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, 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 nine month periods
ended September 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
September 30, December 31,
1995 1994
------------- ------------
(unaudited)
Assets
Current assets:
Cash $ 48,778 29,657
Receivable from Managing General Partner 102,103 106,547
--------- ---------
Total current assets 150,881 136,204
--------- ---------
Oil and gas properties - using the full
cost method of accounting 4,354,609 4,354,609
Less accumulated depreciation,
depletion and amortization 2,696,370 2,533,370
--------- ---------
Net oil and gas properties 1,658,239 1,821,239
--------- ---------
$ 1,809,120 1,957,443
========= =========
Liabilities and Partners' Equity
Current liabilities:
Accounts payable $ - 663
Distributions payable 404 135
--------- ---------
Total current liabilities 404 798
--------- ---------
Partners' equity:
General partners (463,916) (449,123)
Limited partners 2,272,632 2,405,768
--------- ---------
Total partners' equity 1,808,716 1,956,645
--------- ---------
$ 1,809,120 1,957,443
========= =========
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
Revenues
Income from net profits
interests $ 109,644 137,790 469,348 434,680
Interest income from
operations 470 759 1,615 1,662
------- ------- ------- -------
110,114 138,549 470,963 436,342
------- ------- ------- -------
Expenses
General and administrative 26,845 28,595 93,492 97,827
Depreciation, depletion and
amortization 46,000 69,000 163,000 223,000
------- ------- ------- -------
72,845 97,595 256,492 320,827
------- ------- ------- -------
Net income $ 37,269 40,954 214,471 115,515
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 3,354 3,686 19,302 10,396
======= ======= ======= =======
General partner $ 373 410 2,145 1,155
======= ======= ======= =======
Limited partners $ 33,542 36,858 193,024 103,964
======= ======= ======= =======
Per limited partner unit $ 2.24 2.46 12.87 6.93
======= ======= ======= =======
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
1995 1994
---- ----
Cash flows from operating activities:
Cash received from income from net
profits interests $ 473,792 496,982
Cash paid to suppliers (94,155) (97,684)
Interest received 1,615 1,662
------- -------
Net cash provided by operating activities 381,252 400,960
------- -------
Cash used in financing activities:
Distributions to partners (362,131) (358,477)
------- -------
Net increase in cash 19,121 42,483
Cash:
Beginning of period 29,657 6,325
------- -------
End of period $ 48,778 48,808
======= =======
(continued)
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Cash Flows, continued
(unaudited)
Nine Months Ended
September 30,
1995 1994
---- ----
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 214,471 115,515
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and amortization 163,000 223,000
Decrease in accounts receivable 4,444 62,302
Increase (decrease) in accounts payable (663) 143
------- -------
Net cash provided by operating activities $ 381,252 400,960
======= =======
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, sales 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 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 September 30, 1995 and 1994
The following table provides certain information regarding performance
factors for the quarters ended September 30, 1995 and 1994:
Three Months
Ended Percentage
September 30, Increase
1995 1994 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 16.12 16.30 (1%)
Average price per mcf of gas $ 1.66 1.81 (8%)
Oil production in barrels 10,100 10,100 0%
Gas production in mcf 32,300 31,100 4%
Income from net profits interests $ 109,644 137,790 (20%)
Partnership distributions $ 100,400 121,500 (17%)
Limited partner distributions $ 90,360 109,350 (17%)
Per unit distribution to limited partners $ 6.02 7.29 (17%)
Number of limited partner units 15,000 15,000
Net Profits Interests
The Partnership's income from net profits interests decreased to $109,644
from $137,790 for the quarters ended September 30, 1995 and 1994,
respectively, a decrease of 20%. The principal factors affecting the
comparison of the quarters ended September 30, 1995 and 1994 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended September 30, 1995 as compared to the
quarter ended September 30, 1994 by 1%, or $.18 per barrel, resulting in
a decrease of approximately $1,800 in income from net profits interests.
Oil sales represented 75% of total oil and gas sales during the quarters
ended September 30, 1995 and 1994.
The average price for an mcf of gas received by the Partnership decreased
during the same period by 8%, or $.15 per mcf, resulting in a decrease of
approximately $4,700 in income from net profits interests.
The total decrease in income from net profits interests due to the change
in prices received from oil and gas production is approximately $6,500.
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 remained relatively unchanged during the quarter ended
September 30, 1995 as compared to the quarter ended September 30, 1994.
Gas production increased approximately 1,200 mcf or 4% during the same
period, resulting in an increase of approximately $2,000 in income from
net profits interests.
The total increase in income from net profits interests due to the change
in production is approximately $2,000.
3. Lease operating costs and production taxes were 30% higher, or
approximately $24,700 more during the quarter ended September 30, 1995 as
compared to the quarter ended September 30, 1994. The increase is a
result of workover costs incurred in 1995.
