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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, 2002
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 0-18996
SOUTHWEST OIL & GAS 1990-91 INCOME PROGRAM
Southwest Oil & Gas Income Fund X-A, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2310854
(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 14
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, 2001 which are found in the Registrant's Form
10-K Report for 2001 filed with the Securities and Exchange Commission.
The December 31, 2001 balance sheet included herein has been taken from the
Registrant's 2001 Form 10-K Report. Operating results for the three month
period ended March 31, 2002 are not necessarily indicative of the results
that may be expected for the full year.
Southwest Oil & Gas Income Fund X-A, L.P.
Balance Sheets
March 31, December 31,
2002 2001
--------- ------------
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 4,057 21,313
- --------- ---------
Total current assets
4,057 21,313
- --------- ---------
Oil and gas properties - using the full-
cost method of accounting 3,820,143 3,817,786
Less accumulated depreciation,
depletion and amortization
3,709,386 3,707,386
- --------- ---------
Net oil and gas properties
110,757 110,400
- --------- ---------
$
114,814 131,713
========= =========
Liabilities and Partners' Equity
--------------------------------
Current liabilities:
Distributions payable $ 336 336
Payable to Managing General Partner 3,169 6,787
- --------- ---------
Total current liabilities
3,505 7,123
- --------- ---------
Partners' equity:
General partners (20,496) (19,368)
Limited partners 131,805 143,958
- --------- ---------
Total partners' equity
111,309 124,590
- --------- ---------
$
114,814 131,713
========= =========
Southwest Oil & Gas Income Fund X-A, L.P.
Statements of Operations
(unaudited)
Three Months Ended
March 31,
2002 2001
---- ----
Revenues
--------
Oil and gas $ 68,977 117,290
Interest - 109
------- -------
68,977 117,399
------- -------
Expenses
--------
Production 59,225 70,151
General and administrative 21,033 20,914
Depreciation, depletion and amortization 2,000 3,000
------- -------
82,258 94,065
------- -------
Net (loss) income $ (13,281) 23,334
======= =======
Net (loss) income allocated to:
Managing General Partner $ (1,015) 2,370
======= =======
General partner $ (113) 263
======= =======
Limited partners $ (12,153) 20,701
======= =======
Per limited partner unit $ (1.16) 1.97
======= =======
Southwest Oil & Gas Income Fund X-A, L.P.
Statements of Cash Flows
(unaudited)
Three Months Ended
March 31,
2002 2001
---- ----
Cash flows from operating activities:
Cash received from sales of oil and gas $ 64,769 137,183
Cash paid to suppliers (79,668) (94,633)
Interest received - 109
-------- --------
Net cash (used in) provided by operating activities (14,899)
42,659
-------- --------
Cash flows used in investing activities:
Additions to oil and gas properties (2,357) (655)
-------- --------
Cash flows used in financing activities:
Distributions to partners - (45,367)
-------- --------
Net decrease in cash and cash equivalents (17,256) (3,363)
Beginning of period 21,313 16,448
-------- --------
End of period $ 4,057 13,085
========
========
Reconciliation of net (loss) income to net cash
(used in) provided by operating activities:
Net (loss) income $ (13,281) 23,334
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 2,000 3,000
(Increase) decrease in receivables (4,208) 19,893
Increase (decrease) in payables 590 (3,568)
------- -------
Net cash (used in) provided by operating activities $ (14,899) 42,659
======= =======
Southwest Oil & Gas Income Fund X-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
1. Organization
Southwest Oil and Gas Income Fund X-A, L.P. was organized under the
laws of the state of Delaware on January 29, 1990, for the purpose of
acquiring producing oil and gas properties and to produce and market
crude oil and natural gas produced from such properties for a term of
50 years, unless terminated at an earlier date as provided for in the
Partnership Agreement. The Partnership sells its oil and gas
production to a variety of purchasers with the prices it receives
being dependent upon the oil and gas economy. Southwest Royalties,
Inc. serves as the Managing General Partner and H. H. Wommack, III, as
the individual general partner. Revenues, costs, and expenses are
allocated as follows:
Limited General
Partners Partners
-------- --------
Interest income on capital contributions 100% -
Oil and gas sales 90% 10%
All other revenues 90% 10%
Organization and offering costs (1) 100% -
Syndication costs 100% -
Amortization of organization costs 100% -
Property acquisition costs 100% -
Gain/loss on property disposition 90% 10%
Operating and administrative costs (2) 90% 10%
Depreciation, depletion and amortization
of oil and as properties 100% -
All other costs 90% 10%
(1) All organization costs in excess of 3% of initial capital
contributions will be paid by the Managing General Partner and
will be treated as a capital contribution. The Partnership paid
the Managing General Partner an amount equal to 3% of initial
capital contributions for such organization costs.
