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 0-16494
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2220418
(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 VIII-B, L.P.
Balance Sheets
June 30, December 31,
1996 1995
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 25,087 38,072
Receivable from Managing
General Partner 136,398 112,904
--------- ---------
Total current assets 161,485 150,976
--------- ---------
Oil and gas properties - using the
full cost method of accounting 4,196,749 4,196,749
Less accumulated depreciation,
depletion and amortization 2,892,434 2,819,434
--------- ---------
Net oil and gas properties 1,304,315 1,377,315
--------- ---------
$ 1,465,800 1,528,291
========= =========
Liabilities and Partners' Equity
Current liability - Distributions payable $ 249 155
--------- ---------
Partners' equity:
General partners 14,728 13,132
Limited partners 1,450,823 1,515,004
--------- ---------
Total partners' equity 1,465,551 1,528,136
--------- ---------
$ 1,465,800 1,528,291
========= =========
PAGE
Southwest Royalties Institutional Income Fund VIII-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 $ 209,175 152,806 346,830 302,656
Interest 624 515 930 909
------- ------- ------- -------
209,799 153,321 347,760 303,565
------- ------- ------- -------
Expenses
General and administrative 18,126 16,779 44,805 46,644
Depreciation, depletion and
amortization 39,000 40,000 73,000 90,000
------- ------- ------- -------
57,126 56,779 117,805 136,644
------- ------- ------- -------
Net income $ 152,673 96,542 229,955 166,921
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 17,251 12,289 27,266 23,123
======= ======= ======= =======
General Partner $ 1,917 1,365 3,030 2,569
======= ======= ======= =======
Limited Partners $ 133,505 82,888 199,659 141,229
======= ======= ======= =======
Per limited partner
unit $ 13.16 8.17 19.68 13.92
======= ======= ======= =======
PAGE
Southwest Royalties Institutional Income Fund VIII-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 $ 322,268 252,181
Cash paid to suppliers (44,737) (46,873)
Interest received 930 909
------- -------
Net cash provided by operating
activities 278,461 206,217
------- -------
Cash flows provided by investing
activities:
Cash received from sale of oil
and gas properties 1,000 48,400
------- -------
Cash flows used in financing
activities:
Distributions to partners (292,446) (214,033)
------- -------
Net increase (decrease) in cash and
cash equivalents (12,985) 40,584
Beginning of period 38,072 29,455
------- -------
End of period $ 25,087 70,039
======= =======
(continued)
PAGE
Southwest Royalties Institutional Income Fund VIII-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 $ 229,955 166,921
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and
amortization 73,000 90,000
Increase in receivables (24,494) (50,475)
Decrease in payables - (229)
------- -------
Net cash provided by operating
activities $ 278,461 206,217
======= =======
PAGE
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Royalties Institutional Income Fund VIII-B, L.P. was organized as
a Delaware limited partnership on November 30, 1987. The offering of such
limited partnership interests began March 31, 1988, minimum capital
requirements were met July 11, 1988, and concluded on March 31, 1989 with
total limited partner contributions of $5,073,500.
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 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.
PAGE
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 $ 20.45 17.73 15%
Average price per mcf of gas $ 2.54 1.99 28%
Oil production in barrels 14,900 14,900 -
Gas production in mcf 16,200 16,400 (1%)
Income from net profits interests $ 209,175 152,806 37%
Partnership distributions $ 170,000 115,953 47%
Limited partner distributions $ 153,000 107,253 43%
Per unit distribution to limited
partners $ 15.08 10.57 43%
Number of limited partner units 10,147 10,147
Revenues
The Partnership's income from net profits interests increased to $209,175
from $152,806 for the quarters ended June 30, 1996 and 1995, respectively, an
increase of 37%. 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 15%, or $2.72 per barrel, resulting in an
increase of approximately $40,500 in income from net profits interests.
Oil sales represented 88% of total oil and gas sales during the quarter
ended June 30, 1996 as compared to 89% 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 28%, or $.55 per mcf, resulting in an increase
of approximately $9,000 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 $49,500.
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.
PAGE
2. Oil production remained relatively unchanged during the quarter ended
June 30, 1996 as compared to the quarter ended June 30, 1995.
Gas production decreased approximately 200 mcf or 1% during the same
period, resulting in a decrease of approximately $500 in income from net
profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $500.
