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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 March 31, 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 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 13.
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 month
period ended March 31, 1998 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
March 31, December 31,
1998 1997
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 15,515 24,154
Receivable from Managing General Partner 63,368 97,640
--------- ---------
Total current assets 78,873 121,794
--------- ---------
Oil and gas properties - using
the full-cost method of accounting 4,348,759 4,353,129
Less accumulated depreciation,
depletion and amortization 3,097,370 3,049,370
--------- ---------
Net oil and gas properties 1,251,389 1,303,759
--------- ---------
$ 1,330,262 1,425,553
========= =========
Liabilities and Partners' Equity
Current liability - Distributions payable 1,462 1,007
--------- ---------
Partners' equity:
General partners (511,888) (502,315)
Limited partners 1,840,688 1,926,861
--------- ---------
Total partners' equity 1,328,800 1,424,546
--------- ---------
$ 1,330,262 1,425,553
========= =========
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
Revenues
Income from net profits interests $ 122,565 188,559
Interest 661 286
------- -------
123,226 188,845
------- -------
Expenses
General and administrative 37,974 36,240
Depreciation, depletion and amortization 48,000 36,000
------- -------
85,974 72,240
------- -------
Net income $ 37,252 116,605
======= =======
Net income allocated to:
Managing General Partner $ 3,353 10,494
======= =======
General partner $ 372 1,166
======= =======
Limited partners $ 33,527 104,945
======= =======
Per limited partner unit $ 2.24 7.00
======= =======
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Cash Flows
(unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
Cash flows from operating activities:
Cash received from income from net profits
interests $ 152,757 211,603
Cash paid to suppliers (33,894) (29,940)
Interest received 661 286
------- -------
Net cash provided by operating activities 119,524 181,949
------- -------
Cash flows from investing activities
Sale of oil and gas properties 4,370 -
------- -------
Cash flows used in financing activities:
Distributions to partners (132,543) (164,458)
------- -------
Net increase (decrease) in cash and
cash equivalents (8,649) 17,491
Beginning of period 24,154 10,379
------- -------
End of period $ 15,505 27,870
======= =======
(continued)
Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Cash Flows, continued
(unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 37,252 116,605
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 48,000 36,000
Decrease in receivables 30,192 23,044
Increase in payables 4,080 6,300
------- -------
Net cash provided by operating activities $ 119,524 181,949
======= =======
Southwest Royalties Institutional Income Fund VII-B, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
1. Organization
Southwest Royalties Institutional Income Fund VII-B, L.P. was
organized under the laws of the state of Delaware on January 28, 1987,
for the purpose of acquiring producing oil and gas properties and to
produce and market crude oil and natural gas produced from such
properties for a term of 50 years, unless terminated at an earlier
date as provided for in the Partnership Agreement. The Partnership
sells its oil and gas production to a variety of purchasers with the
prices it receives being dependent upon the oil and gas economy.
Southwest Royalties, Inc. serves as the Managing General Partner and
H. H. Wommack, III, as the individual general partner. Revenues,
costs and expenses are allocated as follows:
Limited General
Partners Partners
-------- --------
Interest income on capital contributions 100% -
Oil and gas sales 90% 10%
All other revenues 90% 10%
Organization and offering costs (1) 100% -
Syndication costs 100% -
Amortization of organization costs 100% -
Property acquisition costs 100% -
Gain/loss on property disposition 90% 10%
Operating and administrative costs (2) 90% 10%
Depreciation, depletion and amortization of
oil and gas properties 90% 10%
All other costs 90% 10%
(1)All organization costs in excess of 3% of initial capital
contributions will be paid by the Managing General Partner and
will be treated as a capital contribution. The Partnership paid
the Managing General Partner an amount equal to 3% of initial
capital contributions for such organization costs.
(2)Administrative costs in any year which exceed 2% of capital
contributions shall be paid by the Managing General Partner and
will be treated as a capital contribution.
2. Summary of Significant Accounting Policies
The interim financial information as of March 31, 1998, and for the
three months ended March 31, 1998, is unaudited. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q pursuant to the rules
and regulations of the Securities and Exchange Commission. However,
in the opinion of management, these interim financial statements
include all the necessary adjustments to fairly present the results of
the interim periods and all such adjustments are of a normal recurring
nature. The interim consolidated financial statements should be read
in conjunction with the audited financial statements for the year
ended December 31, 1997.
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 farm-out 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 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 year to enhance production. The Partnership may undergo a
minimal increase in 1998. The Partnership has the potential of remaining
steady for the next few years before possibly experiencing a normal
decline.
