FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-17715
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
(Exact name of registrant as specified in its charter)
Texas 76-0261809
(State or other jurisdiction (I.R.S. Employer Identification No.)
of organization)
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(Address of principal executive offices)
(Zip Code)
(281)874-2700
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the 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
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SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
INDEX
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Financial Statements
Statement of Net Assets in Process of Liquidation
- March 31, 2000 3
Balance Sheet
- December 31, 1999 4
Statements of Operations
- Three month periods ended March 31, 2000 and 1999 5
Statements of Cash Flows
- Three month periods ended March 31, 2000 and 1999 6
Notes to Financial Statements 7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 12
SIGNATURES 13
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
STATEMENT OF NET ASSETS IN PROCESS OF LIQUIDATION
(Unaudited)
March 31,
2000
---------
ASSETS:
Cash and cash equivalents $ 64,124
Nonoperating interests income receivable 136
Nonoperating interests in oil and gas properties 118,914
---------
Total Assets 183,174
---------
LIABILITIES:
Accounts Payable 3,605
---------
Total Liabilities 3,605
---------
Net Assets in Process of Liquidation $ 179,569
=========
See accompanying notes to financial statements.
3
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
BALANCE SHEET
December 31,
1999
-----------
ASSETS:
Current Assets:
Cash and cash equivalents $ 60,895
Nonoperating interests income receivable 703
-----------
Total Current Assets 61,598
-----------
Nonoperating interests in oil and gas
properties, using full cost accounting 1,551,605
Less-Accumulated amortization (1,455,503)
-----------
96,102
-----------
$ 157,700
===========
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Accounts Payable $ 455
-----------
Limited Partners' Capital (18,749 Limited Partnership
Units; $100 per unit) 154,520
General Partners' Capital 2,725
-----------
Total Partners' Capital 157,245
-----------
$ 157,700
===========
See accompanying notes to financial statements.
4
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
----------------------
2000 1999
-------- --------
REVENUES:
Income from nonoperating interests $ 8,761 $ 2,936
Interest income 813 697
-------- --------
9,574 3,633
-------- --------
COSTS AND EXPENSES:
Amortization 2,798 2,266
General and administrative 4,992 3,562
-------- --------
7,790 5,828
-------- --------
Income (Loss) Before Adoption
Of Liquidation Basis Of Accounting $ 1,784 $ (2,195)
-------- --------
Effect Of Adoption Of Liquidation
Basis Of Accounting 25,594 --
-------- --------
Income (Loss) $ 27,378 $ (2,195)
======== ========
Limited Partners' net income (loss)
per unit
Income (Loss) Before Adoption
of Liquidation Basis of Accounting $ 0.08 $ (0.11)
======== ========
Effect of Adoption of Liquidation
Basis of Accounting $ 1.23 $ --
======== ========
Income (Loss) $ 1.31 $ (0.11)
======== ========
See accompanying notes to financial statements.
5
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
-----------------------
2000 1999
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) $ 27,378 $ (2,195)
Adjustments to reconcile income (loss) to
net cash provided by operations:
Effect of adoption of liquidation basis of accounting (25,594) --
Amortization 2,798 2,266
Change in assets and liabilities:
(Increase) decrease in nonoperating interests income receivable 567 (4,591)
Increase (decrease) in accounts payable 3,150 772
--------- ---------
Net cash provided by (used in) operating activities 8,299 (3,748)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to nonoperating interests in oil and gas properties (16) 284
Proceeds from sales of nonoperating interests in oil and gas properties -- 10,196
--------- ---------
Net cash provided by (used in) investing activities (16) 10,480
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to partners (5,054) (5,154)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,229 1,578
--------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 60,895 57,769
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 64,124 $ 59,347
========= =========
See accompanying notes to financial statements.
6
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) General Information -
The limited partners of the Partnership approved the
dissolution of the Partnership on March 30, 2000. As a result, the
Partnership has changed its basis of accounting, effective March 31,
2000, from historical cost basis to the liquidation basis. Under the
liquidation basis of accounting, the Partnership's assets at March 31,
2000 are reported at estimated net realizable value, and the
Partnership's liabilities are presented at estimated settlement amounts.
