FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1996
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
407 N. Big Spring, Suite 300, Midland, Texas 79701
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (915) 686-9927
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
limited partnership interests
Indicate by check mark whether registrant (1) has filed 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [x]
The registrant's outstanding securities consist of Units of limited
partnership interests for which there exists no established public market
from which to base a calculation of aggregate market value.
The total number of pages contained in this report is 42. There is no
exhibit index.
PAGE
Table of Contents
Item Page
Part I
1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2. Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 9
4. Submission of Matters to a Vote of Security Holders . . . . . . . . 9
Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters . . . . . . . . . . . . . . . . . . . . . . . .10
6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . . .11
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . . . .12
8. Financial Statements and Supplementary Data . . . . . . . . . . . .19
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure. . . . . . . . . . . . . . .34
Part III
10. Directors and Executive Officers of the Registrant. . . . . . . . .35
11. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . .38
12. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
13. Certain Relationships and Related Transactions. . . . . . . . . . .40
Part IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Part I
Item 1. Business
General
Southwest Royalties Institutional Income Fund VIII-B, L.P. (the "Partnership"
or "Registrant") was organized as a Delaware limited partnership on November
30, 1987. The offering of limited partnership interests began March 31,
1988, reached minimum capital requirements on July 11, 1988 and concluded on
March 31, 1989. The Partnership has no subsidiaries.
The Partnership has expended its capital and acquired interests in producing
oil and gas properties. After such acquisitions, the Partnership has
produced and marketed the crude oil and natural gas produced from such
properties. In most cases the Partnership purchased royalty or overriding
royalty interests and working interests in oil and gas properties that were
converted into net profits interests or other nonoperating interests. The
Partnership purchased either all or part of the rights and obligations under
various oil and gas leases.
The principal executive offices of the Partnership are located at 407 N. Big
Spring, Suite 300, Midland, Texas, 79701. The Managing General Partner of
the Partnership, Southwest Royalties, Inc. (the "Managing General Partner")
and its staff of 245 individuals, together with certain independent
consultants used on an "as needed" basis, perform various services on behalf
of the Partnership, including the selection of oil and gas properties and the
marketing of production from such properties. H. H. Wommack, III, a
stockholder, director, President and Treasurer of the Managing General
Partner, is also a general partner. The Partnership has no employees.
Principal Products, Marketing and Distribution
The Partnership has acquired and holds royalty interests and net profit
interests in oil and gas properties located in New Mexico and Texas. All
activities of the Partnership are confined to the continental United States.
All oil and gas produced from these properties is sold to unrelated third
parties in the oil and gas business.
The revenues generated from the Partnership's oil and gas activities are
dependent upon the current market for oil and gas. The prices received by
the Partnership for its oil and gas production depend upon numerous factors
beyond the Partnership's control, including competition, economic, political
and regulatory developments and competitive energy sources, and make it
particularly difficult to estimate future prices of oil and natural gas.
The recent strength in the price of crude oil reflects a continued growth in
demand for energy. The worldwide demand for oil continues to grow. The
United States dependence on foreign oil reached a record 51% in 1996. The
supply of oil is not keeping up with the demand on either a domestic or
worldwide economic basis. Oil production in the United States fell for the
fifth straight year, dropping 1.8% to 6.45 million barrels per day in 1996.
At the same time, economic recovery in the world economy continues to apply
upward pressure on demand. Current oil consumption of over 70 million
barrels per day is growing on an annual basis. This is especially acute in
the lesser developed countries as they move toward industrialization. Supply
and demand for oil has moved very close to being in balance. The lack of
excess capacity in the oil markets has helped push oil prices into the mid-
20's during 1996.
For the last several years, the natural gas industry in the United States has
been affected generally by a surplus in available natural gas and enhanced
delivery capability causing a general deterioration in natural gas prices.
In 1996, natural gas prices recovered significantly after having been
adversely affected for many years by the chronic oversupply. A colder than
normal 1995 and 1996 winter for most of the nation and a cold start for the
1996 and 1997 heating season has increased demand, while supplies have
declined creating a guarded optimism within the industry in regards to the
1997 gas price. January 1997's gas price is the highest the industry has
seen since deregulation in 1985.
Following is a table of the ratios of revenues received from oil and gas
production for the last three years:
Oil Gas
1996 88% 12%
1995 88% 12%
1994 86% 14%
As the table indicates, the majority of the Partnership's revenue is from its
oil production; therefore, Partnership revenues will be highly dependent upon
the future prices and demands for oil.
Seasonality of Business
Although the demand for natural gas is highly seasonal, with higher demand in
the colder winter months and in very hot summer months, the Partnership has
been able to sell all of its natural gas, either through contracts in place
or on the spot market at the then prevailing spot market price. As a result,
the volumes sold by the Partnership have not fluctuated materially with the
change of season.
Customer Dependence
No material portion of the Partnership's business is dependent on a single
purchaser, or a very few purchasers, where the loss of one would have a
material adverse impact on the Partnership. Two purchasers accounted for 77%
of the Partnership's total oil and gas production during 1996: Scurlock
Permian Corporation 52% and Mobil Corporation 25%. Two purchasers accounted
for 75% of the Partnership's total oil and gas production during 1995:
Scurlock Permian Corporation and Mobil Corporation purchased 51% and 24%,
respectively. Two purchasers accounted for 69% of the Partnership's total
oil and gas production during 1994: Scurlock Permian Corporation and Mobil
Corporation purchased 43% and 26%, respectively. All purchasers of the
Partnership's oil and gas production are unrelated third parties. In the
event any of these purchasers were to discontinue purchasing the
Partnership's production, the Managing General Partner believes that a
substitute purchaser or purchasers could be located without undue delay. No
other purchaser accounted for an amount equal to or greater than 10% of the
Partnership's sales of oil and gas production.
Competition
Because the Partnership has utilized all of its funds available for the
acquisition of net profits or royalty interests in producing oil and gas
properties, it is not subject to competition from other oil and gas property
purchasers. See Item 2, Properties.
Factors that may adversely affect the Partnership include delays in
completing arrangements for the sale of production, availability of a market
for production, rising operating costs of producing oil and gas and complying
with applicable water and air pollution control statutes, increasing costs
and difficulties of transportation, and marketing of competitive fuels.
Moreover, domestic oil and gas must compete with imported oil and gas and
with coal, atomic energy, hydroelectric power and other forms of energy.
Regulation
Oil and Gas Production - The production and sale of oil and gas is subject to
federal and state governmental regulation in several respects, such as
existing price controls on natural gas and possible price controls on crude
oil, regulation of oil and gas production by state and local governmental
agencies, pollution and environmental controls and various other direct and
indirect regulation. Many jurisdictions have periodically imposed
limitations on oil and gas production by restricting the rate of flow for oil
and gas wells below their actual capacity to produce and by imposing acreage
limitations for the drilling of wells. The federal government has the power
to permit increases in the amount of oil imported from other countries and to
impose pollution control measures.
