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 September 30, 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 33-19721-01
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 of organization) (I.R.S. Employer Identification No.)
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
---- ----
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
INDEX
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Financial Statements
Balance Sheets
- September 30, 1997 and December 31, 1996 3
Statements of Operations
- Three month and nine month periods ended September 30, 1997 and 1996 4
Statements of Cash Flows
- Nine month periods ended September 30, 1997 and 1996 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 10
SIGNATURES 11
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
BALANCE SHEETS
September 30, December 31,
1997 1996
--------------- ----------------
(Unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents $ 77,604 $ 6,134
Nonoperating interests income receivable 6,805 9,297
--------------- ----------------
Total Current Assets 84,409 15,431
--------------- ----------------
Nonoperating interests in oil and gas
properties, using full cost accounting 1,566,512 1,628,526
Less-Accumulated amortization (1,398,184) (1,378,177)
--------------- ----------------
168,328 250,349
--------------- ----------------
$ 252,737 $ 265,780
=============== ================
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Payable related to excess costs $ 1,327 $ 983
--------------- ----------------
Partners' Capital 251,410 264,797
--------------- ----------------
$ 252,737 $ 265,780
=============== ================
See accompanying notes to financial statements.
3
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
REVENUES:
Income from nonoperating interests $ 9,536 $ 11,564 $ 46,569 $ 41,980
Interest income 1,050 14 1,747 35
--------------- --------------- --------------- ---------------
10,586 11,578 48,316 42,015
--------------- --------------- --------------- ---------------
COSTS AND EXPENSES:
Amortization 4,282 12,811 20,007 30,344
General and administrative 3,980 4,009 11,921 13,567
--------------- --------------- --------------- ---------------
8,262 16,820 31,928 43,911
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ 2,324 $ (5,242) $ 16,388 $ (1,896)
=============== =============== =============== ===============
Limited Partners' net income (loss)
per unit $ .12 $ (.28) $ .87 $ (.10)
=============== =============== =============== ===============
See accompanying notes to financial statements.
4
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
-----------------------------------------
1997 1996
--------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (Loss) $ 16,388 $ (1,896)
Adjustments to reconcile income (loss) to
net cash provided by operations:
Amortization 20,007 30,344
Change in assets and liabilities:
(Increase) decrease in nonoperating interests income receivable 2,492 (6,976)
--------------- ---------------
Net cash provided by (used in) operating activities 38,887 21,472
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to nonoperating interests in oil and gas properties (124) (5,495)
Proceeds from sale of nonoperating interests
in oil and gas properties 62,138 38,129
(Increase) decrease in payable related to excess costs 344 (25,346)
--------------- ---------------
Net cash provided by (used in) investing activities 62,358 7,288
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (29,775) (24,775)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 71,470 3,985
--------------- ---------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 6,134 1,153
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 77,604 $ 5,138
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ -- $ 694
=============== ===============
See accompanying notes to financial statements.
5
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) General Information -
The financial statements included herein have been prepared by
the Partnership and are unaudited except for the balance sheet at
December 31, 1996 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 interest, 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 Corporation ("VJM"), a California corporation, serve as Managing
General Partner and Special General Partner of the Partnership,
respectively. The general partners are 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.
(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. Certain reclassifications have been
made to prior year amounts to conform to the current year presentation.
Nonoperating Interests in Oil and Gas Properties --
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.
6
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 -
An affiliate 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 Interest 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 Operating Partnership will convey to the
Partnership nonoperating interests 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.
(5) Vulnerability Due to Certain Concentrations -
The Company'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.
The Partnership extends credit 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.
7
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.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership has completed the acquisition of nonoperating interests in
producing oil and gas properties, expending all of the limited partners' net
commitments available for property acquisitions.
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. The
Managing General Partner expects funds derived from net profits interests to be
distributed to the partners.
RESULTS OF OPERATIONS
The following analysis explains changes in the revenue and expense
categories for the quarter ended September 30, 1997 (current quarter) when
compared to the quarter ended September 30, 1996 (corresponding quarter), and
for the nine months ended September 30, 1997 (current period), when compared to
the nine months ended September 30, 1996 (corresponding period).
Three Months Ended September 30, 1997 and 1996
Income from nonoperating interests decreased 18 percent in the current
quarter of 1997 when compared to the third quarter in 1996. Oil and gas sales
declined $9,770 or 43 percent in the third quarter of 1997 when compared to the
corresponding quarter in 1996, primarily due to decreased gas production. A
decline of 40 percent in gas production had a significant impact on partnership
performance.
Associated amortization expense decreased 53 percent or $4,762.
The Partnership recorded an additional provision in amortization in the
third quarter of 1996 for $3,767 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, was below the fair market
value originally paid for oil and gas properties. The additional provision
results from the Managing General Partner's determination that the fair market
value paid for properties may or may not coincide with reserve valuations
determined according to guidelines of the Securities Exchange Commission.
8
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Nine Months Ended September 30, 1997 and 1996
Income from nonoperating interests increased 11 percent in the current
period of 1997 when compared to the corresponding period in 1996. However, oil
and gas sales decreased $12,801 or 16 percent in the first nine months of 1997
over the corresponding period in 1996. A decline of 21 percent in gas production
and 72 percent in oil production were major contributing factors to the
decreased revenues for the period. Increased gas prices of 21 percent or
$.44/MCF partially offset the production declines.
Associated amortization expense declined 25 percent or 6,570.
The Partnership recorded an additional provision in amortization in the
first nine months of 1996 for $3,767 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, was below the fair market
value originally paid for oil and gas properties. The additional provision
results from the Managing General Partner's determination that the fair market
value paid for properties may or may not coincide with reserve valuations
determined according to guidelines of the Securities Exchange Commission.
During 1997, partnership revenues and costs will be shared between the
limited partners and general partners in a 90:10 ratio.
9
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-NONE-
10
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: November 4, 1997 By: /s/ John R. Alden
---------------- ------------------------------------
John R. Alden
Senior Vice President, Secretary
and Principal Financial Officer
Date: November 4, 1997 By: /s/ Alton D. Heckaman, Jr.
---------------- ------------------------------------
Alton D. Heckaman, Jr.
Vice President, Controller
and Principal Accounting Officer
11