3. Lease operating costs and production taxes were 5% lower, or
approximately $7,300 less during the quarter ended June 30, 1996 as
compared to the quarter ended June 30, 1995.
Costs and Expenses
Total costs and expenses increased to $57,126 from $56,779 for the quarters
ended June 30, 1996 and 1995, respectively, an increase of 1%. The increase
is the result of higher general and administrative expense, offset by a
decrease in 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 8%
or approximately $1,300 during the quarter ended June 30, 1996 as
compared to the quarter ended June 30, 1995.
2. Depletion expense decreased to $39,000 for the quarter ended June 30,
1996 from $40,000 for the same period in 1995. This represents a
decrease of 3%. 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 increase in property sales.
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 $ 19.42 17.21 13%
Average price per mcf of gas $ 2.47 2.06 20%
Oil production in barrels 29,300 30,700 (5%)
Gas production in mcf 32,200 33,300 (3%)
Income from net profits interests $ 346,830 302,656 15%
Partnership distributions $ 292,540 213,953 37%
Limited partner distributions $ 263,840 195,453 35%
Per unit distribution to limited
partners $ 26.00 19.26 35%
Number of limited partner units 10,147 10,147
Revenues
The Partnership's income from net profits interests increased to $346,830
from $302,656 for the six months ended June 30, 1996 and 1995, respectively,
an increase of 15%. 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 13%, or $2.21 per barrel, resulting in
an increase of approximately $67,800 in income from net profits
interests. Oil sales represented 88% of total oil and gas sales during
the six months ended June 30, 1996 as compared to 89% during the six
months ended June 30, 1995.
The average price for an mcf of gas received by the Partnership increased
during the same period by 20%, or $.41 per mcf, resulting in an increase
of approximately $13,700 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 $81,500.
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 1,400 barrels or 5% during the six
months ended June 30, 1996 as compared to the six months ended June 30,
1995, resulting in a decrease of approximately $27,200 in income from net
profits interests.
Gas production decreased approximately 1,100 mcf or 3% during the same
period, resulting in a decrease of approximately $2,700 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $29,900.
3. Lease operating costs and production taxes were 2% higher, or
approximately $6,400 more 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 $117,805 from $136,644 for the six
months ended June 30, 1996 and 1995, respectively, a decrease of 14%. The
decrease is the result of a decline in 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 $1,800 during the six months ended June 30, 1996 as
compared to the six months ended June 30, 1995.
2. Depletion expense decreased to $73,000 for the six months ended June 30,
1996 from $90,000 for the same period in 1995. This represents a
decrease of 19%. 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 increase in property sales.
PAGE
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 $278,500 in
the six months ended June 30, 1996 as compared to approximately $206,200 in
the six months ended June 30, 1995. The primary source of the 1996 cash flow
from operating activities was profitable operations.
Cash flows provided by investing activities were approximately $1,000 in the
six months ended June 30, 1996 as compared to approximately $48,400 in the
six months ended June 30, 1995. The principle source of the 1996 cash flow
from investing activities was the sale of oil and gas properties.
Cash flows used in financing activities were approximately $292,400 in the
six months ended June 30, 1996 as compared to approximately $214,000 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 $292,540
of which $263,840 was distributed to the limited partners and $28,700 to the
general partners. The per unit distribution to limited partners during the
six months ended June 30, 1996 was $26.00. Total distributions during the
six months ended June 30, 1995 were $213,953 of which $195,453 was
distributed to the limited partners and $18,500 to the general partners. The
per unit distribution to limited partners during the six months ended June
30, 1995 was $19.26.
The sources for the 1996 distributions of $292,540 were oil and gas
operations of approximately $278,500 and the sale of oil and gas properties
of approximately $1,000, with the balance from available cash on hand at the
beginning of the period. The sources for the 1995 distributions of $213,953
were oil and gas operations of approximately $206,200 and the sale of oil and
gas properties of approximately $48,400, resulting in excess cash for
contingencies or subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions of
$4,447,115 have been made to the partners. As of June 30, 1996, $4,020,841
or $396.26 per limited partner unit has been distributed to the limited
partners, representing a 79% return of the capital contributed.
As of June 30, 1996, the Partnership had approximately $161,200 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.
PAGE
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 VIII-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