Page 7 of 16
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, 2000
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 0-17707
Southwest Oil and Gas Income Fund VIII-A, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2220097
(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 16.
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 note thereto for
the year ended December 31, 1999 which are found in the Registrant's Form
10-K Report for 1999 filed with the Securities and Exchange Commission.
The December 31, 1999 balance sheet included herein has been taken from the
Registrant's 1999 Form 10-K Report. Operating results for the three and
nine month periods ended September 30, 2000 are not necessarily indicative
of the results that may be expected for the full year.
Southwest Oil and Gas Income Fund VIII-A, L.P.
Balance Sheets
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 108,039 43,291
Receivable from Managing General Partner 201,057 132,897
--------- ---------
Total current assets 309,096 176,188
--------- ---------
Oil and gas properties - using the
full cost method of accounting 5,354,284 5,345,915
Less accumulated depreciation,
depletion and amortization 5,026,466 5,007,466
--------- ---------
Net oil and gas properties 327,818 338,449
--------- ---------
$ 636,914 514,637
========= =========
Liabilities and Partners' Equity
Current liability - Distribution payable $ 716 250
--------- ---------
Partners' equity
General partners 22,821 8,740
Limited partners 613,377 505,647
--------- ---------
Total partners' equity 636,198 514,387
--------- ---------
$ 636,914 514,637
========= =========
Southwest Oil and Gas Income Fund VIII-A, L.P.
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenues
Oil and gas $ 400,294 260,583 1,122,741 626,043
Interest 1,627 329 3,980 705
--------- --------- --------- ---------
401,921 260,912 1,126,721 626,748
--------- --------- --------- ---------
Expenses
Production 198,628 142,454 514,267 396,660
General and administrative 26,008 24,634 81,643 79,102
Depreciation, depletion and
amortization 8,000 1,000 19,000 17,000
--------- --------- --------- ---------
232,636 168,088 614,910 492,762
--------- --------- --------- ---------
Net income $ 169,285 92,824 511,811 133,986
========= ========= ========= =========
Net income allocated to:
Managing General Partner $ 15,956 8,445 47,773 13,589
========= ========= ========= =========
General Partner $ 1,773 938 5,308 1,510
========= ========= ========= =========
Limited Partners $ 151,556 83,441 458,730 118,887
========= ========= ========= =========
Per limited partner unit $ 11.15 6.14 33.74 8.74
========= ========= ========= =========
Southwest Oil and Gas Income Fund VIII-A, L.P.
Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
2000 1999
---- ----
Cash flows from operating activities
Cash received from oil and gas sales $1,042,488 544,509
Cash paid to suppliers (583,817) (480,641)
Interest received 3,980 705
--------- ---------
Net cash provided by operating activities 462,651 64,573
--------- ---------
Cash flows from investing activities
Cash received from sale of oil and gas
property interest - 27,748
Additions to oil and gas properties (8,369) (7,022)
--------- ---------
Net cash provided by investing activities (8,369) 20,726
--------- ---------
Cash flows used in financing activities
Distributions to partners (389,534) (78,744)
--------- ---------
Net increase in cash and cash equivalents 64,748 6,555
Beginning of period 43,291 21,234
--------- ---------
End of period $ 108,039 27,789
========= =========
(continued)
Southwest Oil and Gas Income Fund VIII-A, L.P.
Statements of Cash Flows, continued
(unaudited)
Nine Months Ended
September 30,
2000 1999
---- ----
Reconciliation of net income to net
cash provided by operating activities
Net income $ 511,811 133,986
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation, depletion and amortization 19,000 17,000
Increase in receivables (80,253) (81,534)
Increase (decrease) in payables 12,093 (4,879)
--------- ---------
Net cash provided by operating activities $ 462,651 64,573
========= =========
Southwest Oil & Gas Income Fund VIII-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
1. Organization
Southwest Oil & Gas Income Fund VIII-A, L.P. was organized under the
laws of the state of Delaware on November 30, 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% -
Amortization of organization costs 100% -
Syndication 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 100% -
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 September 30, 2000, and for
the three and nine months ended September 30, 2000, 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, 1999.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Oil & Gas Income Fund VIII-A, L.P. was organized as a Delaware
limited partnership on November 30, 1987. The offering of such limited
partnership interests began on March 31, 1988, minimum capital requirements
were met on July 6, 1988, and the offering concluded on March 31, 1989,
with total limited partner contributions of $6,798,000.
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 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 the possibility of
performing workovers during the next twelve months. The Partnership could
possibly experience a normal decline of 10% to 12% 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. For the quarter ended September 30, 2000, the net
capitalized cost did not exceed the estimated present value of oil and gas
reserves.
