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 0-18358
SWIFT ENERGY INCOME PARTNERS 1989-B, LTD.
(Exact name of registrant as specified in its charter)
Texas 76-0279533
(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 INCOME PARTNERS 1989-B, LTD.
INDEX
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Financial Statements
Balance Sheets
- March 31, 2000 and December 31, 1999 3
Statements of Operations
- Three month periods ended March 31, 2000 and 1999 4
Statements of Cash Flows
- Three month periods ended March 31, 2000 and 1999 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 INCOME PARTNERS 1989-B, LTD.
BALANCE SHEETS
March 31, December 31,
2000 1999
-------------- ---------------
(Unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents $ 329,400 $ 368,082
Oil and gas sales receivable 228,310 184,848
-------------- ---------------
Total Current Assets 557,710 552,930
-------------- ---------------
Gas Imbalance Receivable 31,816 31,442
-------------- ---------------
Oil and Gas Properties, using full cost
accounting 8,268,923 8,252,610
Less-Accumulated depreciation, depletion
and amortization (7,034,977) (6,986,792)
-------------- ---------------
1,233,946 1,265,818
-------------- ---------------
$ 1,823,472 $ 1,850,190
============== ===============
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Accounts Payable $ 37,065 $ 45,582
-------------- ---------------
Deferred Revenues 23,613 23,239
Limited Partners' Capital (82,295 Limited Partnership
Units; $100 per unit) 1,740,517 1,768,836
General Partners' Capital 22,277 12,533
-------------- ---------------
Total Partners' Capital 1,762,794 1,781,369
-------------- ---------------
$ 1,823,472 $ 1,850,190
============== ===============
See accompanying notes to financial statements.
3
SWIFT ENERGY INCOME PARTNERS 1989-B, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
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2000 1999
--------------- ---------------
REVENUES:
Oil and gas sales $ 255,554 $ 268,120
Interest income 4,202 142
--------------- ---------------
259,756 268,262
--------------- ---------------
COSTS AND EXPENSES:
Lease operating 72,844 63,019
Production taxes 12,573 10,741
Depreciation, depletion
and amortization 48,185 101,475
General and administrative 41,990 47,474
--------------- ---------------
175,592 222,709
--------------- ---------------
NET INCOME (LOSS) $ 84,164 $ 45,553
=============== ===============
Limited Partners' net income (loss)
per unit $ 0.78 $ 0.29
=============== ===============
See accompanying notes to financial statements.
4
SWIFT ENERGY INCOME PARTNERS 1989-B, LTD.
STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
March 31,
------------------------------------
2000 1999
--------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) $ 84,164 $ 45,553
Adjustments to reconcile income (loss) to
net cash provided by operations:
Depreciation, depletion and amortization 48,185 101,475
Change in gas imbalance receivable
and deferred revenues -- 345
Change in assets and liabilities:
(Increase) decrease in oil and gas sales receivable (43,462) (228,576)
Increase (decrease) in accounts payable (8,517) (58,212)
--------------- --------------
Net cash provided by (used in) operating activities 80,370 (139,415)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (16,313) (4,078)
Proceeds from sales of oil and gas properties -- 214,635
--------------- --------------
Net cash provided by (used in) investing activities (16,313) 210,557
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CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to partners (102,739) (71,136)
--------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (38,682) 6
--------------- --------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 368,082 1,311
--------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 329,400 $ 1,317
=============== ==============
See accompanying notes to financial statements.
6
SWIFT ENERGY INCOME PARTNERS 1989-B, 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, 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 ("SEC"). 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 Income Partners 1989-B, Ltd., a Texas limited
partnership ("the Partnership"), was formed on June 30, 1989, for the
purpose of purchasing and operating 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 661 limited partners made total capital contributions
of $8,329,500.
Property 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. During
1992 and 1991, the cash distribution rate (as defined in the Partnership
Agreement) exceeded 17.5 percent and thus, in 1993 and 1992, the
continuing costs and revenues were being shared 85 percent by the
limited partners and 15 percent by the general partners. During 1997,
1996, 1995, 1994 and 1993, the cash distribution rate fell below 17.5
percent and thus, in 1997, 1996, 1995 and 1994, the continuing costs and
revenues were shared 90 percent by the limited partners and 10 percent
by the general partners. Payout occured in January 1998; therefore, for
1998 and each year remaining in the life of the partnership, the
continuing costs and revenues will be shared 85 percent by the limited
partners and 15 percent by the general partners.
During the first quarter of 2000, the Managing General Partner
mailed proxy material to the limited partners proposing to sell all the
Partnership's interests in oil and gas properties and dissolve and
liquidate the Partnership. In April 2000, the limited partners of the
Partnership approved the proposal to liquidate the Partnership. The
Managing General Partner anticipates liquidation will be substantially
completed within the next two years.
(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.
