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, 1995
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 33-11576
Southwest Royalties Institutional Income Fund VII-B, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2165825
(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, 1994 which are found in the Registrant's Form 10-K Report
for 1994 filed with the Securities and Exchange Commission. The December 31,
1994 balance sheet included herein has been taken from the Registrant's 1994
Form 10-K Report. Operating results for the three and six month periods
ended June 30, 1995 are not necessarily indicative of the results that may be
expected for the full year.
Southwest Royalties Institutional Income Fund VII-B, L.P.
Balance Sheets
June 30, December 31,
1995 1994
----------- ------------
(unaudited)
Assets
Current assets:
Cash $ 32,119 29,657
Receivable from Managing General Partner 136,315 106,547
--------- ---------
Total current assets 168,434 136,204
--------- ---------
Oil and gas properties - using the full
cost method of accounting 4,354,609 4,354,609
Less accumulated depreciation,
depletion and amortization 2,650,370 2,533,370
--------- ---------
Net oil and gas properties 1,704,239 1,821,239
--------- ---------
$ 1,872,673 1,957,443
========= =========
Liabilities and Partners' Equity
Current liabilities:
Accounts payable $ 660 663
Distributions payable 165 135
--------- ---------
Total current liabilities 825 798
--------- ---------
Partners' equity:
General partners (457,603) (449,123)
Limited partners 2,329,451 2,405,768
--------- ---------
Total partners' equity 1,871,848 1,956,645
--------- ---------
$ 1,872,673 1,957,443
========= =========
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
Revenues
Income from net profits interests $ 186,409 148,355 359,704 296,890
Interest income from operations 651 495 1,145 903
------- ------- ------- -------
187,060 148,850 360,849 297,793
------- ------- ------- -------
Expenses
General and administrative 28,024 30,017 66,646 69,233
Depreciation, depletion and
amortization 60,000 74,000 117,000 154,000
------- ------- ------- -------
88,024 104,017 183,646 223,233
------- ------- ------- -------
Net income $ 99,036 44,833 177,203 74,560
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 8,913 4,035 15,948 6,710
======= ======= ======= =======
General Partner $ 990 448 1,772 746
======= ======= ======= =======
Limited Partners $ 89,133 40,350 159,483 67,104
======= ======= ======= =======
Per limited partner unit $ 5.94 2.69 10.63 4.47
======= ======= ======= =======
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
1995 1994
---- ----
Cash flows from operating activities:
Cash received from income from net
profits interests $ 329,936 294,112
Cash paid to suppliers (66,649) (43,535)
Interest received 1,145 903
------- -------
Net cash provided by operating activities 264,432 251,480
------- -------
Cash used in financing activities:
Distributions to partners (261,970) (237,029)
------- -------
Net increase in cash 2,462 14,451
Cash -
beginning of period 29,657 6,325
------- -------
end of period $ 32,119 20,776
======= =======
(continued)
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
1995 1994
---- ----
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 177,203 74,560
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and amortization 117,000 154,000
Increase in accounts receivable (29,768) (2,778)
Increase (decrease) in accounts payable (3) 25,698
------- -------
Net cash provided by operating activities $ 264,432 251,480
======= =======
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Royalties Institutional Income Fund VII-B, L.P. was organized as a
Delaware limited partnership on January 28, 1987. The offering of such
limited partnership interests began March 23, 1987; minimum capital
requirements were met May 20, 1987 and concluded December 1, 1987, with total
limited partner contributions of $7,500,000.
The Partnership was formed to acquire royalty and net profits 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 will not be 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, 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.