(2) Administrative costs in any year which exceed 2% of capital
contributions shall be paid by the Managing General Partner and
will be treated as a capital contribution.
2. Summary of Significant Accounting Policies
The interim financial information as of March 31, 2002, and for the
three months ended March 31, 2002, is unaudited. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q pursuant to the rules
and regulations of the Securities and Exchange Commission. However,
in the opinion of management, these interim financial statements
include all the necessary adjustments to fairly present the results of
the interim periods and all such adjustments are of a normal recurring
nature. The interim consolidated financial statements should be read
in conjunction with the audited financial statements for the year
ended December 31, 2001.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Oil & Gas Income Fund X-A, L.P. was organized as a Delaware
limited partnership on January 29, 1990. The offering of such limited
partnership interests began on May 11, 1990 as part of a shelf offering
registered under the name Southwest Oil & Gas 1990-91 Income Program.
Minimum capital requirements for the Partnership were met on August 15,
1990, with the offering of limited partnership interests concluding on
November 30, 1990, with total limited partner contributions of $5,242,000.
The Partnership was formed to acquire 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 no workovers
during 2002 to enhance production. The partnership will most likely
experience the historical production decline of approximately 7% per year.
Oil and Gas Properties
Oil and gas properties are accounted for at cost under the full-cost
method. Under this method, all productive and nonproductive costs incurred
in connection with the acquisition, exploration and development of oil and
gas reserves are capitalized. Gain or loss on the sale of oil and gas
properties is not recognized unless significant oil and gas reserves are
involved.
The Partnership's policy for depreciation, depletion and amortization of
oil and gas properties is computed under the units of revenue method.
Under the units of revenue method, depreciation, depletion and amortization
is computed on the basis of current gross revenues from production in
relation to future gross revenues, based on current prices, from estimated
production of proved oil and gas reserves.
Should the net capitalized costs exceed the estimated present value of oil
and gas reserves, discounted at 10%, such excess costs would be charged to
current expense. As of March 31, 2002, the net capitalized costs did not
exceed the estimated present value of oil and gas reserves.
Under the units of revenue method, the Partnership computes the provision
by multiplying the total unamortized cost of oil and gas properties by an
overall rate determined by dividing (a) oil and gas revenues during the
period by (b) the total future gross oil and gas revenues as estimated by
the Partnership's independent petroleum consultants. It is reasonably
possible that those estimates of anticipated future gross revenues, the
remaining estimated economic life of the product, or both could be changed
significantly in the near term due to the potential fluctuation of oil and
gas prices or production. The depletion estimate would also be affected by
this change.
Critical Accounting Policies
Full cost ceiling calculations The Partnership follows the full cost method
of accounting for its oil and gas properties. The full cost method
subjects companies to quarterly calculations of a "ceiling", or limitation
on the amount of properties that can be capitalized on the balance sheet.
If the Partnership's capitalized costs are in excess of the calculated
ceiling, the excess must be written off as an expense.
The Partnership's discounted present value of its proved oil and natural
gas reserves is a major component of the ceiling calculation, and
represents the component that requires the most subjective judgments.
Estimates of reserves are forecasts based on engineering data, projected
future rates of production and the timing of future expenditures. The
process of estimating oil and natural gas reserves requires substantial
judgment, resulting in imprecise determinations, particularly for new
discoveries. Different reserve engineers may make different estimates of
reserve quantities based on the same data. The Partnership's reserve
estimates are prepared by outside consultants.
The passage of time provides more qualitative information regarding
estimates of reserves, and revisions are made to prior estimates to reflect
updated information. However, there can be no assurance that more
significant revisions will not be necessary in the future. If future
significant revisions are necessary that reduce previously estimated
reserve quantities, it could result in a full cost property writedown. In
addition to the impact of these estimates of proved reserves on calculation
of the ceiling, estimates of proved reserves are also a significant
component of the calculation of DD&A.