Results of Operations
A. General Comparison of the Quarters Ended March 31, 1998 and 1997
The following table provides certain information regarding performance
factors for the quarters ended March 31, 1998 and 1997:
Three Months
Ended Percentage
March 31, Increase
1998 1997 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 14.53 22.70 (36%)
Average price per mcf of gas $ 2.22 2.80 (21%)
Oil production in barrels 10,000 8,900 13%
Gas production in mcf 22,300 21,900 2%
Income from net profits interests $ 122,565 188,559 (35%)
Partnership distributions $ 133,000 165,000 (20%)
Limited partner distributions $ 119,700 148,500 (20%)
Per unit distribution to limited
partners $ 7.98 9.90 (20%)
Number of limited partner units 15,000 15,000
Revenues
The Partnership's income from net profits interests decreased to $122,565
from $188,559 for the quarters ended March 31, 1998 and 1997, respectively,
a decrease of 35%. The principal factors affecting the comparison of the
quarters ended March 31, 1998 and 1997 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended March 31, 1998 as compared to the
quarter ended March 31, 1997 by 36%, or $8.17 per barrel, resulting in
a decrease of approximately $72,700 in income from net profits
interests. Oil sales represented 75% of total oil and gas sales during
the quarter ended March 31, 1998 and 77% during the quarter ended March
31, 1997.
The average price for an mcf of gas received by the Partnership
decreased during the same period by 21%, or $.58 per mcf, resulting in
a decrease of approximately $12,700 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
$85,400. 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 1,100 barrels or 13% during the
quarter ended March 31, 1998 as compared to the quarter ended March 31,
1997, resulting in an increase of approximately $16,000 in income from
net profits interests.
Gas production increased approximately 400 mcf or 2% during the same
period, resulting in an increase of approximately $890 in income from
net profits interests.
The total increase in income from net profits interests due to the
change in production is approximately $16,890. The increase is
primarily a result of a successful CO2 flood on one well.
3. Lease operating costs and production taxes were 4% lower, or
approximately $2,500 less during the quarter ended March 31, 1998 as
compared to the quarter ended March 31, 1997.
Costs and Expenses
Total costs and expenses increased to $85,974 from $72,240 for the quarters
ended March 31, 1998 and 1997, respectively, an increase of 19%. The
increase is the result of higher 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 increased 5%
or approximately $1,700 during the quarter ended March 31, 1998 as
compared to the quarter ended March 31, 1997.
2. Depletion expense increased to $48,000 for the quarter ended March 31,
1998 from $36,000 for the same period in 1997. This represents an
increase of 34%. 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. A contributing
factor to the increase in depletion expense between the comparative
periods was the decrease in the price of oil used to determine the
Partnership's reserve 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 $119,500 in
the quarter ended March 31, 1998 as compared to approximately $181,900 in
the quarter ended March 31, 1997. The primary source of the 1998 cash flow
from operating activities was profitable operations.
Cash flows provided by investing activities were approximately $4,400 in
the quarter ended March 31, 1998. There were no investing activities in
the quarter ended March 31, 1997. The source of the 1998 cash flow from
investing activities was the sale of oil and gas properties.
Cash flows used in financing activities were approximately $132,500 in the
quarter ended March 31, 1998 as compared to approximately $164,500 in the
quarter ended March 31, 1997. The only use in financing activities was the
distributions to partners.
Total distributions during the quarter ended March 31, 1998 were $133,000
of which $119,700 was distributed to the limited partners and $13,300 to
the general partners. The per unit distribution to limited partners during
the quarter ended March 31, 1998 was $7.98. Total distributions during the
quarter ended March 31, 1997 were $165,000 of which $148,500 was
distributed to the limited partners and $16,500 to the general partners.
The per unit distribution to limited partners during the quarter ended
March 31, 1997 was $9.90.
The primary source for the 1998 distributions of $133,000 was oil and gas
operations of approximately $119,500. The source for the 1997
distributions of $165,000 was oil and gas operations of approximately
$181,900, resulting in excess cash for contingencies or subsequent
distributions.
Since inception of the Partnership, cumulative monthly cash distributions
of $8,944,644 have been made to the partners. As of March 31, 1998,
$8,058,216 or $7.98 per limited partner unit has been distributed to the
limited partners, representing a 108% return of the capital contributed.
As of March 31, 1998, the Partnership had approximately $77,400 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) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
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: May 15, 1998