The net effect of the revaluation of the Partnership's assets and
liabilities due to the adoption of the liquidation basis of accounting
was an upward adjustment of $25,594.
Oil and gas properties at March 31, 2000 reflect the Managing
General Partner's estimate of value, in the absence of third party
appraisals or evaluations, based on future net revenues of the
properties, discounted at 10%, as of March 31, 2000. This estimate is
based on its assessment of the impact of selling existing assets based
on current market conditions and estimated disposal costs. The net
proceeds from the sales of oil and gas properties may vary substantially
due to changes in oil and gas prices, subsequent production and other
factors which may be applied by buyers.
For all other assets and liabilities presented on the
liquidation basis of accounting, the Managing General Partner believes
that historical cost approximates fair market value due to the
short-term nature of such assets and liabilities.
The accompanying statements of operations and cash flows were
prepared using the historical cost basis of accounting.
The financial statements included herein have been prepared by
the Partnership and are unaudited except for the balance sheet at
December 31, 1999 which has been taken from the audited financial
statements at that date. The financial statements reflect adjustments,
all of which were of a normal recurring nature, which are, in the
opinion of the managing general partner necessary for a fair
presentation. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to the rules
and regulations of the Securities and Exchange Commission. The
Partnership believes adequate disclosure is provided by the information
presented. The financial statements should be read in conjunction with
the audited financial statements and the notes included in the latest
Form 10-K.
(2) Organization and Terms of Partnership Agreement -
Swift Energy Managed Pension Assets Partnership 1988-1, Ltd.,
a Texas limited partnership ("the Partnership"), was formed on September
14, 1988, for the purpose of purchasing net profits interests,
overriding royalty interests and royalty interests (collectively,
"nonoperating interests") in producing oil and gas properties within the
continental United States. Swift Energy Company ("Swift"), a Texas
corporation, and VJM Partners, Ltd. ("VJM"), a Texas limited
partnership, serve as Managing General Partner and Special General
Partner of the Partnership, respectively. The Managing General Partner
is required to contribute up to 1/99th of limited partner net
contributions. The 190 limited partners made total capital contributions
of $1,874,876.
Nonoperating interests acquisition costs and the management
fee are borne 99 percent by the limited partners and one percent by the
general partners. Organization and syndication costs were borne solely
by the limited partners.
Generally, all continuing costs (including development costs,
operating costs, general and administrative reimbursements and direct
expenses) and revenues are allocated 90 percent to the limited partners
and ten percent to the general partners. If prior to partnership payout,
however, the cash distribution rate for a certain period equals or
exceeds 17.5 percent, then for the following calendar year, these
continuing costs and revenues will be allocated 85 percent to the
limited partners and 15 percent to the general partners. After
partnership payout, continuing costs and revenues will be shared 85
percent by the limited partners, and 15 percent by the general partners,
even if the cash distribution rate is less than 17.5 percent.
7
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(3) Significant Accounting Policies -
Use of Estimates -
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 at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from estimates.
Oil and Gas Revenues -
Oil and gas revenues are reported using the entitlement method
in which the Partnership recognizes its interest in oil and natural gas
production as revenue.
Nonoperating Interests in Oil and Gas Properties --
The Partnership accounts for its ownership in oil and gas
properties using the proportionate consolidation method, whereby the
Partnership's share of assets, liabilities, revenues and expenses is
included in the appropriate classification in the financial statement.
For financial reporting purposes the Partnership follows the
"full-cost" method of accounting for nonoperating interests in oil and
gas property costs. Under this method of accounting, all costs incurred
in the acquisition of nonoperating interests in oil and gas properties
are capitalized. The unamortized cost of nonoperating interests in oil
and gas properties is limited to the "ceiling limitation" (calculated
separately for the Partnership, limited partners and general partners).
The "ceiling limitation" is calculated on a quarterly basis and
represents the estimated future net revenues from nonoperating interests
in proved properties using current prices, discounted at ten percent.