While the quantities of proved reserves require substantial judgment, the
associated prices of oil and natural gas reserves that are included in the
discounted present value of the reserves do not require judgment. The
ceiling calculation dictates that prices and costs in effect as of the last
day of the period are generally held constant indefinitely. Because the
ceiling calculation dictates that prices in effect as of the last day of
the applicable quarter are held constant indefinitely, the resulting value
is not indicative of the true fair value of the reserves. Oil and natural
gas prices have historically been cyclical and, on any particular day at
the end of a quarter, can be either substantially higher or lower than the
Partnership's long-term price forecast that is a barometer for true fair
value.
The Partnership's policy for depreciation, depletion and amortization of
oil and gas properties is computed under the units of revenue method.
Under the units of revenue method, depreciation, depletion and amortization
is computed on the basis of current gross revenues from production in
relation to future gross revenues, based on current prices, from estimated
production of proved oil and gas reserves.
Results of Operations
A. General Comparison of the Quarters Ended March 31, 2002 and 2001
The following table provides certain information regarding performance
factors for the quarters ended March 31, 2002 and 2001:
Three Months
Ended Percentage
March 31, Increase
2002 2001 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 18.57 25.75 (28%)
Average price per mcf of gas $ 2.26 7.69 (71%)
Oil production in barrels 3,300 3,300 -
Gas production in mcf 3,400 4,200 (19%)
Gross oil and gas revenue $ 68,977 117,290 (41%)
Net oil and gas revenue $ 9,752 47,139 (79%)
Partnership distributions $ - 45,000 (100%)
Limited partner distributions $ - 40,500 (100%)
Per unit distribution to limited
partners $ - 3.86 (100%)
Number of limited partner units 10,484 10,484
Revenues
The Partnership's oil and gas revenues decreased to $68,977 from $117,290
for the quarters ended March 31, 2002 and 2001, respectively, a decrease of
41%. The principal factors affecting the comparison of the quarters ended
March 31, 2002 and 2001 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended March 31, 2002 as compared to the
quarter ended March 31, 2001 by 28%, or $7.18 per barrel, resulting in
a decrease of approximately $23,700 in revenues. Oil sales represented
89% of total oil and gas sales during the quarter ended March 31, 2002
as compared to 72% during the quarter ended March 31, 2001.
The average price for an mcf of gas received by the Partnership
decreased during the same period by 71%, or $5.43 per mcf, resulting in
a decrease of approximately $18,500 in revenues.
The total decrease in revenues due to the change in prices received
from oil and gas production is approximately $42,200. 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 remained unchanged during the quarter ended March 31,
2002 as compared to the quarter ended March 31, 2001.
Gas production decreased approximately 800 mcf or 19% during the same
period, resulting in a decrease of approximately $6,200 in revenues.
The total decrease in revenues due to the change in production is
approximately $6,200. The decrease in gas production is in connection
with a change in estimate, which was reflected in the fourth quarter of
2001. The Partnership had a small interest in a well, which it was
discovered was not producing the larger portion of gas for the lease,
but another well on the same lease was the major producer, which the
Partnership owned a very small interest. The decrease in gas
production is also due to several non-operated wells having a steep
natural decline.
Costs and Expenses
Total costs and expenses decreased to $82,258 from $94,065 for the quarters
ended March 31, 2002 and 2001, respectively, a decrease of 13%. The
decrease is the result of lower lease operating costs and depletion
expense, partially offset by an increase in general and administrative
expense.
1. Lease operating costs and production taxes were 16% lower or
approximately $10,900 less during the quarter ended March 31, 2002 as
compared to the quarter ended March 31, 2001.
2. General and administrative costs consist of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs increased 1%
or approximately $100 during the quarter ended March 31, 2002 as
compared to the quarter ended March 31, 2001.
3. Depletion expense decreased to $2,000 for the quarter ended March 31,
2002 from $3,000 for the same period in 2001. This represents a
decrease of 33%. 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 decrease in depletion expense between the comparative
periods were the decrease in the price of gas used to determine the
Partnership's reserves for April 1, 2002 as compared to 2001, and the
decrease in oil and gas revenues received by the Partnership during
2002 as compared to 2001.
