarily attributable to workover costs incurred in 1996 on one
well.
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
less than 1% or approximately $200 during the nine months ended
September 30, 1997 as compared to the nine months ended September 30,
1996.
3. Depletion expense decreased to $96,000 for the nine months ended
September 30, 1997 from $120,000 for the same period in 1996. This
represents a decrease of 20%. 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. Two
contributing factors to the decline in depletion expense between the
comparative periods were the increase in the price of oil used to
determine the Partnership's reserves for January 1, 1997 as compared to
1996 and the decline in gross oil and gas revenues.
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 $262,900 in
the nine months ended September 30, 1997 as compared to approximately
$381,500 in the nine months ended September 30, 1996. The primary source
of the 1997 cash flow from operating activities was profitable operations.
Cash flows used in investing activities were approximately $9,100 in the
nine months ended September 30, 1997 as compared to approximately $1,000 in
the nine months ended September 30, 1996. The principle use of the 1997
cash flow from investing activities was the change in oil and gas
properties.
Cash flows used in financing activities were approximately $222,400 in the
nine months ended September 30, 1997 as compared to approximately $409,300
in the nine months ended September 30, 1996. The only use in financing
activities was the distributions to partners.
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. Total
distributions during the nine months ended September 30, 1996 were $406,000
of which $365,400 was distributed to the limited partners and $40,600 to
the general partners. The per unit distribution to limited partners during
the nine months ended September 30, 1996 was $24.36.
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. The source for the 1996
distributions of $406,000 was oil and gas operations of approximately
$381,500, partially offset by a change in oil and gas properties of
approximately $1,000, with the balance from available cash on hand at the
beginning of the period.
Since inception of the Partnership, cumulative monthly cash distributions
of $9,497,032 have been made to the partners. As of September 30, 1997,
$8,558,323 or $570.55 per limited partner unit has been distributed to the
limited partners, representing a 114% return of the capital contributed.
As of September 30, 1997, the Partnership had approximately $57,000 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 nine
month periods ended September 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 September 30, 1996
Net Income 73,404 65,635
General partners 7,340 6,563
Limited partners 66,064 59,072
Per limited partner unit 4.40 3.94
Distribution
General partners 11,500 10,723
Limited partners 103,500 96,508
For the nine months ended September 30, 1996
Net Income 259,823 236,517
General partners 25,982 23,651
Limited partners 233,841 212,866
Per limited partner unit 15.59 14.19
Distribution
General partners 40,600 38,269
Limited partners 365,400 344,425
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, 1997