Various aspects of the Partnership's oil and gas activities are regulated by
administrative agencies under statutory provisions of the states where such
activities are conducted and by certain agencies of the federal government
for operations on Federal leases. Moreover, certain prices at which the
Partnership may sell its natural gas production are controlled by the Natural
Gas Policy Act of 1978, the Natural Gas Wellhead Decontrol Act of 1989 and
the regulations promulgated by the Federal Energy Regulatory Commission.
Environmental - The Partnership's oil and gas activities are subject to
extensive federal, state and local laws and regulations governing the
generation, storage, handling, emission, transportation and discharge of
materials into the environment. Governmental authorities have the power to
enforce compliance with their regulations, and violations carry substantial
penalties. This regulatory burden on the oil and gas industry increases its
cost of doing business and consequently affects its profitability. The
Managing General Partner is unable to predict what, if any, effect compliance
will have on the Partnership.
Industry Regulations and Guidelines - Certain industry regulations and
guidelines apply to the registration, qualification and operation of oil and
gas programs in the form of limited partnerships. The Partnership is subject
to these guidelines which regulate and restrict transactions between the
Managing General Partner and the Partnership.
The Partnership complies with these guidelines and the Managing General
Partner does not anticipate that continued compliance will have a material
adverse effect on Partnership operations.
Partnership Employees
The Partnership has no employees; however the Managing General Partner has a
staff of geologists, engineers, accountants, landmen and clerical staff who
engage in Partnership activities and operations and perform additional
services for the Partnership as needed. In addition to the Managing General
Partner's staff, the Partnership engages independent consultants such as
petroleum engineers and geologists as needed. As of December 31, 1996, there
were 245 individuals directly employed by the Managing General Partner in
various capacities.
Item 2. Properties
In determining whether an interest in a particular producing property was to
be acquired, the Managing General Partner considered such criteria as
estimated oil and gas reserves, estimated cash flow from the sale of
production, present and future prices of oil and gas, the extent of
undeveloped and unproved reserves, the potential for secondary, tertiary and
other enhanced recovery projects and the availability of markets.
As of December 31, 1996, the Partnership possessed an interest in oil and gas
properties located in Eddy and Lea Counties of New Mexico; Andrews, Cochran,
Crane, Crockett, Dawson, Dimmitt, Gaines, Garza, Glasscock, Hockley, Howard,
Martin, Midland, Nolan, Pecos, Reagan, Reeves, Runnels, Sterling, Stonewall,
Terry, Upton, Winkler, Ward, Yoakum and Zavala Counties of Texas. The
Partnership owns royalty interests and net profit interests in the wells;
however, a substantial majority of the interests are net profit interests.
These properties consist of various interests in approximately 2,545 wells
and units.
Due to the Partnership's objective of maintaining current operations without
engaging in the drilling of any developmental or exploratory wells, or
additional acquisitions of producing properties, there has not been any
significant changes in properties during 1996, 1995 and 1994.
Upon a determination by Management that they were either not profitable to
own or Management received an offer that exceeded the leases reserves, the
following leases were sold.
During 1996, there were no property sales.
During 1995, five leases were sold for approximately $63,600. The XIT Unit
was sold effective March 1995, the Exxon Fee was sold effective July 1995 and
the Cunningham, McEntire and Bolin Wallis were sold effective November 1995.
During 1994, there were no property sales.
Significant Properties
The following table reflects the significant properties in which the
Partnership has an interest:
Date
Purchased No. of Proved Reserves*
Name and Location and Interest Wells Oil (bbls) Gas (mcf)
Rasmussen 6/89 at 1.5% 26 103,454 151,332
Winkler County, to 19% royalty
Texas and net profits
interest
Mobil 4/89 at 5% to 19 163,899 257,549
Ward and Reeves 50% net profits
Counties, Texas interest
North American 3/89 at 50% to 3 207,865 -
Royalties 100% net profits
Yoakum County, interest
Texas
*The reserve estimates were prepared as of January 1, 1997, by Donald R.
Creamer, P.E., an independent registered petroleum engineer. The reserve
estimates were made in accordance with guidelines established by the
Securities and Exchange Commission pursuant to Rule 4-10(a) of Regulation S-
X. Such guidelines require oil and gas reserve reports be prepared under
existing economic and operation conditions, price and costs, as of the date
the estimation is made. Prices may include consideration of changes in
existing price provided only by contractual arrangements, but not on
escalations based upon future conditions.
An oil price of $24.24 per barrel was used in the preparation of the reserve
report as of January 1, 1997. The West Texas Intermediate posted price at
December 31, 1996 of $24.25 was used as the beginning basis for the oil
price. Oil price adjustments from $24.25 per barrel were made in the
individual evaluations to allow for the average difference between recent
prices actually received (current prices) and the West Texas Intermediate
posted price on the sales date. This effectively adjusts for temperature,
gravity, transportation and impurities on an individual property basis to
arrive at a fair value for the selling price.
A gas price of $4.07 per mcf was used in the preparation of the reserve
report as of January 1, 1997. The El Paso Permian Basin Index posted price
at December 31, 1996 of $3.59 was used as the beginning basis for the gas
price. Gas price adjustments from $3.59 per mcf were made in the individual
evaluations to allow for the average difference between recent prices
actually received (current prices) and the El Paso Permian Basin Index posted
price on the sales date. This effectively adjusts for temperature, gravity,
transportation and impurities on an individual property basis to arrive at a
fair value for the selling price.
As also discussed in Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, oil and gas prices were
subject to frequent changes in 1996.
The evaluation of oil and gas properties is not an exact science and
inevitably involves a significant degree of uncertainty, particularly with
respect to the quantity of oil or gas that any given property is capable of
producing. Estimates of oil and gas reserves are based on available
geological and engineering data, the extent and quality of which may vary in
each case and, in certain instances, may prove to be inaccurate.
Consequently, properties may be depleted more rapidly than the geological and
engineering data have indicated. Unanticipated depletion, if it occurs, will
result in lower reserves than previously estimated; thus an ultimately lower
return for the Partnership. Basic changes in past reserve estimates occur
annually. As new data is gathered during the subsequent year, the engineer
must revise his earlier estimates. A year of new information, which is
pertinent to the estimation of future recoverable volumes, is available
during the subsequent year evaluation. In applying industry standards and
procedures, the new data may cause the previous estimates to be revised.
This revision may increase or decrease the earlier estimated volumes.
Pertinent information gathered during the year may include actual production
and decline rates, production from offset wells drilled to the same geologic
formation, increased or decreased water production, workovers, and changes in
lifting costs, among others. Accordingly, reserve estimates are often
different from the quantities of oil and gas that are ultimately recovered.
The Partnership has reserves which are classified as proved developed
producing, proved developed non-producing and proved undeveloped. All of the
proved reserves are included in the engineering reports which evaluate the
Partnership's present reserves.
