Page 14 of 14
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, 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 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, 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
six month periods ended June 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
June 30, December 31,
1998 1997
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 975 29,210
Receivable from Managing General Partner 51,624 80,134
--------- ---------
Total current assets 52,599 109,344
--------- ---------
Oil and gas properties - using the
full cost method of accounting 4,622,065 4,619,742
Less accumulated depreciation,
depletion and amortization 3,622,737 3,539,737
--------- ---------
Net oil and gas properties 999,328 1,080,005
--------- ---------
$ 1,051,927 1,189,349
========= =========
Liabilities and Partners' Equity
Current liability - Distribution payable $ 342 4,315
--------- ---------
Partners' equity:
General partners (536,516) (523,171)
Limited partners 1,588,101 1,708,205
--------- ---------
Total partners' equity 1,051,585 1,185,034
--------- ---------
$ 1,051,927 1,189,349
========= =========
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues
Oil and gas $ 149,542 236,287 321,073 493,326
Interest 274 192 795 416
------- ------- ------- -------
149,816 236,479 321,868 493,742
------- ------- ------- -------
Expenses
Production 95,249 110,765 189,256 230,110
General and administrative 30,873 28,797 69,062 65,159
Depreciation, depletion and
amortization 44,000 32,000 83,000 66,000
------- ------- ------- -------
170,122 171,562 341,318 361,269
------- ------- ------- -------
Net income (loss) $ (20,306) 64,917 (19,450) 132,473
======= ======= ======= =======
Net income (loss) allocated to:
Managing General Partner $ (1,828) 5,843 (1,751) 11,923
======= ======= ======= =======
General Partner $ (203) 649 (194) 1,324
======= ======= ======= =======
Limited partners $ (18,275) 58,425 (17,505) 119,226
======= ======= ======= =======
Per limited partner unit $ (1.22) 3.90 (1.17) 7.95
======= ======= ======= =======
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Cash received from oil and gas sales $ 360,381 546,853
Cash paid to suppliers (269,117) (335,708)
Interest received 795 416
-------- --------
Net cash provided by operating activities 92,059 211,561
-------- --------
Cash flows from investing activities:
Additions to oil and gas properties (2,322) (4,642)
Cash received from sale of oil and gas property - 122
-------- --------
Net cash used in investing activities (2,322) (4,520)
-------- --------
Cash flows used in financing activities:
Distributions to partners (117,972) (196,389)
-------- --------
Net increase (decrease) in cash and cash
equivalents (28,235) 10,652
Beginning of period 29,210 4,240
-------- --------
End of period $ 975 14,892
======== ========
(continued)
Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
1998 1997
Reconciliation of net income (loss) to net
cash provided by operating activities:
Net income (loss) $(19,450) 132,473
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization 83,000 66,000
Decrease in receivables 39,308 53,527
Decrease in payables (10,799) (40,439)
------- -------
Net cash provided by operating activities $ 92,059 211,561
======= =======
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 two years. The Partnership may undergo an
increase later in 1998. Thereafter, 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 June 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 half 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 June 30, 1998 and 1997
The following table provides certain information regarding performance
factors for the quarters ended June 30, 1998 and 1997:
Three Months
Ended Percentage
June 30, Increase
1998 1997 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 12.15 18.36 (34%)
Average price per mcf of gas $ 2.08 2.23 (7%)
Oil production in barrels 8,000 9,000 (11%)
Gas production in mcf 25,200 31,800 (21%)
Gross oil and gas revenue $ 149,542 236,287 (37%)
Net oil and gas revenue $ 54,293 125,522 (57%)
Total cost and expense $ 170,122 171,562 (1%)
Partnership distributions $ 19,000 45,000 (58%)
Limited partner distributions $ 17,100 40,500 (58%)
Per unit distribution to limited
partners $ 1.14 2.70 (58%)
Number of limited partner units 15,000 15,000
Revenues
The Partnership's oil and gas revenues decreased to $149,542 from $236,287
for the quarters ended June 30, 1998 and 1997, respectively, a decrease of
37%. The principal factors affecting the comparison of the quarters ended
June 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 June 30, 1998 as compared to the
quarter ended June 30, 1997 by 34%, or $6.21 per barrel, resulting in a
decrease of approximately $55,890 in revenues. Oil sales represented
65% of total oil and gas sales during the quarter ended June 30, 1998
as compared to 70% during the quarter ended June 30, 1997.
The average price for an mcf of gas received by the Partnership
decreased during the same period by 7%, or $.15 per mcf, resulting in a
decrease of approximately $4,770 in revenues.
The total decrease in revenues due to the change in prices received
from oil and gas production is approximately $60,660. 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 1,000 barrels or 11% during the
quarter ended June 30, 1998 as compared to the quarter ended June 30,
1997, resulting in a decrease of approximately $12,150 in revenues.
Gas production decreased approximately 6,600 mcf or 21% during the same
period, resulting in a decrease of approximately $13,728 in revenues.
The total decrease in revenues due to the change in production is
approximately $25,878. The decrease in production is due primarily to
a farm-out agreement which decreased the Partnership's ownership
percentage on one well and the explosion of a gas plant which reduced
production on several gas wells for the month of April 1998.
