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, 1996
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.
PAGE
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, 1995 which are found in the Registrant's Form 10-K Report
for 1995 filed with the Securities and Exchange Commission. The December 31,
1995 balance sheet included herein has been taken from the Registrant's 1995
Form 10-K Report. Operating results for the three and six month periods
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the full year.
PAGE
Southwest Royalties Institutional Income Fund VII-B, L.P.
Balance Sheets
June 30, December 31,
1996 1995
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 20,735 28,684
Receivable from Managing
General Partner 107,343 122,722
--------- ---------
Total current assets 128,078 151,406
--------- ---------
Oil and gas properties - using the
full cost method of accounting 4,353,685 4,353,685
Less accumulated depreciation,
depletion and amortization 2,780,370 2,699,370
--------- ---------
Net oil and gas properties 1,573,315 1,654,315
--------- ---------
$ 1,701,393 1,805,721
========= =========
Liabilities and Partners' Equity
Current liability - Distributions payable $ 779 418
--------- ---------
Partners' equity:
General partners (474,708) (464,239)
Limited partners 2,175,322 2,269,542
--------- ---------
Total partners' equity 1,700,614 1,805,303
--------- ---------
$ 1,701,393 1,805,721
========= =========
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Revenues
Income from net profits
interests $ 147,861 186,409 296,606 359,704
Interest 446 651 738 1,145
------- ------- ------- -------
148,307 187,060 297,344 360,849
------- ------- ------- -------
Expenses
General and administrative 27,454 28,024 64,033 66,646
Depreciation, depletion and
amortization 40,000 60,000 81,000 117,000
------- ------- ------- -------
67,454 88,024 145,033 183,646
------- ------- ------- -------
Net income $ 80,853 99,036 152,311 177,203
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 7,277 8,913 13,708 15,948
======= ======= ======= =======
General Partner $ 809 990 1,523 1,772
======= ======= ======= =======
Limited Partners $ 72,767 89,133 137,080 159,483
======= ======= ======= =======
Per limited partner
unit $ 4.85 5.94 9.14 10.63
======= ======= ======= =======
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
1996 1995
Cash flows from operating activities:
Cash received from income from net
profits interests $ 311,985 329,936
Cash paid to suppliers (64,033) (66,649)
Interest received 738 1,145
------- -------
Net cash provided by operating
activities 248,690 264,432
------- -------
Cash flows used in financing
activities:
Distributions to partners (256,639) (261,970)
------- -------
Net increase (decrease) in cash and
cash equivalents (7,949) 2,462
Beginning of period 28,684 29,657
------- -------
End of period $ 20,735 32,119
======= =======
(continued)
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
1996 1995
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 152,311 177,203
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and
amortization 81,000 117,000
(Increase) decrease in receivables 15,379 (29,768)
Decrease in payables - (3)
------- -------
Net cash provided by operating
activities $ 248,690 264,432
======= =======
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, 1996 and 1995
The following table provides certain information regarding performance
factors for the quarters ended June 30, 1996 and 1995:
Three Months
Ended Percentage
June 30, Increase
1996 1995 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 20.93 17.70 18%
Average price per mcf of gas $ 2.18 1.73 26%
Oil production in barrels 8,900 12,100 (26%)
Gas production in mcf 24,000 40,900 (41%)
Income from net profits interests $ 147,861 186,409 (21%)
Partnership distributions $ 129,000 137,000 (6%)
Limited partner distributions $ 116,100 123,300 (6%)
Per unit distribution to limited
partners $ 7.74 8.22 (6%)
Number of limited partner units 15,000 15,000
Revenues
The Partnership's income from net profits interests decreased to $147,861
from $186,409 for the quarters ended June 30, 1996 and 1995, respectively, a
decrease of 21%. The principal factors affecting the comparison of the
quarters ended June 30, 1996 and 1995 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended June 30, 1996 as compared to the
quarter ended June 30, 1995 by 18%, or $3.23 per barrel, resulting in an
increase of approximately $39,100 in income from net profits interests.
Oil sales represented 78% of total oil and gas sales during the quarter
ended June 30, 1996 as compared to 75% during the quarter ended June 30,
1995.
The average price for an mcf of gas received by the Partnership increased
during the same period by 26%, or $.45 per mcf, resulting in an increase
of approximately $18,400 in income from net profits interests.
The total increase in income from net profits interests due to the change
in prices received from oil and gas production is approximately $57,500.
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 decreased approximately 3,200 barrels or 26% during the
quarter ended June 30, 1996 as compared to the quarter ended June 30,
1995, resulting in a decrease of approximately $67,000 in income from net
profits interests.
Gas production decreased approximately 16,900 mcf or 41% during the same
period, resulting in a decrease of approximately $36,800 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $103,800. The decrease in production is
primarily attributable to the sale of property and lease downtime.