Because the Partnership does not engage in drilling activities, the
development of proved undeveloped reserves is conducted pursuant to farm-out
arrangements with the Managing General Partner or unrelated third parties.
Generally, the Partnership retains a carried interest such as an overriding
royalty interest under the terms of a farm-out, or receives cash.
The Partnership or the owners of properties in which the Partnership owns an
interest can engage in workover projects or supplementary recovery projects,
for example, to extract behind the pipe reserves which qualify as proved
developed non-producing reserves. See Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Partnership is
a party.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of 1996 through the solicitation of proxies or otherwise.
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Market Information
Limited partnership interests, or units, in the Partnership were initially
offered and sold for a price of $500. Limited partner units are not traded
on any exchange and there is no public or organized trading market for them.
The Managing General Partner has become aware of certain limited and sporadic
transfers of units between limited partners and third parties, but has no
verifiable information regarding the prices at which such units have been
transferred. Further, a transferee may not become a substitute limited
partner without the consent of the Managing General Partner.
After completion of the Partnership's first full fiscal year of operations
and each year thereafter, the Managing General Partner has offered and will
continue to offer to purchase each limited partner's interest in the
Partnership, at a price based on tangible assets of the Partnership, plus the
present value of the future net revenues of proved oil and gas properties,
minus liabilities with a risk factor discount of up to one-third which may be
implemented in the sole discretion of the Managing General Partner. However,
the Managing General Partner's obligation to purchase limited partner units
is limited to an expenditure of an amount not in excess of 10% of the total
limited partner units initially subscribed for by limited partners. In 1996,
117 limited partner units were tendered to and purchased by the Managing
General Partner at an average base price of $161.94 per unit. In 1995, 311
limited partner units were tendered to and purchased by the Managing General
Partner at a base price of $160.89 per unit. In 1994, 28 limited partner
units were tendered to and purchased by the Managing General Partner at a
base price of $95.37 per unit.
Number of Limited Partner Interest Holders
As of December 31, 1996, there were 631 holders of limited partner units in
the Partnership.
Distributions
Pursuant to Article IV, Section 4.01 of the Partnership's Certificate and
Agreement of Limited Partnership "Net Cash Flow" is distributed to the
partners on a monthly basis. "Net Cash Flow" is defined as "the cash
generated by the Partnership's investments in producing oil and gas
properties, less (i) General and Administrative Costs, (ii) Operating Costs,
and (iii) any reserves necessary to meet current and anticipated needs of the
Partnership, as determined in the sole discretion of the Managing General
Partner."
During 1996, twelve monthly distributions were made totaling $605,540, with
$545,540 distributed to the limited partners and $60,000 to the general
partners. For the year ended December 31, 1996, distributions of $53.76 per
limited partner unit were made, based upon 10,147 limited partner units
outstanding. During 1995, twelve monthly distributions were made totaling
$368,165, with $334,815 distributed to the limited partners and $33,350 to
the general partners. For the year ended December 31, 1995, distributions of
$33.00 per limited partner unit were made, based upon 10,147 limited partner
units outstanding. During 1994, twelve monthly distributions were made
totaling $251,500, with $226,350 distributed to the limited partners and
$25,150 to the general partners. For the year ended December 31, 1994,
distributions of $22.31 per limited partner unit were made, based upon 10,147
limited partner units outstanding.
Item 6. Selected Financial Data
The following selected financial data for the years ended December 31, 1996,
1995, 1994, 1993 and 1992 should be read in conjunction with the financial
statements included in Item 8:
Years ended December 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Revenues $ 747,610 441,538 346,280 428,280 631,057
Net income (loss) 558,108 230,759 113,476 (563,533) 150,206
Partners' share
of net income
(loss):
General partners 66,611 35,776 25,748 33,954 54,069
Limited partners 491,497 194,983 87,728 (597,487) 96,137
Limited partners'
net income (loss)
per unit 48.44 19.22 8.65 (58.88) 9.47
Limited partners'
cash distributions
per unit 53.76 33.00 22.31 40.09 70.85
Total assets $ 1,480,875 1,528,291 1,666,483 1,804,280 2,816,600
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Partnership was formed to acquire nonoperating interests in producing oil
and gas properties, to produce and market crude oil and natural gas produced
from such properties and to distribute any net proceeds from operations to
the general and limited partners. Net revenues from producing oil and gas
properties are not reinvested in other revenue producing assets except to the
extent that producing facilities and wells are reworked or where methods are
employed to improve or enable more efficient recovery of oil and gas
reserves. The economic life of the Partnership thus depends on the period
over which the Partnership's oil and gas reserves are economically
recoverable.
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 and on 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 limited
partners is therefore expected to fluctuate in later years based on these
factors.
Based on current conditions, management anticipates performing workovers
during the next two years to enhance production. The Partnership may undergo
an increase later in 1997 and possibly in 1998. Thereafter, the Partnership
could possibly experience a normal decline of 8% to 10% per year.
Results of Operations
A. General Comparison of the Years Ended December 31, 1996 and 1995
The following table provides certain information regarding performance
factors for the years ended December 31, 1996 and 1995:
Year Ended Percentage
December 31, Increase
1996 1995 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 21.12 16.94 25%
Average price per mcf of gas $ 2.75 2.02 36%
Oil production in barrels 57,200 58,600 (2%)
Gas production in mcf 58,700 64,300 (9%)
Income from net profits interests $ 745,147 439,578 70%
Partnership distributions $ 605,540 368,165 64%
Limited partner distributions $ 545,540 334,815 63%
Per unit distribution to limited
partners $ 53.76 33.00 63%
Number of limited partner units 10,147 10,147
Revenues
The Partnership's income from net profits interests increased to $745,147
from $439,578 for the years ended December 31, 1996 and 1995, respectively,
an increase of 70%. The principal factors affecting the comparison of the
years ended December 31, 1996 and 1995 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the year ended December 31, 1996 as compared to the year
ended December 31, 1995 by 25%, or $4.18 per barrel, resulting in an
increase of approximately $244,900 in income from net profits interests.
Oil sales represented 88% of total oil and gas sales during the years
ended December 31, 1996 and 1995.
The average price for an mcf of gas received by the Partnership increased
during the same period by 36%, or $.73 per mcf, resulting in an increase
of approximately $46,900 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 $291,800.
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 2% during the
year ended December 31, 1996 as compared to the year ended December 31,
1995, resulting in a decrease of approximately $29,600 in income from net
profits interests.
Gas production decreased approximately 5,600 mcf or 9% during the same
period, resulting in a decrease of approximately $15,400 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $45,000.
3. Lease operating costs and production taxes were 9% lower, or
approximately $60,000 less during the year ended December 31, 1996 as
compared to the year ended December 31, 1995.
Costs and Expenses
Total costs and expenses decreased to $189,502 from $210,779 for the years
ended December 31, 1996 and 1995, respectively, a decrease of 10%. 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 3%
or approximately $2,300 during the year ended December 31, 1996 as
compared to the year ended December 31, 1995.