Results of Operations
A. General Comparison of the Quarters Ended September 30, 2000 and 1999
The following table provides certain information regarding performance
factors for the quarters ended September 30, 2000 and 1999:
Three Months
Ended Percentage
September 30, Increase
2000 1999 (Decrease)
---- ---- ---------
Average price per barrel of oil $ 29.84 20.67 44%
Average price per mcf of gas $ 5.31 2.20 141%
Oil production in barrels 11,600 10,660 9%
Gas production in mcf 14,800 18,300 (19%)
Gross oil and gas revenue $ 400,294 260,583 54%
Net oil and gas revenue $ 201,666 118,129 71%
Partnership distributions $ 170,000 40,801 317%
Limited partner distributions $ 153,000 36,801 316%
Per unit distribution to limited partners $ 11.25 2.71 316%
Number of limited partner units 13,596 13,596
Revenues
The Partnership's oil and gas revenues increased to $400,294 from $260,583
for the quarters ended September 30, 2000 and 1999, respectively, an
increase of 54%. The principal factors affecting the comparison of the
quarters ended September 30, 2000 and 1999 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended September 30, 2000 as compared to
the quarter ended September 30, 1999 by 44%, or $9.17 per barrel,
resulting in an increase of approximately $97,800 in revenues. Oil
sales represented 81% of total oil and gas sales during the quarter
ended September 30, 2000 as compared to 85% during the quarter ended
September 30, 1999.
The average price for an mcf of gas received by the Partnership
increased during the same period by 141%, or $3.11 per mcf, resulting
in an increase of approximately $56,900 in revenues.
The total increase in revenues due to the change in prices received
from oil and gas production is approximately $154,700. 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 940 barrels or 9% during the
quarter ended September 30, 2000 as compared to the quarter ended
September 30, 1999, resulting in an increase of approximately $28,100
in revenues.
Gas production decreased approximately 3,500 mcf or 19% during the same
period, resulting in a decrease of approximately $18,600 in revenues.
The total net increase in revenues due to the change in production is
approximately $9,500. The decrease in gas production is due primarily
to one well, which a gas leak in the main line occurred, and production
is still low.
Costs and Expenses
Total costs and expenses increased to $232,636 from $168,088 for the
quarters ended September 30, 2000 and 1999, respectively, an increase of
38%. The increase is the result of higher lease operating costs and
depletion expense and general and administrative expense.
1. Lease operating costs and production taxes were 39% higher, or
approximately $56,200 more during the quarter ended September 30, 2000 as
compared to the quarter ended September 30, 1999. The increase in lease
operating costs and production taxes is primarily a result of the higher
oil and gas prices received by the Partnership. Higher prices have made it
possible for the Partnership to perform needed major repairs and
maintenance. Since production taxes are based on gross revenues, the
increase in oil and gas prices have directly increased production taxes.
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 $1,400 during the quarter ended September 30, 2000 as
compared to the quarter ended September 30, 1999.
3. Depletion expense increased to $8,000 for the quarter ended September
30, 2000 from $1,000 for the same period in 1999. This represents an
increase of 700%. 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. The increase in
depletion expense is due to an accrual adjustment, which was made
during the quarter ended September 30, 1999 to adjust for the over
accrual of depletion in the first two quarters of 1999. The rapid rise
in prices during the first three quarters of 1999 from $14/bbl to
$23/bbl and from $1.71/mcf to $2.38/mcf caused an adjustment to be
necessary during the third quarter of 1999.
B. General Comparison of the Nine Month Periods Ended September 30, 2000
and 1999
The following table provides certain information regarding performance
factors for the nine month periods ended September 30, 2000 and 1999:
Nine Months
Ended Percentage
September 30, Increase
2000 1999 (Decrease)
---- ---- ---------
Average price per barrel of oil $ 28.12 15.25 84%
Average price per mcf of gas $ 4.05 2.23 82%
Oil production in barrels 33,300 33,750 (1%)
Gas production in mcf 46,000 49,960 (8%)
Gross oil and gas revenue $1,122,741 626,043 79%
Net oil and gas revenue $ 608,474 229,383 165%
Partnership distributions $ 390,000 78,801 395%
Limited partner distributions $ 351,000 74,801 369%
Per unit distribution to limited partners $ 25.82 5.50 369%
Number of limited partner units 13,596 13,596
Revenues
The Partnership's oil and gas revenues increased to $1,122,741 from
$626,043 for the nine months ended September 30, 2000 and 1999,
respectively, an increase of 79%. The principal factors affecting the
comparison of the nine months ended September 30, 2000 and 1999 are as
follows:
1. The average price for a barrel of oil received by the Partnership
increased during the nine months ended September 30, 2000 as compared
to the nine months ended September 30, 1999 by 84%, or $12.87 per
barrel, resulting in an increase of approximately $434,400 in revenues.
Oil sales represented 83% of total oil and gas sales during the nine
months ended September 30, 2000 as compared to 82% during the nine
months ended September 30, 1999.
