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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 September 30, 1998
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 33-47668-02
SOUTHWEST ROYALTIES INSTITUTIONAL 1992-93 INCOME PROGRAM
Southwest Royalties Institutional Income Fund XI-B, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2427289
(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 15.
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 note thereto for
the year ended December 31, 1997 which are found in the Registrant's Form
10-K Report for 1997 filed with the Securities and Exchange Commission.
The December 31, 1997 balance sheet included herein has been taken from the
Registrant's 1997 Form 10-K Report. Operating results for the three and
nine month periods ended September 30, 1998 are not necessarily indicative
of the results that may be expected for the full year.
Southwest Royalties Institutional Income Fund XI-B, L.P.
Balance Sheets
September 30, December 31,
1998 1997
------------- ------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 2,465 4,948
Receivable from Managing General Partner - 54,454
Other receivable - 51,887
--------- ---------
Total current assets 2,465 111,289
--------- ---------
Oil and gas properties - using the
full cost method of accounting 2,008,041 2,008,569
Less accumulated depreciation,
depletion and amortization 1,334,567 1,217,154
--------- ---------
Net oil and gas properties 673,474 791,415
--------- ---------
Organization costs, net 1,342 6,922
--------- ---------
$ 677,281 909,626
========= =========
Liabilities and Partners' Equity
Current liabilities
Distribution payable $ 83 6
Payable to Managing General Partner 3,432 -
--------- ---------
Total current liabilities 3,515 6
--------- ---------
Partners' equity
General partners (8) 11,278
Limited partners 673,774 898,342
--------- ---------
Total partners' equity 673,766 909,620
--------- ---------
$ 677,281 909,626
========= =========
Southwest Royalties Institutional Income Fund XI-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenues
Income from net profits
interests $ 18,319 32,409 34,365 141,732
Interest income from operations 15 99 443
563
Miscellaneous income 9,937 12,425 (45,159) 32,331
------ ------- ------- -------
28,271 44,933 (10,351) 174,626
------ ------- ------- -------
Expenses
General and administrative 13,192 10,832 44,010 38,938
Depreciation, depletion and
amortization 17,860 26,860 65,080 94,580
Provision for impairment of
oil and gas properties - - 57,913 -
------ ------- ------- -------
31,052 37,692 167,003 133,518
------ ------- ------- -------
Net income (loss) $ (2,781) 7,241 (177,354) 41,108
====== ======= ======= =======
Net income (loss) allocated to:
Managing General Partner $ 1,357 3,069 (4,892) 12,212
====== ======= ======= =======
General Partner $ 151 341 (544) 1,357
====== ======= ======= =======
Limited Partners $ (4,289) 3,831 (171,918) 27,539
====== ======= ======= =======
Per limited partner unit $ (.88) .79 (35.44) 5.68
====== ======= ======= =======
Southwest Royalties Institutional Income Fund XI-B, L.P.
Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
1998 1997
---- ----
Cash flows from operating activities
Cash received from oil and gas sales $ 73,885 213,588
Cash paid to suppliers (18,916) (38,938)
Interest received 443 563
------- -------
Net cash provided by operating activities 55,412 175,213
------- -------
Cash flows provided by investing activities
Cash received from sale of oil and gas
property interest 1,937 -
Additions to oil and gas properties (1,409) -
------- -------
Net cash provided by investing activities 528 -
------- -------
Cash flows used in financing activities
Distributions to partners (58,423) (192,321)
------- -------
Net decrease in cash and cash equivalents (2,483) (17,108)
Beginning of period 4,948 20,225
------- -------
End of period $ 2,465 3,117
======= =======
(continued)
Southwest Royalties Institutional Income Fund XI-B, L.P.
Statements of Cash Flows, continued
(unaudited)
Nine Months Ended
September 30,
1998 1997
---- ----
Reconciliation of net income (loss) to net
cash provided by operating activities
Net income (loss) $(177,354) 41,108
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation, depletion and amortization 65,080 94,580
Provision for impairment of oil and gas properties 57,913
- -
Decrease in receivables 39,520 39,525
Increase in payables 70,253 -
------- -------
Net cash provided by operating activities $ 55,412 175,213
======= =======
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Royalties Institutional Income Fund XI-B, L.P. was organized as a
Delaware limited partnership on August 31, 1993. The offering of such
limited partnership interests began October 25, 1993, as part of a shelf
offering registered under the name Southwest Royalties Institutional 1992-
93 Income Program. Minimum capital requirements for the Partnership were
met on December 8, 1993, with the offering of limited partnership interests
concluding August 20, 1994, with total limited partner contributions of
$2,425,500.
The Partnership was formed to acquire royalty and net profits interests in
producing oil and gas properties, to produce and market crude oil and
natural gas produced from such properties and to distribute any net
proceeds from operations to the general and limited partners. Net revenues
from producing oil and gas properties will not be reinvested in other
revenue producing assets except to the extent that producing facilities and
wells are reworked or where methods are employed to improve or enable more
efficient recovery of oil and gas reserves. The economic life of the
Partnership will thus depend on the period over which the Partnership's oil
and gas reserves are economically recoverable.