2. Depletion expense decreased to $108,000 for the year ended December 31,
1996 from $127,000 for the same period in 1995. This represents a
decrease of 15%. 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 decline in depletion expense between the
comparative periods was the increase in the price of oil and gas used to
determine the Partnership's reserves for January 1, 1997 as compared to
1996. Another contributing factor was due to the impact of revisions of
previous estimates on reserves. Revisions of previous estimates can be
attributed to the changes in production performance, oil and gas price
and production costs. The impact of the revision would have decreased
depletion expense approximately $22,000 as of December 31, 1995.
B. General Comparison of the Years Ended December 31, 1995 and 1994
The following table provides certain information regarding performance
factors for the years ended December 31, 1995 and 1994:
Year Ended Percentage
December 31, Increase
1995 1994 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 16.94 15.61 9%
Average price per mcf of gas $ 2.02 1.91 6%
Oil production in barrels 58,600 51,600 14%
Gas production in mcf 64,300 69,700 (8%)
Income from net profits interests $ 439,578 344,487 28%
Partnership distributions $ 368,165 251,500 46%
Limited partner distributions $ 334,815 226,350 48%
Per unit distribution to limited
partners $ 33.00 22.31 48%
Number of limited partner units 10,147 10,147
Revenues
The Partnership's income from net profits interests increased to $439,578
from $344,487 for the years ended December 31, 1995 and 1994, respectively,
an increase of 28%. The principal factors affecting the comparison of the
years ended December 31, 1995 and 1994 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the year ended December 31, 1995 as compared to the
year ended December 31, 1994 by 9%, or $1.33 per barrel, resulting in an
increase of approximately $68,600 in income from net profits interests.
Oil sales represented 88% of total oil and gas sales during the year
ended December 31, 1995 as compared to 86% during the year ended
December 31, 1994.
The average price for an mcf of gas received by the Partnership
increased during the same period by 6%, or $.11 per mcf, resulting in an
increase of approximately $7,700 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
$76,300. 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 increased approximately 7,000 barrels or 14% during the
year ended December 31, 1995 as compared to the year ended December 31,
1994, resulting in an increase of approximately $118,600 in income from
net profits interests.
Gas production decreased approximately 5,400 mcf or 8% during the same
period, resulting in a decrease of approximately $10,900 in income from
net profits interests.
The net total increase in income from net profits interests due to the
change in production is approximately $107,700. The increase is a
result of successful workovers.
3. Lease operating costs and production taxes were 15% higher, or
approximately $90,600 more during the year ended December 31, 1995 as
compared to the year ended December 31, 1994. The increase is a result
of successful workovers.
Costs and Expenses
Total costs and expenses decreased to $210,779 from $232,804 for the years
ended December 31, 1995 and 1994, respectively, a decrease of 9%. The
decline is the result of a decrease in general and administrative costs and
depletion.
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 6%
or approximately $5,000 during the year ended December 31, 1995 as
compared to the year ended December 31, 1994.
2. Depletion expense decreased to $127,000 for the year ended December 31,
1995 from $144,000 for the same period in 1994. This represents a
decrease 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. Although oil and gas
revenues increased for the year ended December 31, 1995 as compared to
the year ended December 31, 1994, the decrease in depletion expense is
the result of the change in oil prices since 1994.
C. Revenue and Distribution Comparison
Partnership net income for the years ended December 31, 1996, 1995 and 1994
was $558,108, $230,759 and $113,476, respectively. Excluding the effects of
depreciation, depletion and amortization, net income for the years ended
December 31, 1996, 1995 and 1994 would have been $666,108, $357,759 and
$257,476, respectively. Correspondingly, Partnership distributions for the
years ended December 31, 1996, 1995 and 1994 were $605,540, $368,165 and
$251,500, respectively. These differences are indicative of the changes in
oil and gas prices, production and properties during 1996, 1995 and 1994.
The sources for the 1996 distributions of $605,540 were oil and gas
operations of approximately $595,800 and property sales of $1,000, with the
balance from available cash on hand at the beginning of the period. The
sources of the 1995 distributions of $368,165 were oil and gas operations of
approximately $314,300 and the sale of oil and gas properties of
approximately $62,600, resulting in excess cash for contingencies or
subsequent distributions. The source of the 1994 distributions of $251,500
was oil and gas operations of approximately $275,400, resulting in excess
cash for contingencies or subsequent distributions.
Total distributions during the year ended December 31, 1996 were $605,540 of
which $545,540 was distributed to the limited partners and $60,000 to the
general partners. The per unit distribution to limited partners during the
same period was $53.76. Total distributions for the year ended 1995 were
$368,165 of which $334,815 was distributed to the limited partners and
$33,350 to the general partners. The per unit distribution to limited
partners during the same period was $33.00. Total distributions for the year
ended 1994 were $251,500 of which $226,350 was distributed to the limited
partners and $25,150 to the general partners. The per unit distribution to
limited partners during the same period was $22.31.
Since inception of the Partnership, cumulative monthly cash distributions of
$4,760,115 have been made to the partners. As of December 31, 1996,
$4,302,541 or $424.02 per limited partner unit, has been distributed to the
limited partners, representing an 85% return of the capital contributed.
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 $595,800 in
1996, compared to approximately $314,300 in 1995 and approximately $275,400
in 1994. The primary source of the 1996 cash flow from operating activities
was profitable operations.
Cash flows provided by investing activities were $1,000 in 1996, compared to
approximately $62,600 in 1995. There were no cash flows from investing
activities in 1994. The principal 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 $605,500 in 1996,
compared to approximately $368,300 in 1995 and approximately $251,300 in
1994. The only use in financing activities was the distributions to
partners.
As of December 31, 1996, the Partnership had approximately $211,400 in
working capital. The Managing General Partner knows of no unusual
contractual commitments and believes the revenue generated from operations
are adequate to meet the needs of the Partnership.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Page
Report of Independent Accountants. . . . . . . . . . . . . . . . . . . .20
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . .22
Statement of Changes in Partners' Equity . . . . . . . . . . . . . . . .23
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . .24
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . .26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners
Southwest Royalties Institutional
Income Fund VIII-B, L.P.
Midland, Texas
We have audited the accompanying balance sheets of Southwest Royalties
Institutional Income Fund VIII-B, L.P. as of December 31, 1996 and 1995, and
the related statements of operations, changes in partners' equity and cash
flows for each of the three years in the period ended December 31, 1996.
