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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 June 30, 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 0-17707
Southwest Oil & 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 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, 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 and
six month periods ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the full year.
Southwest Oil & Gas Income Fund VIII-A, L.P.
Balance Sheets
June 30, December 31,
1998 1997
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 6,688 2,669
Receivable from Managing General Partner 61,979 141,933
Other receivable - 40,239
--------- ---------
Total current assets 68,667 184,841
--------- ---------
Oil and gas properties - using the
full cost method of accounting 5,401,265 5,406,615
Less accumulated depreciation,
depletion and amortization 4,438,665 4,281,109
--------- ---------
Net oil and gas properties 962,600 1,125,506
--------- ---------
$ 1,031,267 1,310,347
========= =========
Liabilities and Partners' Equity
Current liability - Distributions payable $ 827 686
--------- ---------
Partners' equity:
General partners (1,038) 10,405
Limited partners 1,031,478 1,299,256
--------- ---------
Total partners' equity 1,030,440 1,309,661
--------- ---------
$ 1,031,267 1,310,347
========= =========
Southwest Oil & Gas Income Fund VIII-A, L.P.
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues
Oil and gas $ 218,924 391,226 497,910 768,685
Interest 445 475 1,228 1,210
------- ------- ------- -------
219,369 391,701 499,138 769,895
------- ------- ------- -------
Expenses
Production 206,044 198,120 403,713 403,821
General and administrative 28,613 25,346 63,353 59,369
Depreciation, depletion and
amortization 68,000 27,000 121,000 53,000
Provision for impairment of oil
and gas properties 36,556 - 36,556 -
------- ------- ------- -------
339,213 250,466 624,622 516,190
------- ------- ------- -------
Net income (loss) $ (119,844) 141,235 (125,484) 253,705
======= ======= ======= =======
Net income (loss) allocated to:
Managing General Partner $ (1,376) 15,141 2,887 27,603
======= ======= ======= =======
General Partner $ (152) 1,683 320 3,067
======= ======= ======= =======
Limited partners $ (118,316) 124,411 (128,691) 223,035
======= ======= ======= =======
Per limited partner unit $ (8.70) 9.15 (9.47) 16.40
======= ======= ======= =======
Southwest Oil & Gas Income Fund VIII-A, L.P.
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Cash received from oil and gas sales $ 572,486 857,491
Cash paid to suppliers (461,688) (479,504)
Interest received 1,228 1,210
-------- --------
Net cash provided by operating activities 112,026 379,197
-------- --------
Cash flows from investing activities:
Cash received from sale of oil and gas properties 45,589 12,193
Additions to oil and gas properties - (7,649)
-------- --------
Net cash provided by investing activities 45,589 4,544
-------- --------
Cash flows used in financing activities:
Distributions to partners (153,596) (429,560)
-------- --------
Net increase (decrease) in cash and cash
equivalents 4,019 (45,819)
Beginning of period 2,669 55,844
-------- --------
End of period $ 6,688 10,025
======== ========
(continued)
Southwest Oil & Gas Income Fund VIII-A, L.P.
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
1998 1997
Reconciliation of net income (loss) to net
cash provided by operating activities:
Net income (loss) $ (125,484) 253,705
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization 121,000 53,000
Provision for impairment of oil and gas
properties 36,556 -
Decrease in receivables 74,576 88,806
Increase (decrease) in payables 5,378 (16,314)
------- -------
Net cash provided by operating activities $ 112,026 379,197
======= =======
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 does not anticipate performing
workovers during the year. The Partnership may undergo an increase later
in 1998. Thereafter, 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. The Partnership reduced the net capitalized costs of oil
and gas properties in quarter ended June 30, 1998 by approximately $36,556.
The write-down has the effect of reducing net income, but did not affect
cash flow or partner distributions. A continuation of the oil price
environment experienced during the first half of 1998 will have an adverse
affect on the Company's revenues and operating cash flow. Also, further
declines in oil prices could result in additional decreases in the carrying
value of the Company's oil and gas properties.