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 does not anticipate performing
workovers during the year. The Partnership could possibly experience a
normal decline.
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. For the quarter ended September 30, 1998, the net
capitalized cost did not exceed the estimated present value of oil and gas
reserves. A continuation of the oil price environment experienced during
the first three quarters of 1998 will have an adverse affect on the
Company's revenues and operating cash flow. Also, further declines in oil
prices could result in additional decreases in the carrying value of the
Company's oil and gas properties.
Results of Operations
A. General Comparison of the Quarters Ended September 30, 1998 and 1997
The following table provides certain information regarding performance
factors for the quarters ended September 30, 1998 and 1997:
Three Months
Ended Percentage
September 30, Increase
1998 1997 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 11.59 17.12 (32%)
Average price per mcf of gas $ 1.91 1.85 3%
Oil production in barrels 2,400 2,600 (8%)
Gas production in mcf 24,000 26,900 (11%)
Income from net profits interests $ 18,319 32,409 (43%)
Partnership distributions $ 1,000 30,600 (97%)
Limited partner distributions $ 900 27,450 (97%)
Per unit distribution to limited partners $ .19 5.68 (97%)
Number of limited partner units 4,851 4,851
Revenues
The Partnership's income from net profits interests decreased to $18,319
from $32,409 for the quarters ended September 30, 1998 and 1997,
respectively, a decrease of 43%. The principal factors affecting the
comparison of the quarters ended September 30, 1998 and 1997 are as
follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended September 30, 1998 as compared to
the quarter ended September 30, 1997 by 32%, or $5.53 per barrel,
resulting in a decrease of approximately $14,400 in income from net
profits interests. Oil sales represented 38% of total oil and gas
sales during the quarter ended September 30, 1998 as compared to 47%
during the quarter ended September 30, 1997.
The average price for an mcf of gas received by the Partnership
increased during the same period by 3%, or $.06 per mcf, resulting in
an increase of approximately $1,600 in income from net profits
interests.
The net total decrease in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$12,800. 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 decreased approximately 200 barrels or 8% during the
quarter ended September 30, 1998 as compared to the quarter ended
September 30, 1997, resulting in a decrease of approximately $2,300 in
income from net profits interests.
Gas production decreased approximately 2,900 mcf or 11% during the same
period, resulting in a decrease of approximately $5,500 in income from
net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $7,800.
3. Lease operating costs and production taxes were 5% lower, or
approximately $3,400 less during the quarter ended September 30, 1998
as compared to the quarter ended September 30, 1997.
Costs and Expenses
Total costs and expenses decreased to $31,052 from $37,692 for the quarters
ended September 30, 1998 and 1997, respectively, a decrease of 18%. The
decrease is the result of lower depletion expense, partially offset by an
increase in general and administrative expense.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs increased
22% or $2,400 during the quarter ended September 30, 1998 as compared
to the quarter ended September 30, 1997. The increase in general and
administrative costs are due largely to higher accounting fees. The 10-
Q's are now required to be reviewed based on new accounting
pronouncements.
2. Depletion expense decreased to $16,000 for the quarter ended September
30, 1998 from $25,000 for the same period in 1997. This represents a
decrease of 36%. 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 decline in depletion expense between the comparative
periods were the decrease in the price of oil and the decline in gross
oil and gas revenues.
B. General Comparison of the Nine Month Periods Ended September 30, 1998
and 1997
The following table provides certain information regarding performance
factors for the nine month periods ended September 30, 1998 and 1997:
Nine Months
Ended Percentage
September 30, Increase
1998 1997 (Decrease)
---- ---- ---------
Average price per barrel of oil $ 12.02 19.79 (39%)
Average price per mcf of gas $ 1.71 2.08 (18%)
Oil production in barrels 7,700 8,700 (11%)
Gas production in mcf 65,600 80,900 (19%)
Income from net profits interests $ 34,365 141,732 (76%)
Partnership distributions $ 58,500 192,600 (70%)
Limited partner distributions $ 52,650 173,340 (70%)
Per unit distribution to limited partners $ 10.85 35.73 (70%)
Number of limited partner units 4,851 4,851
Revenues
The Partnership's income from net profits interests decreased to $34,365
from $141,732 for the nine months ended September 30, 1998 and 1997,
respectively, a decrease of 76%. The principal factors affecting the
comparison of the nine months ended September 30, 1998 and 1997 are as
follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the nine months ended September 30, 1998 as compared
to the nine months ended September 30, 1997 by 39%, or $7.77 per
barrel, resulting in a decrease of approximately $67,600 in income from
net profits interests. Oil sales represented 45% of total oil and gas
sales during the nine months ended September 30, 1998 as compared to
51% during the nine months ended September 30, 1997.
The average price for an mcf of gas received by the Partnership
decreased during the same period by 18%, or $.37 per mcf, resulting in
a decrease of approximately $30,000 in income from net profits
interests.