These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southwest Royalties
Institutional Income Fund VIII-B, L.P. as of December 31, 1996 and 1995, and
the results of its operations and its cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
JOSEPH DECOSIMO AND COMPANY
A Tennessee Registered Limited Liability Partnership
Chattanooga, Tennessee
March 14, 1997
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(a Delaware limited partnership)
Balance Sheets
December 31, 1996 and 1995
1996 1995
---- ----
Assets
Current assets:
Cash and cash equivalents $ 29,317 38,072
Receivable from Managing General
Partner 182,243 112,904
--------- ---------
Total current assets 211,560 150,976
--------- ---------
Oil and gas properties - using the
full-cost method of accounting 4,196,749 4,196,749
Less accumulated depreciation,
depletion and amortization 2,927,434 2,819,434
--------- ---------
Net oil and gas properties 1,269,315 1,377,315
--------- ---------
$ 1,480,875 1,528,291
========= =========
Liabilities and Partners' Equity
Current liability - Distributions payable $ 171 155
--------- ---------
Partners' equity:
General partners 19,743 13,132
Limited partners 1,460,961 1,515,004
--------- ---------
Total partners' equity 1,480,704 1,528,136
--------- ---------
$ 1,480,875 1,528,291
========= =========
The accompanying notes are an integral
part of these financial statements.
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(a Delaware limited partnership)
Statements of Operations
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Revenues
Income from net profits
interests $ 745,147 439,578 344,487
Interest 2,463 1,960 1,793
------- ------- -------
747,610 441,538 346,280
------- ------- -------
Expenses
General and administrative 81,502 83,779 88,804
Depreciation, depletion and
amortization 108,000 127,000 144,000
------- ------- -------
189,502 210,779 232,804
------- ------- -------
Net income $ 558,108 230,759 113,476
======= ======= =======
Net income allocated to:
Managing General Partner $ 59,950 32,198 23,173
======= ======= =======
General partner $ 6,661 3,578 2,575
======= ======= =======
Limited partners $ 491,497 194,983 87,728
======= ======= =======
Per limited partner unit $ 48.44 19.22 8.65
======= ======= =======
The accompanying notes are an integral
part of these financial statements.
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(a Delaware limited partnership)
Statement of Changes in Partners' Equity
Years ended December 31, 1996, 1995 and 1994
General Limited
Partners Partners Total
-------- -------- -----
Balance at December 31, 1993 $ 10,108 1,793,458 1,803,566
Net income 25,748 87,728 113,476
Distributions (25,150) (226,350) (251,500)
------- --------- ---------
Balance at December 31, 1994 10,706 1,654,836 1,665,542
Net income 35,776 194,983 230,759
Distributions (33,350) (334,815) (368,165)
------- --------- ---------
Balance at December 31, 1995 13,132 1,515,004 1,528,136
Net income 66,611 491,497 558,108
Distributions (60,000) (545,540) (605,540)
------- --------- ---------
Balance at December 31, 1996 $ 19,743 1,460,961 1,480,704
======= ========= =========
The accompanying notes are an integral
part of these financial statements.
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(a Delaware limited partnership)
Statements of Cash Flows
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
Cash received from income from
net profits interests $ 674,740 396,851 362,442
Cash paid to suppliers (81,434) (84,507) (88,804)
Interest received 2,463 1,960 1,793
-------- -------- --------
Net cash provided by operating
activities 595,769 314,304 275,431
-------- -------- --------
Cash flows provided by investing
activities:
Cash received from sale of oil
and gas properties 1,000 62,604 -
-------- -------- --------
Cash flows used in financing activities:
Distributions to partners (605,524) (368,291) (251,273)
-------- -------- --------
Net increase (decrease) in cash and
cash equivalents (8,755) 8,617 24,158
Beginning of year 38,072 29,455 5,297
-------- -------- --------
End of year $ 29,317 38,072 29,455
======== ======== ========
(continued)
The accompanying notes are an integral
part of these financial statements.
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(a Delaware limited partnership)
Statements of Cash Flows, continued
Years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 558,108 230,759 113,476
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and amortization 108,000 127,000 144,000
(Increase) decrease in receivables (70,339) (42,795) 17,955
Decrease in payables - (660) -
------- ------- -------
Net cash provided by operating
activities $ 595,769 314,304 275,431
======= ======= =======
Supplemental schedule of noncash
investing and financing activities:
Sale of oil and gas properties
included in receivable from
Managing General Partner $ - 1,000 -
The accompanying notes are an integral
part of these financial statements.
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
1. Summary of Significant Accounting Policies
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.
Under the units of revenue method, the Partnership computes the
provision by multiplying the total unamortized cost of oil and gas
properties by an overall rate determined by dividing (a) oil and gas
revenues during the period by (b) the total future gross oil and gas
revenues as estimated by the Partnership's independent petroleum
consultants. It is reasonably possible that those estimates of
anticipated future gross revenues, the remaining estimated economic life
of the product, or both could be changed significantly in the near term
due to the potential fluctuation of oil and gas prices or production.
The depletion estimate would also be affected by this change.
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. As of December 31, 1996, 1995 and 1994 the
net capitalized costs did not exceed the estimated present value of oil
and gas reserves.
The Partnership's interest in oil and gas properties consists of net
profits interests in proved properties located within the continental
United States. A net profits interest is created when the owner of a
working interest in a property enters into an arrangement providing that
the net profits interest owner will receive a stated percentage of the
net profit from the property. The net profits interest owner will not
otherwise participate in additional costs and expenses of the property.
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
Estimates and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Syndication Costs
Syndication costs are accounted for as a reduction of partnership
equity.
Environmental Costs
The Partnership is subject to extensive federal, state and local
environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and
may require the Partnership to remove or mitigate the environmental
effects of the disposal or release of petroleum or chemical substances
at various sites. Environmental expenditures are expensed or
capitalized depending on their future economic benefit.
Costs which improve a property as compared with the condition of the
property when originally constructed or acquired and costs which prevent
future environmental contamination are capitalized. Expenditures that
relate to an existing condition caused by past operations and that have
no future economic benefits are expensed. Liabilities for expenditures
of a non-capital nature are recorded when environmental assessment
and/or remediation is probable, and the costs can be reasonably
estimated.
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
Gas Balancing
The Partnership utilizes the sales method of accounting for gas-
balancing arrangements. Under this method the Partnership recognizes
sales revenue on all gas sold. As of December 31, 1996, 1995 and 1994,
there were no significant amounts of imbalance in terms of units and
value.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Partnership considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. The Partnership maintains its
cash at one financial institution.
Income Taxes
No provision for income taxes is reflected in these financial
statements, since the tax effects of the Partnership's income or loss
are passed through to the individual partners.
In accordance with the requirements of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", the Partnership's tax
basis in its oil and gas properties at December 31, 1996 and 1995 is
$240,384 and $260,511 more, respectively, than that shown on the
accompanying Balance Sheets in accordance with generally accepted
accounting principles.
Number of Limited Partner Units
As of December 31, 1996, 1995 and 1994, there were 10,147 limited
partner units outstanding.
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
2. Organization
Southwest Royalties Institutional Income Fund VIII-B, 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 offering of limited partner units
began March 31, 1988, minimum capital requirements were met July 11,
1988, with the offering concluded on March 31, 1989.