Results of Operations
A. General Comparison of the Quarters Ended June 30, 1998 and 1997
The following table provides certain information regarding performance
factors for the quarters ended June 30, 1998 and 1997:
Three Months
Ended Percentage
June 30, Increase
1998 1997 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 12.93 19.19 (33%)
Average price per mcf of gas $ 2.03 2.74 (26%)
Oil production in barrels 14,000 17,100 (18%)
Gas production in mcf 18,700 23,000 (19%)
Gross oil and gas revenue $ 218,924 391,226 (44%)
Net oil and gas revenue $ 12,880 193,106 (93%)
Partnership distributions $ 11,500 185,000 (94%)
Limited partner distributions $ 10,350 166,500 (94%)
Per unit distribution to limited
partners $ .76 12.25 (94%)
Number of limited partner units 13,596 13,596
Revenues
The Partnership's oil and gas revenues decreased to $218,924 from $391,226
for the quarters ended June 30, 1998 and 1997, respectively, a decrease of
44%. The principal factors affecting the comparison of the quarters ended
June 30, 1998 and 1997 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended June 30, 1998 as compared to the
quarter ended June 30, 1997 by 33%, or $6.26 per barrel, resulting in a
decrease of approximately $107,000 in revenues. Oil sales represented
83% of total oil and gas sales during the quarter ended June 30, 1998
as compared to 84% during the quarter ended June 30, 1997.
The average price for an mcf of gas received by the Partnership
decreased during the same period by 26% or $.71 per mcf, resulting in a
decrease of approximately $16,300 in revenues.
The total decrease in revenues due to the change in prices received
from oil and gas production is approximately $123,300. 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 3,100 barrels or 18% during the
quarter ended June 30, 1998 as compared to the quarter ended June 30,
1997, resulting in a decrease of approximately $40,100 in revenues.
Gas production decreased approximately 4,300 mcf or 19% during the same
period, resulting in a decrease of approximately $8,700 in revenues.
The total decrease in revenues due to the change in production is
approximately $48,800. The decrease in production is due primarily to
a farm-out agreement on one oil well which decreased the partnership
ownership percentage and a gas plant explosion which caused a decline
in mcf's produced during the month of April 1998.
Costs and Expenses
Total costs and expenses increased to $339,213 from $250,466 for the
quarters ended June 30, 1998 and 1997, respectively, an increase of 35%.
The increase is the result of higher lease operating costs, depletion
expense and general and administrative expense.
1. Lease operating costs and production taxes were 4% higher, or
approximately $7,900 more during the quarter ended June 30, 1998 as
compared to the quarter ended June 30, 1997.
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
13% or approximately $3,300 during the quarter ended June 30, 1998 as
compared to the quarter ended June 30, 1997.
3. Depletion expense increased to $68,000 for the quarter ended June 30,
1998 from $27,000 for the same period in 1997. This represents an
increase of 152%. 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. Contributing
factors to the increase in depletion expense between the comparative
periods were the decrease in the price of oil used to determine the
Partnership's reserves for January 1, 1998 as compared to 1997. The
Partnership reduced the net capitalized costs of oil and gas properties
in quarter ended June 30, 1998 by approximately $36,556. The write-
down has the effect of reducing net income, but did not affect cash
flow or partner distributions.
B. General Comparison of the Six Month Periods Ended June 30, 1998 and
1997
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 1998 and 1997:
Six Months
Ended Percentage
June 30, Increase
1998 1997 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 13.60 20.01 (32%)
Average price per mcf of gas $ 2.27 2.53 (10%)
Oil production in barrels 29,800 32,600 (9%)
Gas production in mcf 40,800 45,900 (11%)
Gross oil and gas revenue $ 497,910 768,685 (35%)
Net oil and gas revenue $ 94,197 364,864 (74%)
Partnership distributions $ 153,737 430,000 (64%)
Limited partner distributions $ 138,363 387,000 (64%)
Per unit distribution to limited
partners $ 10.18 28.46 (64%)
Number of limited partner units 13,596 13,596
Revenues
The Partnership's oil and gas revenues decreased to $497,910 from $768,685
for the six months ended June 30, 1998 and 1997, respectively, a decrease
of 35%. The principal factors affecting the comparison of the six months
ended June 30, 1998 and 1997 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the six months ended June 30, 1998 as compared to the
six months ended June 30, 1997 by 32%, or $6.41 per barrel, resulting
in a decrease of approximately $209,000 in revenues. Oil sales
represented 81% of total oil and gas sales during the six months ended
June 30, 1998 as compared to 85% during the six months ended June 30,
1997.