Proceeds from the sale or disposition of nonoperating interests in oil
and gas properties are treated as a reduction of the cost of the
nonoperating interests with no gains or losses recognized except in
significant transactions.
The Partnership computes the provision for amortization of oil
and gas properties on the units-of-production method. Under this method,
the provision is calculated by multiplying the total unamortized cost of
oil and gas properties by an overall rate determined by dividing the
physical units of oil and gas produced during the period by the total
estimated proved oil and gas reserves at the beginning of the period.
The calculation of the "ceiling limitation" and the provision
for depreciation, depletion and amortization is based on estimates of
proved reserves. There are numerous uncertainties inherent in estimating
quantities of proved reserves and in projecting the future rates of
production, timing and plan of development. The accuracy of any reserve
estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Results of
drilling, testing and production subsequent to the date of the estimate
may justify revision of such estimate. Accordingly, reserve estimates
are often different from the quantities of oil and gas that are
ultimately recovered.
(4) Related-Party Transactions -
Affiliates of the Special General Partner, as Dealer Manager,
received $46,872 for managing and overseeing the offering of the limited
partnership units. A one-time management fee of $46,872 was paid to
Swift for services performed for the Partnership.
Effective September 14, 1988, the Partnership entered into a
Net Profits and Overriding Royalty Interests Agreement ("NP/OR
Agreement") with Swift Energy Income Partners 1988-1, Ltd. ("Operating
Partnership"), managed by Swift, for the purpose of acquiring
nonoperating interests in producing oil and gas properties. Under terms
of the NP/OR Agreement, the Partnership has been conveyed a nonoperating
interest in the aggregate net profits (i.e., oil and gas sales net of
related operating costs) of the properties acquired equal to its
proportionate share of the property acquisition costs.
8
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(5) Vulnerability Due to Certain Concentrations -
The Partnership's revenues are primarily the result of sales
of its oil and natural gas production. Market prices of oil and natural
gas may fluctuate and adversely affect operating results.
In the normal course of business, the Partnership extends
credit, primarily in the form of monthly oil and gas sales receivables,
to various companies in the oil and gas industry which results in a
concentration of credit risk. This concentration of credit risk may be
affected by changes in economic or other conditions and may accordingly
impact the Partnership's overall credit risk. However, the Managing
General Partner believes that the risk is mitigated by the size,
reputation, and nature of the companies to which the Partnership extends
credit. In addition, the Partnership generally does not require
collateral or other security to support customer receivables.
(6) Fair Value of Financial Instruments -
The Partnership's financial instruments consist of cash and
cash equivalents and short-term receivables and payables. The carrying
amounts approximate fair value due to the highly liquid nature of the
short-term instruments.
9
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Partnership is formed for the purpose of investing in nonoperating
interests in producing oil and gas properties located within the continental
United States. In order to accomplish this, the Partnership goes through two
distinct yet overlapping phases with respect to its liquidity and results of
operations. When the Partnership is formed, it commences its "acquisition"
phase, with all funds placed in short-term investments until required for the
acquisition of nonoperating interests. Therefore, the interest earned on these
pre-acquisition investments becomes the primary cash flow source for initial
partner distributions. As the Partnership acquires nonoperating interests in
producing properties, net cash from ownership of nonoperating interests becomes
available for distribution, along with the investment income. After all
partnership funds have been expended on nonoperating interests in producing oil
and gas properties, the Partnership enters its "operations" phase. During this
phase, income from nonoperating interests in oil and gas sales generates
substantially all revenues, and distributions to partners reflect those revenues
less all associated partnership expenses. The Partnership may also derive
proceeds from the sale of nonoperating interests in acquired oil and gas
properties, when the sale of such interests is economically appropriate or
preferable to continued operations.
LIQUIDATION
During the first quarter of 2000, the Managing General Partner informed
the limited partners of a proposal to sell all of the Partnership's nonoperating
interests in oil and gas properties and dissolve and liquidate the Partnership.
The special meeting of limited partners was held on March 30, 2000.
Of the total units held by the limited partners, a majority voted for
adoption of the proposal for sales of substantially all of the assets of the
Partnership and the dissolution, winding up and termination of the Partnership.