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 from net profits interests 90% 10%
All other revenues 90% 10%
Organization and offering costs (1) 100% -
Amortization of organization costs 100% -
Property acquisition costs 100% -
Gain/loss on property dispositions 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 Partner and will be
treated as a capital contribution.
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
3. Oil and Gas Properties
Costs incurred in connection with the Partnership's oil and gas
producing activities for the years ended December 31, 1996, 1995 and
1994 are as follows:
1996 1995 1994
---- ---- ----
Depreciation, depletion and
amortization $ 108,000 127,000 144,000
======= ======= =======
All of the Partnership's properties were proved when acquired.
4. Commitments and Contingent Liabilities
The Partnership is subject to various federal, state and local
environmental laws and regulations which establish standards and
requirements for protection of the environment. The Partnership cannot
predict the future impact of such standards and requirements, which are
subject to change and can have retroactive effectiveness. The
Partnership continues to monitor the status of these laws and
regulations.
As of December 31, 1996, the Partnership has not been fined, cited or
notified of any environmental violations and management is not aware of
any unasserted violations which would have a material adverse effect
upon capital expenditures, earnings or the competitive position in the
oil and gas industry.
However, the Managing General Partner does recognize by the very nature
of its business, material costs could be incurred in the near term to
bring the Partnership into total compliance. The amount of such future
expenditures is not reliably determinable due to several factors,
including the unknown magnitude of possible contaminations, the unknown
timing and extent of the corrective actions which may be required, the
determination of the Partnership's liability in proportion to other
responsible parties and the extent to which such expenditures are
recoverable from insurance or indemnifications from prior owners of
Partnership's properties.
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
5. Related Party Transactions
A significant portion of the oil and gas properties in which the
Partnership has an interest are operated by and purchased from the
Managing General Partner. As is usual in the industry and as provided
for in the operating agreement for each respective oil and gas property
in which the Partnership has an interest, the operator is paid an amount
for administrative overhead attributable to operating such properties,
with such amounts to Southwest Royalties, Inc. as operator approximating
$94,000, $85,000 and $87,000 for the years ended December 31, 1996, 1995
and 1994, respectively. In addition, the Managing General Partner and
certain officers and employees may have an interest in some of the
properties that the Partnership also participates.
Certain subsidiaries of the Managing General Partner perform various
oilfield services for properties in which the Partnership owns an
interest. Such services aggregated approximately $14,000, $14,000 and
$22,000 for the years ended December 31, 1996, 1995, and 1994,
respectively, and the Managing General Partner believes that these costs
are comparable to similar charges paid by the Partnership to unrelated
third parties.
Southwest Royalties, Inc., the Managing General Partner, was paid
$72,000 during 1996, 1995 and 1994, as an administrative fee for
reimbursement of indirect general and administrative overhead expenses.
Receivables from Southwest Royalties, Inc., the Managing General
Partner, of approximately $182,243 and $112,904 are from oil and gas
production, net of lease operating costs and production taxes, as of
December 31, 1996 and 1995, respectively.
In addition, a director and officer of the Managing General Partner is
a partner in a law firm, with such firm providing legal services to the
Partnership approximating $70 for the year ended December 31, 1996.
There were no legal services provided for the year ended December 31,
1995 and approximately $200 for the year ended December 31, 1994.
6. Major Customers and Significant Leases
During 1996, two customers purchased 52% and 25% of the Partnership's
oil and gas production. During 1995, two customers purchased 51% and
24% of the Partnership's oil and gas production. During 1994, two
customers purchased 43% and 26% of the Partnership's oil and gas
production.
During 1996, one lease accounted for 17% of the Partnership's gross
revenue.
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
7. Estimated Oil and Gas Reserves (unaudited)
The Partnership's interest in proved oil and gas reserves is as follows:
Oil (bbls) Gas (mcf)
---------- ---------
Proved developed and undeveloped reserves -
January 1, 1994 378,000 502,000
Revisions of previous estimates 242,000 77,000
Production (52,000) (70,000)
------- -------
December 31, 1994 568,000 509,000
Revisions of previous estimates 85,000 244,000
Production (59,000) (64,000)
Sale of oil and gas properties (7,000) (24,000)
------- -------
December 31, 1995 587,000 665,000
Revisions of previous estimates 152,000 20,000
Production (57,000) (59,000)
------- -------
December 31, 1996 682,000 626,000
======= =======
Proved developed reserves -
December 31, 1994 516,000 461,000
======= =======
December 31, 1995 500,000 612,000
======= =======
December 31, 1996 644,000 608,000
======= =======
All of the Partnership's reserves are located within the continental
United States.
Southwest Royalties Institutional Income Fund VIII-B, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
7. Estimated Oil & Gas Reserves (unaudited) - continued
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves at December 31, 1996, 1995 and 1994 is
presented below:
1996 1995 1994
Future cash inflows, net of
production and development
costs $ 9,830,000 5,916,000 5,356,000
10% annual discount for
estimated timing of cash
flows 4,205,000 2,539,000 2,272,000
--------- --------- ---------
Standardized measure of
discounted future net cash
flows $ 5,625,000 3,377,000 3,084,000
========= ========= =========
The principal sources of change in the standardized measure of
discounted future net cash flows for the years ended December 31, 1996,
1995 and 1994 are as follows:
1996 1995 1994
Sales of oil and gas produced,
net of production costs $ (1,009,000) (724,000) (544,000)
Changes in price 2,439,000 594,000 807,000
Revisions to estimated
production costs (10,000) (446,000) 170,000
Sales of minerals in place - (37,000) -
Revisions of previous
quantities estimates 344,000 600,000 740,000
Accretion of discount 484,000 306,000 199,000
Discounted future net
cash flows -
Beginning of year 3,377,000 3,084,000 1,712,000
---------- --------- ---------
End of year $ 5,625,000 3,377,000 3,084,000
========== ========= =========
Future net cash flows were computed using year-end prices and costs that
related to existing proved oil and gas reserves in which the Partnership
has mineral interests.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None.
Part III
Item 10. Directors and Executive Officers of the Registrant
Management of the Partnership is provided by Southwest Royalties, Inc., as
Managing General Partner. The names, ages, offices, positions and length of
service of the directors and executive officers of Southwest Royalties, Inc.
are set forth below. Each director and executive officer serves for a term
of one year. The present directors of the Managing General Partner have
served in their capacity since the Company's formation in 1983.
Name Age Position
- -------------------- --- -------------------------------------
H. H. Wommack, III 41 Chairman of the Board, President,
Chief Executive Officer, Treasurer
and Director
H. Allen Corey 41 Secretary and Director
Bill E. Coggin 42 Vice President and Chief Financial
Officer
Richard E. Masterson 43 Vice President, Exploration and
Acquisitions
Jon P. Tate 39 Vice President, Land and Assistant
Secretary
Joel D. Talley 35 Vice President, Acquisitions and
Exploitation Manager
R. Douglas Keathley 41 Vice President, Operations
H. H. Wommack, III, is Chairman of the Board, President, Chief Executive
Officer, Treasurer, principal stockholder and a director of the Managing
General Partner, and has served as its President since the Company's
organization in August, 1983. Prior to the formation of the Company, Mr.