6
SWIFT ENERGY INCOME PARTNERS 1989-B, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 oil and gas property costs. Under
this method of accounting, all productive and nonproductive costs
incurred in the acquisition and development of oil and gas reserves are
capitalized. Such costs include lease acquisitions, geological and
geophysical services, drilling, completion, equipment and certain
general and administrative costs directly associated with acquisition
and development activities. General and administrative costs related to
production and general overhead are expensed as incurred. No general and
administrative costs were capitalized during the three months ended
March 31, 2000 and 1999
Future development, site restoration, dismantlement and
abandonment costs, net of salvage values, are estimated on a
property-by-property basis based on current economic conditions and are
amortized to expense as the Partnership's capitalized oil and gas
property costs are amortized.
The unamortized cost of 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 proved properties using current prices, discounted at ten
percent, and the lower of cost or fair value of unproved properties.
Proceeds from the sale or disposition of oil and gas properties are
treated as a reduction of oil and gas property costs with no gains or
losses being recognized except in significant transactions.
The Partnership computes the provision for depreciation,
depletion and 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, including future development, site restoration,
dismantlement and abandonment costs, by an overall amortization rate
that is determined by dividing the physical units of oil and gas
produced during the period by the total estimated units of 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 $202,238 for managing and overseeing the offering of
the limited partnership units. A one-time management fee of $208,238 was
paid to Swift for services performed for the Partnership.
Effective June 30, 1989, the Partnership entered into a Net
Profits and Overriding Royalty Interest Agreement ("NP/OR Agreement")
with Swift Energy Managed Pension Assets Partnership 1989-B, Ltd.
("Pension Partnership"), managed by Swift for the purpose of acquiring
working interests in producing oil and gas properties. Under terms of
the NP/OR Agreement, the Partnership has conveyed to the Pension
Partnership 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.
7
SWIFT ENERGY INCOME PARTNERS 1989-B, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(5) Gas Imbalances -
The Partnership recognizes its ownership interest in natural
gas production as revenue. Actual production quantities sold may be
different than the Partnership's ownership share in a given period. If
the Partnership's sales exceed its ownership share of production, the
differences are recorded as deferred revenue. Gas balancing receivables
are recorded when the Partnership's ownership share of production
exceeds sales.
(6) 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) 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.
8
SWIFT ENERGY INCOME PARTNERS 1989-B, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Partnership was formed for the purpose of investing 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 result of operations. When the
Partnership is formed, it commences its "acquisition" phase, with all funds
placed in short-term investments until required for such property acquisitions.
The interest earned on these pre-acquisition investments becomes the primary
cash flow source for initial partner distributions. As the Partnership acquires
producing properties, net cash from operations becomes available for
distribution, along with the investment income. After partnership funds have
been expended on producing oil and gas properties, the Partnership enters its
"operations" phase. During this phase, oil and gas sales generate 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 acquired oil and gas properties, when the sale of such properties is
economically appropriate or preferable to continued operation.
Liquidation
During the first quarter of 2000, the Managing General Partner mailed
proxy material to the limited partners proposing to sell all the Partnership's
interests in oil and gas properties and dissolve and liquidate the Partnership.
In April 2000, the limited partners of the Partnership approved the proposal to
liquidate the Partnership. The Managing General Partner anticipates liquidation
will be substantially completed within the next two years.
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 expenses, 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 $80,370 and
$(139,415) for the three months ended March 31, 2000 and 1999, respectively.
Cash provided by property sales proceeds totaled $214,635 for the three months
ended March 31, 1999. Cash distributions totaled $102,739 and $71,136 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. The Partnership does not allow for
additional assessments from the partners to fund capital requirements. The
Managing General Partner anticipates that the Partnership will have adequate
liquidity from income from continuing operations to satisfy any future capital
expenditure requirements. Funds generated from bank borrowings and proceeds from
the sale of oil and gas properties will be used to supplement this effort if
deemed necessary.
Results of Operations
Oil and gas sales declined $12,565 or 5 percent in the first quarter of
2000 when compared to the corresponding quarter in 1999, due to decreased oil
and gas production. Current quarter production volumes decreased 47 percent as
oil and gas production declined 24 percent and 57 percent, respectively, when
compared to first quarter 1999 production volumes. Production declines were
related to the Partnership's property sales in 1999. Oil prices increased 113
percent or $13.62/BBL to an average of $25.66/BBL and gas prices increased 60
percent or $1.17/MCF to an average of $3.11/MCF for the quarter. Decreased
production significantly offset the effect of increased oil and gas prices.
9
SWIFT ENERGY INCOME PARTNERS 1989-B, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Corresponding production costs per equivalent MCF increased 120 percent in
the first quarter of 2000 compared to the first quarter of 1999 and total
production costs increased 16 percent.
Associated depreciation expense decreased 53 percent or $53,290 in 1999
compared to first quarter 1999, related to the decline in production volumes.
Partnership payout occurred as of January 1, 1998. During 2000,
partnership revenues and costs will be shared between the limited partners and
general partners in an 85:15 ratio.
10
SWIFT ENERGY INCOME PARTNERS 1989-B, 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 INCOME
PARTNERS 1989-B, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
Managing General Partner
Date: May 8, 2000 By: /s/ John R. Alden
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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
12