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, other than the ones noted above, nor does it anticipate any such
change.
Cash flows (used in) provided by operating activities were approximately
$(14,900) in the quarter ended March 31, 2002 as compared to approximately
$42,700 in the quarter ended March 31, 2001. The primary source of the
2002 cash flow from operating activities was operations.
Cash flows used in investing activities were approximately $2,400 in the
quarter ended March 31, 2002 as compared to approximately $700 in the
quarter ended March 31, 2001. The principle use of the 2002 cash flow from
investing activities was the additions to oil and gas properties.
There were no cash flows used in financing activities in the quarter ended
March 31, 2002. Cash flows used in financing activities were approximately
$45,400 in the quarter ended March 31, 2001.
There were no distributions during the quarter ended March 31, 2002. Total
distributions during the quarter ended March 31, 2001 were $45,000 of which
$40,500 was distributed to the limited partners and $4,500 was distributed
to the general partner. The per unit distribution to limited partners
during the quarter ended March 31, 2001 was $3.86.
The source for the 2001 distributions of $45,000 was oil and gas operations
of approximately $42,700, with the balance from available cash on hand at
the beginning of the period.
Since inception of the Partnership, cumulative monthly cash distributions
of $2,827,732 have been made to the partners. As of March 31, 2002,
$2,602,574 or $248.24 per limited partner unit has been distributed to the
limited partners, representing a 50% return of the capital contributed.
As of March 31, 2002, the Partnership had approximately $600 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.
Liquidity - Managing General Partner
The Managing General Partner has a highly leveraged capital structure with
$50.0 million and $123.7 million of principal due in August of 2003 and
October of 2004, respectively. The Managing General Partner will incur
approximately $17.6 million in interest payments in 2002 on its debt
obligations. Due to the depressed commodity prices experienced during the
last quarter of 2001, the Managing General Partner is experiencing
difficulty in generating sufficient cash flow to meet its obligations and
sustain its operations. The Managing General Partner is currently in the
process of renegotiating the terms of its various obligations with its
creditors and/or attempting to seek new lenders or equity investors.
Additionally, the Managing General Partner would consider disposing of
certain assets in order to meet its obligations.
There can be no assurance that the Managing General Partner's debt
restructuring efforts will be successful or that the lenders will agree to
a course of action consistent with the Managing General Partners
requirements in restructuring the obligations. Even if such agreement is
reached, it may require approval of additional lenders, which is not
assured. Furthermore, there can be no assurance that the sales of assets
can be successfully accomplished on terms acceptable to the Managing
General Partner. Under current circumstances, the Managing General
Partner's ability to continue as a going concern depends upon its ability
to (1) successfully restructure its obligations or obtain additional
financing as may be required, (2) maintain compliance with all debt
covenants, (3) generate sufficient cash flow to meet its obligations on a
timely basis, and (4) achieve satisfactory levels of future earnings. If
the Managing General Partner is unsuccessful in its efforts, it may be
unable to meet its obligations making it necessary to undertake such other
actions as may be appropriate to preserve asset values. Upon the
occurrence of any event of dissolution by the Managing General Partner, the
holders of a majority of limited partnership interests may, by written
agreement, elect to continue the business of the Partnership in the
Partnership's name, with Partnership property, in a reconstituted
partnership under the terms of the partnership agreement and to designate a
successor Managing General Partner. The Managing General Partner as of
April 19, 2002, successfully completed an exchange of a portion of their
bond debt for equity and performed a refinancing of its revolving credit
facility.
Recent Accounting Pronouncements
The FASB has issued Statement No. 143 "Accounting for Asset Retirement
Obligations" which establishes requirements for the accounting of removal-
type costs associated with asset retirements. The standard is effective
for fiscal years beginning after June 15, 2002, with earlier application
encouraged. The Managing General Partner is currently assessing the impact
on the partnerships financial statements.
On October 3, 2001, the FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." This pronouncement
supercedes FAS 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed" and eliminates the requirement of
Statement 121 to allocate goodwill to long-lived assets to be tested for
impairment. The provisions of this statement are effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those fiscal years. Assessment by the Managing
General Partner revealed this pronouncement to have no impact on the
partnerships.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is not a party to any derivative or embedded derivative
instruments.
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) 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 OIL & GAS
INCOME FUND X-A, 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, 2002