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 June 30, 1999
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
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SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
INDEX
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Financial Statements
Balance Sheets
- June 30, 1999 and December 31, 1998 3
Statements of Operations
- Three month and six month periods ended June 30, 1999 and 1998 4
Statements of Cash Flows
- Six month periods ended June 30, 1999 and 1998 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 11
SIGNATURES 12
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
BALANCE SHEETS
June 30, December 31,
1999 1998
--------------- ---------------
(Unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents $ 66,340 $ 57,769
Nonoperating interests income receivable 372 4,163
--------------- ---------------
Total Current Assets 66,712 61,932
--------------- ---------------
Nonoperating interests in oil and gas
properties, using full cost accounting 1,551,319 1,562,298
Less-Accumulated amortization (1,452,215) (1,448,996)
--------------- ---------------
99,104 113,302
=============== ===============
$ 165,816 $ 175,234
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Accounts Payable $ 4,484 $ 880
--------------- ---------------
Limited Partners' Capital (18,748.76 Limited Partnership
Units; $100 per unit) 158,772 171,042
General Partners' Capital 2,560 3,312
--------------- ---------------
Total Partners' Capital 161,332 174,354
=============== ===============
$ 165,816 $ 175,234
=============== ===============
See accompanying notes to financial statements.
3
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
REVENUES:
Income from nonoperating interests $ 1,178 $ 4,575 $ 4,113 $ 9,366
Interest income 750 895 1,447 1,917
--------------- --------------- -------------- --------------
1,928 5,470 5,560 11,283
--------------- --------------- -------------- --------------
COSTS AND EXPENSES:
Amortization 953 3,421 3,219 7,213
General and administrative 3,347 3,197 6,909 8,241
--------------- --------------- -------------- --------------
4,300 6,618 10,128 15,454
=============== =============== ============== ==============
NET INCOME (LOSS) $ (2,372) $ (1,148) $ (4,568) $ (4,171)
=============== =============== ============== ==============
Limited Partners' net income (loss)
per unit $ (0.11) $ (0.06) $ (0.23) $ (0.22)
=============== =============== ============== ==============
See accompanying notes to financial statements.
4
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
-------------------------------------
1999 1998
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) $ (4,568) $ (4,171)
Adjustments to reconcile income (loss) to
net cash provided by operations:
Amortization 3,219 7,213
Change in assets and liabilities:
(Increase) decrease in nonoperating interests income receivable 3,791 (1,314)
Increase (decrease) in accounts payable 3,604 2,351
--------------- ---------------
Net cash provided by (used in) operating activities 6,046 4,079
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to nonoperating interests in oil and gas properties 620 (642)
Proceeds from sales of nonoperating interests in oil and gas properties 10,359 --
--------------- ---------------
Net cash provided by (used in) investing activities 10,979 (642)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to partners (8,454) (22,944)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 8,571 (19,507)
--------------- ---------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 57,769 81,738
=============== ===============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 66,340 $ 62,231
=============== ===============
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, 1998 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.
Nonoperating Interests in Oil and Gas Properties --
The Partnership accounts for its ownership interest 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.
6
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 -
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 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.
7
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(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) Year 2000 -
The Year 2000 issue results from computer programs and
embedded computer chips with date fields that cannot distinguish between
the years 1900 and 2000. The Managing General Partner is currently
implementing the steps necessary to make its operations and the related
operations of the Partnership capable of addressing the Year 2000. These
steps include upgrading, testing and certifying its computer systems and
field operation services and obtaining Year 2000 compliance
certification from all important business suppliers. The Managing
General Partner formed a task force during 1998 to address the Year 2000
issue and prepare its business systems for the Year 2000. The Managing
General Partner has either replaced or updated mission critical systems
and expects to complete testing during the third quarter of 1999 and
continue remedial actions as needed.
The Managing General Partner's business systems are almost
entirely comprised of off-the-shelf software. Most of the necessary
changes in computer instructional code can be made by upgrading this
software. The Managing General Partner is currently in the process of
either upgrading the off-the-shelf software or receiving certification
as to Year 2000 compliance from vendors or third party consultants. A
testing phase is being conducted as the software is updated or certified
and is expected to be completed during the third quarter of 1999.
The Managing General Partner does not believe that costs
incurred to address the Year 2000 issue with respect to its business
systems will have a material effect on the Partnership's results of
operations, or its liquidity and financial condition. The estimated
total cost to the Managing General Partner to address Year 2000 issues
is projected to be less than $150,000, most of which will be spent
during the testing phase. The Partnership's share of this cost is
expected to be insignificant.
