FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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 12.
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, 1996 which are found in the Registrant's Form 10-K Report
for 1996 filed with the Securities and Exchange Commission. The December 31,
1996 balance sheet included herein has been taken from the Registrant's 1996
Form 10-K Report. Operating results for the three month period ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the full year.
Southwest Royalties Institutional Income Fund VIII-B, L.P.
Balance Sheets
March 31, December 31,
1997 1996
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 13,133 29,317
Receivable from Managing General
Partner 135,850 182,243
--------- ---------
Total current assets 148,983 211,560
--------- ---------
Oil and gas properties - using the
full-cost method of accounting 4,196,749 4,196,749
Less accumulated depreciation,
depletion and amortization 2,950,434 2,927,434
--------- ---------
Net oil and gas properties 1,246,315 1,269,315
--------- ---------
$ 1,395,298 1,480,875
========= =========
Liabilities and Partners' Equity
Current liabilities:
Distributions payable $ 149 171
Accounts payable 5,300 -
--------- ---------
Total current liabilities 5,449 171
--------- ---------
Partners' equity:
General partners 12,958 19,743
Limited partners 1,376,891 1,460,961
--------- ---------
Total partners' equity 1,389,849 1,480,704
--------- ---------
$ 1,395,298 1,480,875
========= =========
Southwest Royalties Institutional Income Fund VIII-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended
March 31,
1997 1996
---- ----
Revenues
Income from net profits interests $ 159,383 137,654
Interest 490 306
------- -------
159,873 137,960
------- -------
Expenses
General and administrative 25,728 26,678
Depreciation, depletion and amortization 23,000 34,000
------- -------
48,728 60,678
------- -------
Net income $ 111,145 77,282
======= =======
Net income allocated to:
Managing General Partner $ 12,074 10,015
======= =======
General partner $ 1,341 1,113
======= =======
Limited partners $ 97,730 66,154
======= =======
Per limited partner unit $ 9.63 6.52
======= =======
Southwest Royalties Institutional Income Fund VIII-B, L.P.
Statements of Cash Flows
(unaudited)
Three Months Ended
March 31,
1997 1996
---- ----
Cash flows from operating activities:
Cash received from income from net profits
interests $ 205,776 129,681
Cash paid to suppliers (20,428) (20,560)
Interest received 490 306
-------- --------
Net cash provided by operating activities 185,838 109,427
-------- --------
Cash flows provided by investing activities:
Sale of oil and gas properties - 1,000
-------- --------
Cash flows used in financing activities:
Distributions to partners (202,022) (122,608)
-------- --------
Net decrease in cash and cash equivalents (16,184) (12,181)
Beginning of period 29,317 38,072
-------- --------
End of period $ 13,133 25,891
======== ========
(continued)
Southwest Royalties Institutional Income Fund VIII-B, L.P.
Statements of Cash Flows, continued
(unaudited)
Three Months Ended
March 31,
1997 1996
---- ----
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 111,145 77,282
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 23,000 34,000
(Increase) decrease in receivables 46,393 (7,905)
Increase in payables 5,300 6,050
------- -------
Net cash provided by operating activities $ 185,838 109,427
======= =======
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 farm-out
arrangements, sales of properties, and the depletion of wells. Since wells
deplete over time, production can generally be expected to decline from year
to year.
Well operating costs and general and administrative costs usually decrease
with production declines; however, these costs may not decrease
proportionately. Net income available for distribution to the partners is
therefore expected to fluctuate in later years based on these factors.
Based on current conditions, management anticipates performing workovers
during the next 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 Quarters Ended March 31, 1997 and 1996
The following table provides certain information regarding performance
factors for the quarters ended March 31, 1997 and 1996:
Three Months
Ended Percentage
March 31, Increase
1997 1996 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 21.68 18.34 18%
Average price per mcf of gas $ 2.52 2.09 21%
Oil production in barrels 11,800 14,400 (18%)
Gas production in mcf 13,700 18,400 (26%)
Income from net profits interests $ 159,383 137,654 16%
Partnership distributions $ 202,000 122,540 65%
Limited partner distributions $ 181,800 110,840 64%
Per unit distribution to limited
partners $ 17.92 10.92 64%
Number of limited partner units 10,147 10,147
Revenues
The Partnership's income from net profits interests increased to $159,383
from $137,654 for the quarters ended March 31, 1997 and 1996, respectively,
an increase of 16%. The principal factors affecting the comparison of the
quarters ended March 31, 1997 and 1996 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended March 31, 1997 as compared to the
quarter ended March 31, 1996 by 18%, or $3.34 per barrel, resulting in an
increase of approximately $48,100 in income from net profits interests.