Wommack was a self-employed independent oil producer engaged in the purchase
and sale of royalty and working interests in oil and gas leases, and the
drilling of exploratory and developmental oil and gas wells. Mr. Wommack
holds a J.D. degree from the University of Texas from which he graduated in
1980, and a B.A. from the University of North Carolina in 1977.
H. Allen Corey, a founder of the Managing General Partner, has served as the
Managing General Partner's secretary and a director since its inception. Mr.
Corey is President of Trolley Barn Brewery, Inc., a brew pub restaurant chain
based in the Southeast. Prior to his involvement with Trolley Barn, Mr.
Corey was a partner at the law firm of Miller & Martin in Chattanooga,
Tennessee. He is currently of counsel to the law firm of Baker, Donelson,
Bearman & Caldwell, with the offices in Chattanooga, Tennessee. Mr. Corey
received a J.D. degree from the Vanderbilt University Law School and B.A.
degree from the University of North Carolina at Chapel Hill.
Bill E. Coggin, Vice President and Chief Financial Officer, has been with the
Managing General Partner since 1985. Mr. Coggin was Controller for Rod Ric
Corporation of Midland, Texas, an oil and gas drilling company, during the
latter part of 1984. He was Controller for C.F. Lawrence & Associates, Inc.,
an independent oil and gas operator also of Midland, Texas during the early
part of 1984. Mr. Coggin taught public school for four years prior to his
business experience. Mr. Coggin received a B.S. in Education and a B.B.A.
in Accounting from Angelo State University.
Richard E. Masterson, Vice President, Exploration and Acquisitions, first
became associated with the Managing General Partner as a geological
consultant in 1985. He was employed as a petroleum geologist by Grand Banks
Energy (1980-1985), Monsanto (1977-1980) and Texaco, Inc. (1974-1976) prior
to joining the Managing General Partner. Mr. Masterson is a member of the
Society of Economic Paleontologists and Mineralogists and the West Texas
Geological Society. Mr. Masterson received his B.A. degree in Geology from
Trinity University.
Jon P. Tate, Vice President, Land and Assistant Secretary, assumed his
responsibilities with the Managing General Partner in 1989. Prior to joining
the Managing General Partner, Mr. Tate was employed by C.F. Lawrence &
Associates, Inc., an independent oil and gas company, as Land Manager from
1981 through 1989. Mr. Tate is a member of the Permian Basin Landman's
Association and received his B.B.S. degree from Hardin-Simmons University.
Joel D. Talley, Vice President, Acquisitions and Exploitation Manager,
assumed his responsibilities with the Managing General Partner on July 15,
1996. Prior to joining the Managing General Partner, Mr. Talley was employed
for four (4) years by Merit Energy Company as Acquisitions Manager and then
as Region Manager over West Texas, New Mexico and Wyoming (1992-1996) and
eight (8) years by ARCO Oil & Gas Company in various engineering positions
(1984-1992). Mr. Talley received his B.S. in Mechanical Engineering in 1984
from Texas A&M University.
R. Douglas Keathley, Vice President, Operations, assumed his responsibilities
with the Managing General Partner as a Production Engineer in October, 1992.
Prior to joining the Managing General Partner, Mr. Keathley was employed for
four (4) years by ARCO Oil & Gas Company as senior drilling engineer working
in all phases of well production (1988-1992), eight (8) years by Reading &
Bates Petroleum Company as senior petroleum engineer responsible for drilling
(1980-1988) and two (2) years by Tenneco Oil Company as drilling engineer
responsible for all phases of drilling (1978-1980). Mr. Keathley received
his B.S. in Petroleum Engineering in 1977 from the University of Oklahoma.
Key Employees
Accounting and Administrative Officer - Debbie A. Brock, age 44, assumed her
position with the Managing General Partner in 1991. Prior to joining the
Managing General Partner, Ms. Brock was employed with Western Container
Corporation as Accounting Manager (1982-1990), Synthetic Industries (Texas),
Inc. as Accounting Manager (1976-1982) and held various accounting positions
in the manufacturing industry (1971-1975). Ms. Brock received a B.B.A. from
the University of Houston.
Controller - Robert A. Langford, age 47, assumed his responsibilities with
the Managing General Partner in 1992. Mr. Langford received his B.B.A.
degree in Accounting in 1975 from the University of Central Arkansas. Prior
to joining the Managing General Partner, Mr. Langford was employed with
Forest Oil Corporation as Corporate Coordinator, Regional Coordinator,
Accounting Manager. He held various other positions from 1982-1992 and 1976-
1980 and was Assistant Controller of National Oil Company from 1980-1982.
Financial Reporting Manager - Bryan Dixon, C.P.A., age 30, assumed his
responsibilities with the Managing General Partner in 1992. Mr. Dixon
received his B.B.A. degree in Accounting in 1988 from Texas Tech University
in Lubbock, Texas. Prior to joining the Managing General Partner, Mr. Dixon
was employed as a Senior Auditor with Johnson, Miller & Company from 1991-
1992 and Audit Supervisor for Texas Tech University and the Texas Tech
University Health Sciences Center from 1988-1991.
Production Superintendent - Steve C. Garner, age 55, assumed his
responsibilities with the Managing General Partner as Production
Superintendent in July, 1989. Prior to joining the Managing General Partner,
Mr. Garner was employed 16 years by Shell Oil Company working in all phases
of oil field production as operations foreman, one and one-half years with
Petroleum Corporation of Delaware as Production Superintendent, six years as
an independent engineering consultant, and one year with Citation Oil & Gas
Corp. as a workover, completion and production foreman. Mr. Garner has
worked extensively in the Permian Basin oil field for the last 25 years.
Tax Manager - Carolyn Cookson, age 40, assumed her position with the Managing
General Partner in April, 1989. Prior to joining the Managing General
Partner, Ms. Cookson was employed as Director of Taxes at C.F. Lawrence &
Associates, Inc. from 1983 to 1989, and worked in public accounting at
McCleskey, Cook & Green, P.C. from 1981 to 1983 and Deanna Brady, C.P.A. from
1980 to 1981. She is a member of the Permian Basin Chapter of the Petroleum
Accountants' Society, and serves on its Board of Directors and is liaison to
the Tax Committee. Ms. Cookson received a B.B.A. in accounting from New
Mexico State University.
Vice President, Marketing - Steve J. Person, age 38, joined the Managing
General Partner in 1989. Prior to joining the Managing General Partner, Mr.
Person served as Vice President of Marketing for CRI, Inc., and was
associated with Capital Financial Group and Dean Witter (1983). He received
a B.B.A. from Baylor University in 1982 and an M.D.A. from Houston Baptist
University in 1987.