The Partnership adopted the liquidation basis of accounting for the period
subsequent to March 31, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Oil and gas reserves are depleting assets and therefore often experience
significant production declines each year from the date of acquisition through
the end of the life of the property. The primary source of liquidity to the
Partnership comes almost entirely from the income generated from the sale of oil
and gas produced from ownership interests in oil and gas properties. This source
of liquidity and the related results of operations, and in turn cash
distributions, will decline in future periods as the oil and gas produced from
these properties also declines while production and general and administrative
costs remain relatively stable making it unlikely that the Partnership will hold
the properties until they are fully depleted, but will likely liquidate when a
substantial majority of the reserves have been produced. Cash distributions to
partners are determined quarterly, based upon net proceeds from sales of oil and
gas production after payment of lease operating expense, taxes and development
costs, less general and administrative expenses. In addition, future partnership
cash requirements are taken into account to determine necessary cash reserves.
Net cash provided by (used in) operating activities totaled $8,299 and
$(3,748) for the three months ended March 31, 2000 and 1999, respectively. Cash
provided by proceeds from the sale of nonoperating interests in properties
totaled $10,196 for the three months ended March 31, 1999. Cash distributions
totaled $5,054 and $5,154 for the three months ended March 31, 2000 and 1999,
respectively.
The Partnership has expended all of the partners' net commitments
available for property acquisitions and development by acquiring producing oil
and gas properties. The partnership invests primarily in proved producing
properties with nominal levels of future costs of development for proven but
undeveloped reserves. Significant purchases of additional reserves or extensive
drilling activity are not anticipated. Under the NP/OR Agreement, the Managing
General Partner acquires interests in oil and gas properties from outside
parties and sells these interests to an affiliated operating partnership, who in
turn creates and sells to the Partnership nonoperating interests in these same
oil and gas properties.
After sale of all its nonoperating interests in oil and gas properties
and settlement of its liabilities, the Partnership's assets will consist solely
of cash, which it will distribute to its partners in complete liquidation. The
Partnership will not realize gain or loss upon such distribution of cash to its
partners in liquidation.
10
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS
Income from nonoperating interests increased 198 percent in the first
quarter of 2000 when compared to the same quarter in 1999. Oil and gas sales
increased $5,718 or 116 percent in the first quarter of 2000 when compared to
the corresponding quarter in 1999. Increased oil and gas prices had a
significant impact on Partnership performance. Oil prices increased 84 percent
or $10.12/BBL to an average of $22.18/BBL and gas prices increased 72 percent or
$1.08/MCF to an average of $2.58/MCF for the quarter. Current quarter production
volumes increased 20 percent as oil and gas production increased 277 percent or
86 barrels and 4 percent, respectively, when compared to first quarter 1999
production volumes.
Corresponding production costs per equivalent MCF decreased 21 percent in
the first quarter of 2000 compared to the first quarter of 1999 and total
production costs decreased 5 percent.
Total amortization expense increased 23 percent or $532 in 2000 compared
to first quarter 1999.
The Partnership records an additional provision in depreciation, depletion
and amortization when the present value, discounted at ten percent, of estimated
future net revenues from oil and gas properties, using the guidelines of the
Securities and Exchange Commission, is below the fair market value originally
paid for oil and gas properties. Using prices in effect at March 31, 1999, the
Partnership would have recorded an additional provision at March 31, 1999 in the
amount of $6,843. However, these temporarily low quarter-end prices rebounded
and by using prices in effect at the filing date, the Partnership's unamortized
cost of oil and gas properties were not limited by this calculation.
During 2000, partnership revenues and costs will be shared between the
limited partners and general partners in a 90:10 ratio.
11
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-NONE-
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
Managing General Partner
Date: May 8, 2000 By: /s/ John R. Alden
----------- ---------------------------------------
John R. Alden
Senior Vice President, Secretary
and Principal Financial Officer
Date: May 8, 2000 By: /s/ Alton D. Heckaman, Jr.
----------- ---------------------------------------
Alton D. Heckaman, Jr.
Vice President, Controller
and Principal Accounting Officer
13