Results of Operations
A. General Comparison of the Quarters Ended June 30, 1995 and 1994
The following table provides certain information regarding performance
factors for the quarters ended June 30, 1995 and 1994:
Three Months
Ended Percentage
June 30, Increase
1995 1994 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 17.70 16.05 10%
Average price per mcf of gas $ 1.73 1.94 (11%)
Oil production in barrels * 12,100 11,300 7%
Gas production in mcf * 40,900 26,600 54%
Income from net profits interests $ 186,409 148,355 26%
Partnership distributions $ 137,000 111,000 23%
Limited partner distributions $ 123,300 99,900 23%
Per unit distribution to limited partners $ 8.22 6.66 23%
Number of limited partner units 15,000 15,000
*In the Form 10-Q, for the quarter ended June 30, 1994, the oil and gas
production volumes were calculated by rounding to the nearest 500 barrels or
mcf, respectively. In the Form 10-Q, for the quarter ended June 30, 1995,
the oil and gas production volumes were calculated by rounding to the nearest
100 barrels or mcf, respectively.
Revenues:
The Partnership's income from net profits interests increased to $186,409
from $148,355 for the quarters ended June 30, 1995 and 1994, respectively, an
increase of 26%. The principal factors affecting the comparison of the
quarters ended June 30, 1995 and 1994 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended June 30, 1995 as compared to the
quarter ended June 30, 1994 by 10%, or $1.65 per barrel, resulting in an
increase of approximately $18,600 in income from net profits interests.
Oil sales represented 75% of total oil and gas sales during the quarter
ended June 30, 1995 as compared to 78% during the quarter ended June 30,
1994.
The average price for an mcf of gas received by the Partnership decreased
during the same period by 11%, or $.21 per mcf, resulting in a decrease
of approximately $5,600 in income from net profits interests.
The net total increase in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$13,000. 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 increased approximately 800 barrels or 7% during the
quarter ended June 30, 1995 as compared to the quarter ended June 30,
1994, resulting in an increase of approximately $14,200 in income from
net profits interests.
Gas production increased approximately 14,300 mcf or 54% during the same
period, resulting in an increase of approximately $24,700 in income from
net profits interests.
The total increase in income from net profits interests due to the change
in production is approximately $38,900. The increase is a result of
successful workovers on two wells.
3. Lease operating costs and production taxes were 16% higher, or
approximately $13,900 more during the quarter ended June 30, 1995 as
compared to the quarter ended June 30, 1994. The increase is a result of
workover costs incurred in 1995.
Costs and Expenses:
Total costs and expenses decreased to $88,024 from $104,017 for the quarters
ended June 30, 1995 and 1994, respectively, a decrease of 15%. The decrease
is the result of a decrease in general and administrative expense and
depletion.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs decreased 7%
or approximately $2,000 during the quarter ended June 30, 1995 as
compared to the quarter ended June 30, 1994.
2. Depletion expense decreased to $60,000 for the quarter ended June 30,
1995 from $74,000 for the same period in 1994. This represents a
decrease of 19%. Depletion is calculated using the gross 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. Although oil and gas
revenues increased for the quarter ended June 30, 1995 as compared to the
quarter ended June 30, 1994, the decrease in depletion expense is the
result of the change in oil prices since 1994.
B. General Comparison of the Six Month Periods Ended June 30, 1995 and 1994
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 1995 and 1994:
Six Months
Ended Percentage
June 30, Increase
1995 1994 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 17.17 14.24 21%
Average price per mcf of gas $ 1.79 2.20 (19%)
Oil production in barrels * 25,200 24,000 5%
Gas production in mcf * 67,400 65,500 3%
Income from net profits interests $ 359,704 296,890 21%
Partnership distributions $ 262,000 237,000 11%
Limited partner distributions $ 235,800 213,300 11%
Per unit distribution to limited partners $ 15.72 14.22 11%
Number of limited partner units 15,000 15,000
*In the Form 10-Q, for the six months ended June 30, 1994, the oil and gas
production volumes were calculated by rounding to the nearest 500 barrels or
mcf, respectively. In the Form 10-Q, for the six months ended June 30, 1995,
the oil and gas production volumes were calculated by rounding to the nearest
100 barrels or mcf, respectively.