The total decrease in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$97,600. 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 decreased approximately 1,000 barrels or 11% during the
nine months ended September 30, 1998 as compared to the nine months
ended September 30, 1997, resulting in a decrease of approximately
$12,000 in income from net profits interests.
Gas production decreased approximately 15,300 mcf or 19% during the
same period, resulting in a decrease of approximately $26,200 in income
from net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $38,200. The decrease is
primarily attributable to the sharp natural decline on two leases and a
gas explosion which caused a loss of two months of production.
3. Lease operating costs and production taxes were 13% lower, or
approximately $25,500 less during the nine months ended September 30,
1998 as compared to the nine months ended September 30, 1997.
Costs and Expenses
Total costs and expenses increased to $167,003 from $133,518 for the nine
months ended September 30, 1998 and 1997, respectively, an increase of 25%.
The increase is the result of higher general and administrative expense,
partially offset by a decrease in depletion expense.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs increased
13% or $5,100 during the nine months ended September 30, 1998 as
compared to the nine months ended September 30, 1997. The increase in
general and administrative costs are due largely to higher accounting
fees. The 10-Q's are now required to be reviewed based on new
accounting pronouncements.
2. Depletion expense decreased to $59,500 for the nine months ended
September 30, 1998 from $89,000 for the same period in 1997. 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 decline in depletion expense between the
comparative periods were the decrease in the price of oil and the
decline in gross oil and gas revenues.
3. The net capitalized costs for the nine months ended September 30, 1998
exceeded the estimated present value of oil and gas reserves,
discounted at 10% in the amount of $57,913, such excess costs were
charged to current expense. The write-down had the effect of reducing
net income, but did not affect cash flow or partner distributions.
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, nor does it anticipate any such change.
Cash flows provided by operating activities were approximately $55,400 in
the nine months ended September 30, 1998 as compared to approximately
$175,200 in the nine months ended September 30, 1997. The primary source
of the 1998 cash flow from operating activities was profitable operations.
Cash flows provided by investing activities were approximately $500 in the
nine months ended September 30, 1998. There were no cash flows provided by
investing activities in the nine months ended September 30, 1997.
Cash flows used in financing activities were approximately $58,400 in the
nine months ended September 30, 1998 as compared to approximately $192,300
in the nine months ended September 30, 1997. The only use in financing
activities was the distributions to partners.
Total distributions during the nine months ended September 30, 1998 were
$58,500 of which $52,650 was distributed to the limited partners and $5,850
to the general partners. The per unit distribution to limited partners
during the nine months ended September 30, 1998 was $10.85. Total
distributions during the nine months ended September 30, 1997 were $192,600
of which $173,340 was distributed to the limited partners and $19,260 to
the general partners. The per unit distribution to limited partners during
the nine months ended September 30, 1997 was $35.73.
The sources for the 1998 distributions of $58,500 were oil and gas
operations of approximately $55,400 and the change in oil and gas
properties of approximately $500, with the balance from available cash on
hand at the beginning of the period. The source for the 1997 distributions
of $192,600 was oil and gas operations of approximately $175,200, with the
balance from available cash on hand at the beginning of the period.
Since inception of the Partnership, cumulative monthly cash distributions
of $989,439 have been made to the partners. As of September 30, 1998,
$904,353 or $186.43 per limited partner unit has been distributed to the
limited partners, representing a 37% return of the capital contributed.
As of September 30, 1998, the Partnership had approximately $(1,050) of
negative 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.
Information Systems for the Year 2000
The Partnership relies on the Managing General Partner for their data
processing requirements. This includes use of a program designed and
implemented by Midland Southwest Software, the Managing General Partner's
software subsidiary. Midland Southwest Software currently has a year 2000
plan in effect. They have surveyed existing programs and hardware and
estimate a compliance date of early 1999. Determination of the total cost
in connection with the year 2000 compliance issue is difficult to determine
due to the fact that they are in the process of developing their new 1998
version of marketed oil and gas software, which has, from inception,
included year 2000 compliance. Third party software programs utilized by
the Managing General Partner are either in compliance or are not affected
by the year 2000, with the exception of the payroll service, which is
currently modifying its system to accurately handle the Year 2000 issue.
The Managing General Partner has not completed its evaluation of its
vendors or suppliers systems to determine the effect, if any, the non-
compliance of such systems would have on the operations of the Managing
General Partner. Plans are under way to perform an audit in late 1998 or
early 1999 to determine the effect of non-compliance of its vendors and
suppliers on the Managing General Partner and thus formulate a contingency
plan.
A potential source of risk includes, but is not limited to, the inability
of principal purchasers and suppliers to be year 2000 compliant, which
could have a material effect on the Managing General Partner's production,
cash flow and overall financial condition, notwithstanding the Managing
General Partner's actions to prepare its own information systems. The
Managing General Partner currently does not have a contingency plan in
place to cover any unforeseen problems encountered that relate to the year
2000, but intends to produce one before the end of the fiscal year.
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)Exhibits:
27 Financial Data Schedule
(b) 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 Royalties Institutional Income
Fund XI-B, 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: November 15, 1998