Costs and Expenses
Total costs and expenses decreased to $72,845 from $97,595 for the quarters
ended September 30, 1995 and 1994, respectively, a decrease of 25%. 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 6%
or approximately $1,800 during the quarter ended September 30, 1995 as
compared to the quarter ended September 30, 1994.
2. Depletion expense decreased to $46,000 for the quarter ended September
30, 1995 from $69,000 for the same period in 1994. This represents a
decrease of 33%. 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. Consequently, depletion
will fluctuate in direct relation to oil and gas revenues. As noted
above, oil and gas revenues declined due to a decline in price and
production for the quarter ended September 30, 1995 as compared to the
same period for 1994.
B. General Comparison of the Nine Month Periods Ended September 30, 1995 and
1994
The following table provides certain information regarding performance
factors for the nine month periods ended September 30, 1995 and 1994:
Nine Months
Ended Percentage
September 30, Increase
1995 1994 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 16.87 14.85 14%
Average price per mcf of gas $ 1.75 2.07 (15%)
Oil production in barrels 35,300 34,100 4%
Gas production in mcf 99,800 96,500 3%
Income from net profits interests $ 469,348 434,680 8%
Partnership distributions $ 362,400 358,500 1%
Limited partner distributions $ 326,160 322,650 1%
Per unit distribution to limited partners $ 21.74 21.51 1%
Number of limited partner units 15,000 15,000
Net Profits Interests
The Partnership's income from net profits interests increased to $469,348
from $434,680 for the nine months ended September 30, 1995 and 1994,
respectively, an increase of 8%. The principal factors affecting the
comparison of the nine months ended September 30, 1995 and 1994 are as
follows:
1. The average price for a barrel of oil received by the Partnership
increased during the nine months ended September 30, 1995 as compared to
the nine months ended September 30, 1994 by 14%, or $2.02 per barrel,
resulting in an increase of approximately $68,900 in income from net
profits interests. Oil sales represented 77% of total oil and gas sales
during the nine months ended September 30, 1995 as compared to 72% during
the nine months ended September 30, 1994.
The average price for an mcf of gas received by the Partnership decreased
during the same period by 15%, or $.32 per mcf, resulting in a decrease
of approximately $30,900 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
$38,000. 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 1,200 barrels or 4% during the
nine months ended September 30, 1995 as compared to the nine months ended
September 30, 1994, resulting in an increase of approximately $20,200 in
income from net profits interests.
Gas production increased approximately 3,300 mcf or 3% during the same
period, resulting in an increase of approximately $5,800 in income from
net profits interests.
The total increase in income from net profits interests due to the change
in production is approximately $26,000.
3. Lease operating costs and production taxes were 11% higher, or
approximately $28,900 more during the nine months ended September 30,
1995 as compared to the nine months ended September 30, 1994. The
increase is a result of workover costs incurred in 1995.
Costs and Expenses
Total costs and expenses decreased to $256,492 from $320,827 for the nine
months ended September 30, 1995 and 1994, respectively, a decrease of 20%.
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 $4,300 during the nine months ended September 30, 1995
as compared to the nine months ended September 30, 1994.
2. Depletion expense decreased to $163,000 for the nine months ended
September 30, 1995 from $223,000 for the same period in 1994. This
represents a decrease of 27%. 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 nine months ended September 30, 1995 as
compared to the nine months ended September 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 $381,300 in
the nine months ended September 30, 1995 as compared to approximately
$401,000 in the nine months ended September 30, 1994. Primary source of the
1995 cash flow from operating activities was profitable operations.
Cash flows used in financing activities were approximately $362,100 in the
nine months ended September 30, 1995 as compared to approximately $358,500 in
the nine months ended September 30, 1994. The only use in financing
activities was the distributions to partners.
Total distributions during the nine months ended September 30, 1995 were
$362,400 of which $326,160 was distributed to the limited partners and
$36,240 was distributed to the general partners. The per unit distribution
to limited partners during the nine months ended September 30, 1995 was
$21.74. Total distributions during the nine months ended September 30, 1994
were $358,500 of which $322,650 was distributed to the limited partners and
$35,850 was distributed to the general partners. The per unit distribution
to limited partners during the nine months ended September 30, 1994 was
$21.51. The source for the 1995 distributions of $362,400 was oil and gas
operations of approximately $381,300, resulting in excess cash for
contingencies or subsequent distributions. The source for the 1994
distributions of $358,500 was oil and gas operations of approximately
$401,000, resulting in excess cash for contingencies or subsequent
distributions.
Since inception of the Partnership, cumulative monthly cash distributions of
$7,608,454 have been made to the partners. As of September 30, 1995,
$6,855,626 or $457.04 per limited partner unit has been distributed to the
limited partners, representing a 91% return of the capital contributed.
As of September 30, 1995, the Partnership had approximately $150,500 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.
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: November 8, 1995 By: /s/ Bill E. Coggin
------------------------------
Bill E. Coggin, Vice President
and Chief Financial Officer