Investor Relations Manager - Sandra K. Flournoy, age 50, came to Southwest
Royalties, Inc. in 1988 from Parker & Parsley Petroleum, where she was
Assistant Manager of Investor Services and Broker/Dealer Relations for two
years. Prior to that, Ms. Flournoy was Administrative Assistant to the
Superintendent at Greenwood ISD for four years.
In certain instances, the Managing General Partner will engage professional
petroleum consultants and other independent contractors, including engineers
and geologists in connection with property acquisitions, geological and
geophysical analysis, and reservoir engineering. The Managing General
Partner believes that, in addition to its own "in-house" staff, the
utilization of such consultants and independent contractors in specific
instances and on an "as-needed" basis allows for greater flexibility and
greater opportunity to perform its oil and gas activities more economically
and effectively.
Item 11. Executive Compensation
The Partnership does not have any directors or executive officers. The
executive officers of the Managing General Partner do not receive any cash
compensation, bonuses, deferred compensation or compensation pursuant to any
type of plan, from the Partnership. The Managing General Partner received
$72,000 during 1996, 1995 and 1994 as an annual administrative fee.
Item 12. Security Ownership of Certain Beneficial Owners and Management
There are no limited partners who own of record, or are known by the Managing
General Partner to beneficially own, more than five percent of the
Partnership's limited partnership interests.
The Managing General Partner owns a nine percent interest as a general
partner. Through repurchase offers to the limited partners, the Managing
General Partner also owns 539 limited partner units, a 5.3% limited partner
interest. The Managing General Partner total percentage interest ownership
in the Partnership is 13.8%.
No officer or director of the Managing General Partner owns Units in the
Partnership. H. H. Wommack, III, as the individual general partner of the
Partnership, owns a one percent interest as a general partner. The officers
and directors of the Managing General Partner are considered beneficial
owners of the limited partner units acquired by the Managing General Partner
by virtue of their status as such. A list of beneficial owners of limited
partner units, acquired by the Managing General Partner, is as follows:
Amount and
Nature of Percent
Name and Address of Beneficial of
Title of Class Beneficial Owner Ownership Class
- ------------------- --------------------------- --------------- -------
Limited Partnership Southwest Royalties, Inc. Directly Owns 5.3%
Interest Managing General Partner 539 Units
407 N. Big Spring Street
Midland, TX 79701
Limited Partnership H. H. Wommack, III Indirectly Owns 5.3%
Interest Chairman of the Board, 539 Units
President, CEO, Treasurer
and Director of Southwest
Royalties, Inc., the
Managing General Partner
407 N. Big Spring Street
Midland, TX 79701
Limited Partnership H. Allen Corey Indirectly Owns 5.3%
Interest Secretary and Director of 539 Units
Southwest Royalties, Inc.,
the Managing General
Partner
633 Chestnut Street
Chattanooga, TN 37450-1800
Limited Partnership Bill E. Coggin Indirectly Owns 5.3%
Interest Vice President and CFO of 539 Units
Southwest Royalties, Inc.,
the Managing General
Partner
407 N. Big Spring Street
Midland, TX 79701
Limited Partnership Richard E. Masterson Indirectly Owns 5.3%
Interest Vice President, Exploration 539 Units
and Acquisitions of
Southwest Royalties, Inc.,
the Managing General
Partner
407 N. Big Spring Street
Midland, TX 79701
Limited Partnership Jon P. Tate Indirectly Owns 5.3%
Interest Vice President, Land and 539 Units
Assistant Secretary of
Southwest Royalties, Inc.,
the Managing General
Partner
407 N. Big Spring Street
Midland, TX 79701
Amount and
Nature of Percent
Name and Address of Beneficial of
Title of Class Beneficial Owner Ownership Class
- ------------------- --------------------------- --------------- -------
Limited Partnership Joel D. Talley Indirectly Owns 5.3%
Interest Vice President, Acquisitions 539 Units
and Exploitation Manager of
Southwest Royalties, Inc.,
the Managing General Partner
407 N. Big Spring Street
Midland, TX 79701
Limited Partnership R. Douglas Keathley Indirectly Owns 5.3%
Interest Vice President, 539 Units
Operations of Southwest
Royalties, Inc., the
Managing General Partner
407 N. Big Spring Street
Midland, TX 79701
There are no arrangements known to the Managing General Partner which may at
a subsequent date result in a change of control of the Partnership.
Item 13. Certain Relationships and Related Transactions
In 1996, the Managing General Partner received $72,000 as an administrative
fee. This amount is part of the general and administrative expenses incurred
by the Partnership.
In some instances the Managing General Partner and certain officers and
employees may be working interest owners in an oil and gas property in which
the Partnership also has a net profits interest. Certain properties in which
the Partnership has an interest are operated by the Managing General Partner,
who was paid approximately $94,000 for administrative overhead attributable
to operating such properties during 1996.
Certain subsidiaries of the Managing General Partner perform various oilfield
services for properties in which the Partnership owns an interest. Such
services aggregated approximately $14,000 for the year ended December 31,
1996.
The law firm of Miller & Martin, of which H. Allen Corey, an officer and
director of the Managing General Partner, is a partner, is counsel to the
Partnership. Legal services rendered by Miller & Martin to the Partnership
during 1996 were approximately $70, which constitutes an immaterial portion
of that firm's business. Subsequent to December 31, 1996, the counsel to the
Partnership, H. Allen Corey, became a partner in the law firm Baker,
Donelson, Bearman & Caldwell.
In the opinion of management, the terms of the above transactions are similar
to ones with unaffiliated third parties.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements:
Included in Part II of this report --
Report of Independent Accountants
Balance Sheets
Statements of Operations
Statement of Changes in Partners' Equity
Statements of Cash Flows
Notes to Financial Statements
(2) Schedules required by Article 12 of Regulation S-X are
either omitted because they are not applicable or because
the required information is shown in the financial
statements or the notes thereto.
(3) Exhibits:
4 (a) Certificate of Limited Partnership of Southwest
Royalties Institutional Income Fund VIII-B, L.P.,
dated November 30, 1987. (Incorporated by
reference from Partnership's S-1 Registration
Statement, File Number 33-18852 effective March
31, 1988.)
(b) Agreement of Limited Partnership of Southwest
Royalties Institutional Income Fund VIII-B, L.P.
dated July 11, 1988. (Incorporated by reference
from Partnership's Form 10-K for the fiscal year
ended December 31, 1988.)
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter
ended December 31, 1996.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership 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/ H. H. Wommack, III
-----------------------------
H. H. Wommack, III, President
Date: March 26, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Partnership and in the capacities and on the dates indicated.
By: /s/ H. H. Wommack, III
-----------------------------------
H. H. Wommack, III, Chairman of the
Board, President, Chief Executive
Officer, Treasurer and Director
Date: March 26, 1997
By: /s/ H. Allen Corey
-----------------------------
H. Allen Corey, Secretary and
Director
Date: March 26, 1997