The average price for an mcf of gas received by the Partnership
decreased during the same period by 10%, or $.26 per mcf, resulting in
a decrease of approximately $11,900 in revenues.
The total decrease in revenues due to the change in prices received
from oil and gas production is approximately $220,900. 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 2,800 barrels or 9% during the
six months ended June 30, 1998 as compared to the six months ended June
30, 1997, resulting in a decrease of approximately $38,100 in revenues.
Gas production decreased approximately 5,100 mcf or 11% during the same
period, resulting in a decrease of approximately $11,600 in revenues.
The total decrease in revenues due to the change in production is
approximately $49,700.
Costs and Expenses
Total costs and expenses increased to $624,622 from $516,190 for the six
months ended June 30, 1998 and 1997, respectively, an increase of 21%. The
increase is the result of higher general and administrative expense and
depletion expense, partially offset by a decrease in lease operating costs.
1. Lease operating costs and production taxes were less than 1% lower, or
approximately $100 less during the six months ended June 30, 1998 as
compared to the six months ended June 30, 1997.
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 7%
or approximately $4,000 during the six months ended June 30, 1998 as
compared to the six months ended June 30, 1997.
3. Depletion expense increased to $121,000 for the six months ended June
30, 1998 from $53,000 for the same period in 1997. This represents an
increase of 128%. 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. Contributing
factors to the increase in depletion expense between the comparative
periods were the decrease in the price of oil used to determine the
Partnership's reserves for January 1, 1998 as compared to 1997. The
Partnership reduced the net capitalized costs of oil and gas properties
in quarter ended June 30, 1998 by approximately $36,556. The write-
down has the effect of reducing net income, but did not affect cash
flow or partner distributions.
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 $112,000 in
the six months ended June 30, 1998 as compared to approximately $379,200 in
the six months ended June 30, 1997. The primary source of the 1998 cash
flow from operating activities was profitable operations.
Cash flows provided by investing activities were approximately $45,600 in
the six months ended June 30, 1998 as compared to approximately $4,500 in
the six months ended June 30, 1997. The principle 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 $153,600 in the
six months ended June 30, 1998 as compared to approximately $429,600 in the
six months ended June 30, 1997. The only use in financing activities was
the distributions to partners.
Total distributions during the six months ended June 30, 1998 were $153,737
of which $139,087 was distributed to the limited partners and $14,650 to
the general partners. The per unit distribution to limited partners during
the six months ended June 30, 1998 was $10.23. Total distributions during
the six months ended June 30, 1997 were $430,000 of which $387,000 was
distributed to the limited partners and $43,000 to the general partners.
The per unit distribution to limited partners during the six months ended
June 30, 1997 was $28.46.
The sources for the 1998 distributions of $153,737 were oil and gas
operations of approximately $112,000 and the net change in oil and gas
properties of approximately $45,600, resulting in excess cash for
contingencies or subsequent distributions. The sources for the 1997
distributions of $430,000 were oil and gas operations of approximately
$379,200 and the net change in oil and gas properties of approximately
$4,500, with the balance from available cash on hand at the beginning of
the period.
Since inception of the Partnership, cumulative monthly cash distributions
of $7,010,388 have been made to the partners. As of June 30, 1998,
$6,349,717 or $467.03 per limited partner unit has been distributed to the
limited partners, representing an 91% return of the capital contributed.
As of June 30, 1998, the Partnership had approximately $67,800 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.
Information Systems for the Year 2000
The Managing General Partner provides all data processing needs of the
Partnership. The Managing General Partner has reviewed and evaluated its
information systems to determine if its systems accurately process data
referencing the year 2000. Primarily all necessary programming
modifications to correct year 2000 referencing in the Managing General
Partners internal accounting and operating systems have been made to-date.
However the Managing General Partner has not completed its evaluation of
its vendors and suppliers systems to determine the effect, if any, the non-
compliance of such systems would have on the operation of the Managing
General Partnership or the operations 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 ended June 30, 1998.
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 & 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: August 15, 1998