3. Lease operating costs and production taxes were 8% lower, or
approximately $7,900 less during the quarter ended June 30, 1996 as
compared to the quarter ended June 30, 1995.
Costs and Expenses
Total costs and expenses decreased to $67,454 from $88,024 for the quarters
ended June 30, 1996 and 1995, respectively, a decrease of 23%. The decrease
is the result of lower general and administrative expense and depletion
expense.
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 2%
or approximately $600 during the quarter ended June 30, 1996 as compared
to the quarter ended June 30, 1995.
2. Depletion expense decreased to $40,000 for the quarter ended June 30,
1996 from $60,000 for the same period in 1995. 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.
Two factors that attributed to the decline in depletion expense between
the comparative periods were the increase in the price of oil and gas
used to determine the Partnership's reserves for January 1, 1996 as
compared to 1995 and the decrease in oil and gas revenues.
B. General Comparison of the Six Month Periods Ended June 30, 1996 and 1995
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 1996 and 1995:
Six Months
Ended Percentage
June 30, Increase
1996 1995 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 19.52 17.17 14%
Average price per mcf of gas $ 2.09 1.79 17%
Oil production in barrels 19,000 25,200 (25%)
Gas production in mcf 51,000 67,400 (24%)
Income from net profits interests $ 296,606 359,704 (18%)
Partnership distributions $ 257,000 262,000 (2%)
Limited partner distributions $ 231,300 235,800 (2%)
Per unit distribution to limited
partners $ 15.42 15.72 (2%)
Number of limited partner units 15,000 15,000
Revenues
The Partnership's income from net profits interests decreased to $296,606
from $359,704 for the six months ended June 30, 1996 and 1995, respectively,
a decrease of 18%. The principal factors affecting the comparison of the six
months ended June 30, 1996 and 1995 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the six months ended June 30, 1996 as compared to the
six months ended June 30, 1995 by 14%, or $2.35 per barrel, resulting in
an increase of approximately $59,200 in income from net profits
interests. Oil sales represented 78% of total oil and gas sales during
the six months ended June 30, 1996 and 1995.
The average price for an mcf of gas received by the Partnership increased
during the same period by 17%, or $.30 per mcf, resulting in an increase
of approximately $20,200 in income from net profits interests.
The total increase in income from net profits interests due to the change
in prices received from oil and gas production is approximately $79,400.
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 6,200 barrels or 25% during the
six months ended June 30, 1996 as compared to the six months ended June
30, 1995, resulting in a decrease of approximately $121,000 in income
from net profits interests.
Gas production decreased approximately 16,400 mcf or 24% during the same
period, resulting in a decrease of approximately $34,300 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $155,300. The decrease in production is
primarily attributable to the sale of property and lease downtime.
3. Lease operating costs and production taxes were 6% lower, or
approximately $12,000 less during the six months ended June 30, 1996 as
compared to the six months ended June 30, 1995.
Costs and Expenses
Total costs and expenses decreased to $145,033 from $183,646 for the six
months ended June 30, 1996 and 1995, respectively, a decrease of 21%. The
decrease is the result of lower general and administrative expense and
depletion expense.
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, 1996 as
compared to the six months ended June 30, 1995.
2. Depletion expense decreased to $81,000 for the six months ended June 30,
1996 from $117,000 for the same period in 1995. This represents a
decrease of 31%. 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.
Two factors that attributed to the decline in depletion expense between
the comparative periods were the increase in the price of oil and gas
used to determine the Partnership's reserves for January 1, 1996 as
compared to 1995 and the decrease in 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 $248,700 in
the six months ended June 30, 1996 as compared to approximately $264,400 in
the six months ended June 30, 1995. The primary source of the 1996 cash flow
from operating activities was profitable operations.
Cash flows used in financing activities were approximately $256,600 in the
six months ended June 30, 1996 as compared to approximately $262,000 in the
six months ended June 30, 1995. The only use in financing activities was the
distributions to partners.
Total distributions during the six months ended June 30, 1996 were $257,000
of which $231,300 was distributed to the limited partners and $25,700 to the
general partners. The per unit distribution to limited partners during the
six months ended June 30, 1996 was $15.42. 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 to the general partners. The
per unit distribution to limited partners during the six months ended June
30, 1995 was $15.72.
The source for the 1996 distributions of $257,000 was oil and gas operations
of approximately $248,700, with the balance from available cash on hand at
the beginning of the period. 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.
Since inception of the Partnership, cumulative monthly cash distributions of
$7,974,644 have been made to the partners. As of June 30, 1996, $7,185,216
or $479.01 per limited partner unit has been distributed to the limited
partners, representing a 96% return of the capital contributed.
As of June 30, 1996, the Partnership had approximately $127,300 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
By: /s/ Bill E. Coggin
Bill E. Coggin, Vice President
and Chief Financial Officer
Date: August 12, 1996