The failure to correct a material Year 2000 problem could
result in an interruption, or failure of certain normal business
activities or operations. Based on activities to date, the Managing
General Partner believes that it will be able to resolve any Year 2000
problems concerning its financial and administrative systems. It is
undeterminable how all the aspects of the Year 2000 will impact the
Partnership. The most reasonably likely worst case scenario would
involve a prolonged disruption of external power sources upon which core
equipment relies, resulting in a substantial decrease in the
Partnership's oil and gas production activities. In addition, the
pipeline operators to whom the Managing General Partner sells the
Partnership's natural gas, as well as other customers and suppliers,
could be prone to Year 2000 problems that could not be assessed or
detected by the Managing General Partner. The Managing General Partner
is contacting its major purchasers, customers, suppliers, financial
institutions and others with whom it conducts business to determine
whether they will be able to resolve in a timely manner any Year 2000
problems directly affecting the Managing General Partner or Partnership
and to inform them of the Managing General Partner's internal assessment
of its Year 2000 review. There can be no assurance that such third
parties will not fail to appropriately address their Year 2000 issues or
will not themselves suffer a Year 2000 disruption that could have a
material adverse effect on the Partnership's activities, financial
condition or operating results. Based upon these responses and any
problems that arise during the testing phase, contingency plans or
back-up systems would be determined and addressed.
8
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
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. Net cash
provided by operating activities totaled $6,046 and $4,079 for the six months
ended June 30, 1999 and 1998, respectively. 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 provided by proceeds from the sale of
nonoperating interests in properties totaled $10,359 for the six months ended
June 30, 1999. 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. Cash distributions totaled $8,454 and
$22,944 for the six months ended June 30, 1999 and 1998, respectively.
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 June 30, 1999 (current quarter) when compared
to the quarter ended June 30, 1998 (corresponding quarter), and for the six
months ended June 30, 1999 (current period), when compared to the six months
ended June 30, 1998 (corresponding period).
Three Months Ended June 30, 1999 and 1998
Income from nonoperating interests decreased 74 percent in the second
quarter of 1999 when compared to the same quarter in 1998. Oil and gas sales
declined $4,968 or 62 percent in the second quarter of 1999 when compared to the
corresponding quarter in 1998, primarily due to decreased oil and gas
production. Current quarter production per equivalent MCF declined 68 percent
when compared to second quarter 1998 production volumes. The partnership's sale
of properties in the first quarter of 1999 and the maturing of the partnership's
wells had an impact on the partnership's production decline. Oil prices
decreased 11 percent or $1.20/BBL to an average of $9.33/BBL and gas prices
increased 23 percent or $.41/MCF to an average of $2.19/MCF for the quarter.
9
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Corresponding production costs per equivalent MCF increased 69 percent in
the second quarter of 1999 compared to the second quarter of 1998 while total
production costs decreased 45 percent, relating to the decreased production.
Associated amortization expense decreased 72 percent or $2,468 in 1999
compared to second quarter 1998, also related to the decline in production
volumes.
Six Months Ended June 30, 1999 and 1998
Income from nonoperating interests decreased 56 percent in the first six
months of 1999 when compared to the same period in 1998. Oil and gas sales
declined $7,968 or 50 percent in the first six months of 1999 when compared to
the corresponding period in 1998, primarily due to decreased oil and gas
production. Current period oil and gas production declined 74 percent and 48
percent, respectively, when compared to the same period in 1998. The
partnership's sale of properties in the first quarter of 1999 and the maturing
of the partnership's wells had an impact on the partnership's production
decline. Oil prices remained steady at an average of $13.18/BBL and gas prices
increased 5 percent or $.08/MCF to an average of $1.73/MCF for the current
period.
Corresponding production costs per equivalent MCF increased 16 percent in
the first six months of 1999 compared to the corresponding period in 1998 while
total production costs decreased 41 percent, relating to the decreased
production.
Associated amortization expense decreased 55 percent or $3,994 in 1999
compared to the first six months of 1998, also related to the decline in
production volumes.
During 1999, partnership revenues and costs will be shared between the
limited partners and general partners in a 90:10 ratio.
10
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-NONE-
11
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: August 4, 1999 By: /s/ John R. Alden
-------------- ---------------------------------
John R. Alden
Senior Vice President, Secretary
and Principal Financial Officer
Date: August 4, 1999 By: /s/ Alton D. Heckaman, Jr.
-------------- ---------------------------------
Alton D. Heckaman, Jr.
Vice President, Controller
and Principal Accounting Officer
12