Costs and Expenses
Total costs and expenses decreased to $170,122 from $171,562 for the
quarters ended June 30, 1998 and 1997, respectively, a decrease of 1%. 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 14% lower, or
approximately $15,500 less during the quarter ended June 30, 1998 as
compared to the quarter ended June 30, 1997.
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 7%
or approximately $2,076 during the quarter ended June 30, 1998 as
compared to the quarter ended June 30, 1997.
3. Depletion expense increased to $44,000 for the quarter ended June 30,
1998 from $32,000 for the same period in 1997. This represents an
increase of 38%. 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 January 1, 1998 as compared to 1997.
B. General Comparison of the Six Month Periods Ended June 30, 1998 and
1997
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 1998 and 1997:
Six Months
Ended Percentage
June 30, Increase
1998 1997 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 13.10 20.08 (35%)
Average price per mcf of gas $ 2.09 2.44 (14%)
Oil production in barrels 16,000 17,200 (7%)
Gas production in mcf 53,300 60,600 (12%)
Gross oil and gas revenue $ 321,073 493,326 (35%)
Net oil and gas revenue $ 131,817 263,216 (50%)
Total cost and expense $ 341,318 361,269 (6%)
Partnership distribution $ 114,000 196,500 (42%)
Limited partner distributions $ 102,600 176,850 (42%)
Per unit distribution to limited
partners $ 6.84 11.79 (42%)
Number of limited partner units 15,000 15,000
Revenues
The Partnership's oil and gas revenues decreased to $321,073 from $493,326
for the six months ended June 30, 1998 and 1997, respectively, a decrease
of 35%. The principal factors affecting the comparison of the six months
ended June 30, 1998 and 1997 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the six months ended June 30, 1998 as compared to the
six months ended June 30, 1997 by 35%, or $6.98 per barrel, resulting
in a decrease of approximately $120,056 in revenues. Oil sales
represented 65% of total oil and gas sales during the six months ended
June 30, 1998 as compared to 70% during the six months ended June 30,
1997.
The average price for an mcf of gas received by the Partnership
decreased during the same period by 14%, or $.35 per mcf, resulting in
a decrease of approximately $21,210 in revenues.
The total decrease in revenues due to the change in prices received
from oil and gas production is approximately $141,266. 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 7% during the
six months ended June 30, 1998 as compared to the six months ended June
30, 1997, resulting in a decrease of approximately $15,720 in revenues.
Gas production decreased approximately 7,300 mcf or 12% during the same
period, resulting in a decrease of approximately $15,257 in revenues.
The total decrease in revenues due to the change in production is
approximately $30,977.
Costs and Expenses
Total costs and expenses decreased to $341,318 from $361,269 for the six
months ended June 30, 1998 and 1997, respectively, a decrease of 6%. 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 18% lower, or
approximately $40,854 less during the six months ended June 30, 1998 as
compared to the six months ended June 30, 1997.
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 6%
or approximately $3,903 during the six months ended June 30, 1998 as
compared to the six months ended June 30, 1997.
3. Depletion expense increased to $83,000 for the six months ended June
30, 1998 from $66,000 for the same period in 1997. This represents an
increase of 26%. 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 January 1, 1998 as compared to 1997.
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 $92,100 in
the six months ended June 30, 1998 as compared to approximately $211,600 in
the six months ended June 30, 1997. The primary source of the 1998 cash
flow from operating activities was profitable operations.
Cash flows used in investing activities were approximately $2,300 in the
six months ended June 30, 1998 as compared to approximately $4,500 in the
six months ended June 30, 1997. The principle use of the 1998 cash flow
from investing activities was the additions to oil and gas properties.
Cash flows used in financing activities were approximately $118,000 in the
six months ended June 30, 1998 as compared to approximately $196,400 in the
six months ended June 30, 1997. The only use in financing activities was
the distributions to partners.
Total distributions during the six months ended June 30, 1998 were $114,000
of which $102,600 was distributed to the limited partners and $11,400 to
the general partners. The per unit distribution to limited partners during
the six months ended June 30, 1998 was $6.84. 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.
The sources for the 1998 distributions of $114,000 were oil and gas
operations of approximately $92,100 less the net change in oil and gas
properties of approximately $2,300, with the balance from available cash on
hand at the beginning of the period. 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.
Since inception of the Partnership, cumulative monthly cash distributions
of $9,675,532 have been made to the partners. As of June 30, 1998,
$8,718,973 or $581.26 per limited partner unit has been distributed to the
limited partners, representing a 116% return of the capital contributed.
As of June 30, 1998, the Partnership had approximately $52,257 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 Managing General Partner provides all data processing needs of the
Partnership. The Managing General Partner has reviewed and evaluated its
information systems to determine if its systems accurately process data
referencing the year 2000. Primarily all necessary programming
modifications to correct year 2000 referencing in the Managing General
Partners internal accounting and operating systems have been made to-date.
However the Managing General Partner has not completed its evaluation of
its vendors and suppliers systems to determine the effect, if any, the non-
compliance of such systems would have on the operation of the Managing
General Partnership or the operations of the Partnership.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter
ended June 30, 1998.
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, 1998