Revenues:
The Partnership's income from net profits interests increased to $359,704
from $296,890 for the six months ended June 30, 1995 and 1994, respectively,
an increase of 21%. The principal factors affecting the comparison of the
six months ended June 30, 1995 and 1994 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the six months ended June 30, 1995 as compared to the
six months ended June 30, 1994 by 21%, or $2.93 per barrel, resulting in
an increase of approximately $70,300 in income from net profits
interests. Oil sales represented 78% of total oil and gas sales during
the six months ended June 30, 1995 as compared to 70% during the six
months ended June 30, 1994.
The average price for an mcf of gas received by the Partnership decreased
during the same period by 19%, or $.41 per mcf, resulting in a decrease
of approximately $26,900 in income from net profits interests.
The net total increase in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$43,400. 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 increased approximately 1,200 barrels or 5% during the six
months ended June 30, 1995 as compared to the six months ended June 30,
1994, resulting in an increase of approximately $20,600 in income from
net profits interests.
Gas production increased approximately 1,900 mcf or 3% during the same
period, resulting in an increase of approximately $3,400 in income from
net profits interests.
The total increase in income from net profits interests due to the change
in production is approximately $24,000.
3. Lease operating costs and production taxes were 2% higher, or
approximately $4,200 more during the six months ended June 30, 1995 as
compared to the six months ended June 30, 1994.
Costs and Expenses:
Total costs and expenses decreased to $183,646 from $223,233 for the six
months ended June 30, 1995 and 1994, respectively, a decrease of 18%. The
decrease is the result of a decrease in general and administrative expense
and depletion.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs decreased 4%
or approximately $2,600 during the six months ended June 30, 1995 as
compared to the six months ended June 30, 1994.
2. Depletion expense decreased to $117,000 for the six months ended June 30,
1995 from $154,000 for the same period in 1994. This represents a
decrease of 24%. Depletion is calculated using the gross 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. Although oil and gas
revenues increased for the six months ended June 30, 1995 as compared to
the six months ended June 30, 1994, the decrease in depletion expense is
the result of the change in oil prices since 1994.
Liquidity and Capital Resources:
The primary source of cash is from profitable operations. The Partnership
knows of no material change, nor does it anticipate any such change.
Cash flows provided by operating activities were approximately $264,400 in
the six months ended June 30, 1995 as compared to approximately $251,500 in
the six months ended June 30, 1994. Primary source of the 1995 cash flow
from operating activities was profitable operations.
Cash flows used in financing activities were approximately $262,000 in the
six months ended June 30, 1995 as compared to approximately $237,000 in the
six months ended June 30, 1994. The only use in financing activities was the
distributions to partners.
Total distributions during the six months ended June 30, 1995 were $262,000
of which $235,800 was distributed to the limited partners and $26,200 was
distributed to the general partners. The per unit distribution to limited
partners during the six months ended June 30, 1995 was $15.72. Total
distributions during the six months ended June 30, 1994 were $237,000 of
which $213,300 was distributed to the limited partners and $23,700 was
distributed to the general partners. The per unit distribution to limited
partners during the six months ended June 30, 1994 was $14.22. The source
for the 1995 distributions of $262,000 was oil and gas operations of
approximately $264,400, resulting in excess cash for contingencies or
subsequent distributions. The source for the 1994 distributions of $237,000
was oil and gas operations of approximately $251,500, resulting in excess
cash for contingencies or subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions of
$7,508,054 have been made to the partners. As of June 30, 1995, $6,765,266
or $451.02 per limited partner unit has been distributed to the limited
partners, representing a 90% return of the capital contributed.
As of June 30, 1995, the Partnership had approximately $167,600 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.
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) None
(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 ROYALTIES INSTITUTIONAL
INCOME FUND VII-B, L.P.
a Delaware limited partnership
By: Southwest Royalties, Inc.
Managing General Partner
Date: August 2, 1995 By: /s/ Bill E. Coggin
------------------------------
Bill E. Coggin, Vice President
and Chief Financial Officer