Oil sales represented 88% of total oil and gas sales during the quarter
ended March 31, 1997 as compared to 87% during the quarter ended March
31, 1996.
The average price for an mcf of gas received by the Partnership increased
during the same period by 21%, or $.43 per mcf, resulting in an increase
of approximately $7,900 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 $56,000.
The market price for oil and gas has been extremely volatile over the
past decade, and management expects a certain amount of volatility to
continue in the foreseeable future.
2. Oil production decreased approximately 2,600 barrels or 18% during the
quarter ended March 31, 1997 as compared to the quarter ended March 31,
1996, resulting in a decrease of approximately $56,400 in income from net
profits interests.
Gas production decreased approximately 4,700 mcf or 26% during the same
period, resulting in a decrease of approximately $11,800 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $68,200. The decrease is primarily a
result of mechanical problems causing lease downtime, some wells
experiencing a sharp natural decline and the gas production estimate for
the first quarter of 1996 being higher than the actual gas produced
during the first quarter of 1996 due to the wells experiencing a higher
than normal natural decline and unforeseeable well downtime during the
first quarter of 1996.
3. Lease operating costs and production taxes were 20% lower, or
approximately $33,600 less during the quarter ended March 31, 1997 as
compared to the quarter ended March 31, 1996. The decrease is primarily
a result of workover costs incurred in 1996 as compared to 1997.
Costs and Expenses
Total costs and expenses decreased to $48,728 from $60,678 for the quarters
ended March 31, 1997 and 1996, respectively, a decrease of 20%. 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 4%
or approximately $1,000 during the quarter ended March 31, 1997 as
compared to the quarter ended March 31, 1996.
2. Depletion expense decreased to $23,000 for the quarter ended March 31,
1997 from $34,000 for the same period in 1996. This represents a
decrease of 32%. Depletion is calculated using the units of revenue
method of amortization based on a percentage of current period gross
revenues to total future gross oil and gas revenues, as estimated by the
Partnership's independent petroleum consultants. Contributing factors to
the decline in depletion expense between the comparative periods were the
increase in the price of oil used to determine the Partnership's reserve
for January 1, 1997 as compared to 1996 and the decrease in gross oil and
gas revenue.
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 $185,800 in
the quarter ended March 31, 1997 as compared to approximately $109,400 in the
quarter ended March 31, 1996. The primary source of the 1997 cash flow from
operating activities was profitable operations.
There were no cash flows provided by investing activities in the quarter
ended March 31, 1997 as compared to approximately $1,000 in the quarter ended
March 31, 1996.
Cash flows used in financing activities were approximately $202,000 in the
quarter ended March 31, 1997 as compared to approximately $122,600 in the
quarter ended March 31, 1996. The only use in financing activities was the
distributions to partners.
Total distributions during the quarter ended March 31, 1997 were $202,000 of
which $181,800 was distributed to the limited partners and $20,200 to the
general partners. The per unit distribution to limited partners during the
quarter ended March 31, 1997 was $17.92. Total distributions during the
quarter ended March 31, 1996 were $122,540 of which $110,840 was distributed
to the limited partners and $11,700 to the general partners. The per unit
distribution to limited partners during the quarter ended March 31, 1996 was
$10.92.
The source for the 1997 distributions of $202,000 was oil and gas operations
of approximately $185,800, with the balance from available cash on hand at
the beginning of the period. The sources for the 1996 distributions of
$122,540 were oil and gas operations of approximately $109,400 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.
Since inception of the Partnership, cumulative monthly cash distributions of
$4,962,115 have been made to the partners. As of March 31, 1997, $4,484,341
or $441.94 per limited partner unit has been distributed to the limited
partners, representing an 88% return of the capital contributed.
As of March 31, 1997, the Partnership had approximately $143,500 in working
capital. The Managing General Partner knows of no unusual contractual
commitments and believes the revenues generated from operations are adequate
to meet the needs of the Partnership.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHWEST ROYALTIES INSTITUTIONAL
INCOME FUND 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: May 15, 1997