The average price for an mcf of gas received by the Partnership
increased during the same period by 82%, or $1.82 per mcf, resulting in
an increase of approximately $90,900 in revenues.
The total increase in revenues due to the change in prices received
from oil and gas production is approximately $525,300. 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 450 barrels or 1% during the
nine months ended September 30, 2000 as compared to the nine months
ended September 30, 1999, resulting in a decrease of approximately
$12,700 in revenues.
Gas production decreased approximately 3,960 mcf or 8% during the same
period, resulting in a decrease of approximately $16,000 in revenues.
The total decrease in revenues due to the change in production is
approximately $28,700.
Costs and Expenses
Total costs and expenses increased to $614,910 from $492,762 for the nine
months ended September 30, 2000 and 1999, respectively, an increase of 25%.
The increase is the result of higher general and administrative expense,
depletion expense and lease operating costs.
1. Lease operating costs and production taxes were 30% higher, or
approximately $117,600 more during the nine months ended September 30,
2000 as compared to the nine months ended September 30, 1999. The
increase in lease operating costs and production taxes is primarily a
result of the higher oil and gas prices received by the Partnership.
Higher prices have made it possible for the Partnership to perform
needed major repairs and maintenance. Since production taxes are based
on gross revenues, the increase in oil and gas prices have directly
increased production taxes.
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 3%
or approximately $2,500 during the nine months ended September 30, 2000
as compared to the nine months ended September 30, 1999.
3. Depletion expense increased to $19,000 for the nine months ended
September 30, 2000 from $17,000 for the same period in 1999. This
represents an increase of 12%. 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.
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 $462,700 in
the nine months ended September 30, 2000 as compared to approximately
$64,600 in the nine months ended September 30, 1999. The primary source of
the 2000 cash flow from operating activities was profitable operations.
Cash flows (used in) provided by investing activities were approximately
$(8,400) in the nine months ended September 30, 2000 as compared to
approximately $20,700 in the nine months ended September 30, 1999. The
principle use of the 2000 cash flow from investing activities was the
addition to in oil and gas properties.
Cash flows used in financing activities were approximately $389,500 in the
nine months ended September 30, 2000 as compared to approximately $78,700
in the nine months ended September 30, 1999. The only use in financing
activities was the distributions to partners.
Total distributions during the nine months ended September 30, 2000 were
$390,000 of which $351,000 was distributed to the limited partners and
$39,000 to the general partners. The per unit distribution to limited
partners during the nine months ended September 30, 2000 was $25.82. Total
distributions during the nine months ended September 30, 1999 were $78,801
of which $74,801 was distributed to the limited partners and $4,000 to the
general partners. The per unit distribution to limited partners during the
nine months ended September 30, 1999 was $5.50.
The sources for the 2000 distributions of $390,000 were oil and gas
operations of approximately $462,700 and the change in oil and gas
properties of approximately $(8,400), resulting in excess cash for
contingencies or subsequent distributions. The sources for the 1999
distributions of $78,801 were oil and gas operations of approximately
$64,600 and the change in oil and gas properties of approximately $20,700,
resulting with excess cash for contingencies or subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions
of $7,573,421 have been made to the partners. As of September 30, 2000,
$6,860,950 or $504.63 per limited partner unit has been distributed to the
limited partners, representing a 101% return of the capital contributed.
As of September 30, 2000, the Partnership had approximately $308,400 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.
Liquidity - Managing General Partner
The Managing General Partner has a highly leveraged capital structure with
approximately, $33.8 million of cash interest and $5.9 million of principal
due within the next twelve months. The Managing General Partner is
currently in the process of renegotiating the terms of its various
obligations with its note holders and/or attempting to seek new lenders or
equity investors. Additionally, the Managing General Partner would
consider disposing of certain assets in order to meet its obligations.
There can be no assurance that the Managing General Partner's continuing
debt restructuring efforts will be successful or that the lenders will
agree to a course of action consistent with the Managing General Partners
requirements in restructuring the obligations. Even if such agreement is
reached, it may require approval of additional lenders, which is not
assured. Furthermore, there can be no assurance that the sales of assets
can be successfully accomplished on terms acceptable to the Managing
General Partner. Under current circumstances, the Managing General
Partner's ability to continue as a going concern depends upon its ability
to (1) successfully restructure its obligations or obtain additional
financing as may be required, (2) maintain compliance with all debt
covenants, (3) generate sufficient cash flow to meet its obligations on a
timely basis, and (4) achieve satisfactory levels of future earnings. If
the Managing General Partner is unsuccessful in its efforts, it may be
unable to meet its obligations making it necessary to undertake such other
actions as may be appropriate to preserve asset values.
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) 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 Oil and Gas Income Fund VIII-
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: November 15, 2000