FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[x] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 2000
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission File Number 33-47668-01
Southwest Royalties Institutional Income Fund XI-A, L.P.
(Exact name of registrant as specified in
its limited partnership agreement)
Delaware 75-2427297
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
407 N. Big Spring, Suite 300, Midland, Texas 79701
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (915) 686-9927
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
limited partnership interests
Indicate by check mark whether registrant (1) has filed 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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (229.405 of this chapter) is not contained
herein, and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [x]
The registrant's outstanding securities consist of Units of limited
partnership interests for which there exists no established public market
from which to base a calculation of aggregate market value.
The total number of pages contained in this report is 42. There is no
exhibit index.
Table of Contents
Item Page
Part I
1. Business 3
2. Properties 6
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
Part II
5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
6. Selected Financial Data 10
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
8. Financial Statements and Supplementary Data 18
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 35
Part III
10. Directors and Executive Officers of the Registrant 36
11. Executive Compensation 38
12. Security Ownership of Certain Beneficial Owners and
Management 38
13. Certain Relationships and Related Transactions 40
Part IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 41
Signatures 42
Part I
Item 1. Business
General
Southwest Royalties Institutional Income Fund XI-A, L.P. (the "Partnership"
or "Registrant") was organized as a Delaware limited partnership on May 5,
1992. The offering of limited partnership interests began August 20, 1992,
as part of a shelf offering registered under the name Southwest Royalties
Institutional 1992-93 Income Program, reached minimum capital requirements
on December 10, 1992 and concluded April 30, 1993. The Partnership has no
subsidiaries.
The Partnership has acquired interests in producing oil and gas properties
and produced and marketed the crude oil and natural gas produced from such
properties. In most cases, the Partnership purchased royalty or overriding
royalty interests and working interests in oil and gas properties that were
converted into net profits interests or other non-operating interests. The
Partnership purchased either all or part of the rights and obligations
under various oil and gas leases.
The principal executive offices of the Partnership are located at 407 N.
Big Spring, Suite 300, Midland, Texas, 79701. The Managing General Partner
of the Partnership, Southwest Royalties, Inc. (the "Managing General
Partner") and its staff of 92 individuals, together with certain
independent consultants used on an "as needed" basis, perform various
services on behalf of the Partnership, including the selection of oil and
gas properties and the marketing of production from such properties. H. H.
Wommack, III, a stockholder, director, President and Treasurer of the
Managing General Partner, is also a general partner. The Partnership has
no employees.
Principal Products, Marketing and Distribution
The Partnership has acquired and holds royalty interests and net profit
interests in oil and gas properties located in Alabama, Kansas, Louisiana,
New Mexico, Oklahoma and Texas. All activities of the Partnership are
confined to the continental United States. All oil and gas produced from
these properties is sold to unrelated third parties in the oil and gas
business.
The revenues generated from the Partnership's oil and gas activities are
dependent upon the current market for oil and gas. The prices received by
the Partnership for its oil and gas production depend upon numerous factors
beyond the Partnership's control, including competition, economic,
political and regulatory developments and competitive energy sources, and
make it particularly difficult to estimate future prices of oil and natural
gas.
The year 2000 was a record year for crude oil prices. The world energy
markets witnessed a continuation of the 1999 recovery seeing prices in the
U.S. peak at $37 per barrel in September. Increasing demand and depleting
inventories appeared to be the motivators in crude's dramatic rise. At the
beginning of 2000, U.S. crude oil inventories were approximately 16% lower
than at the beginning of 1999 and summer vacationers made it through a
travel season that saw gasoline prices top $2 per gallon in some U.S.
markets. The lack of crude oil inventory in the U.S. was also magnified by
the colder than normal winter that much of the country experienced.
However, several production increases from OPEC coupled with President
Clinton's release of 30 million barrels of oil from the U.S. Strategic
Petroleum Reserve in September contributed to the slow in prices toward the
end of the year. After averaging $30 per barrel for the year and over $32
from August through November, oil prices closed out the year 2000 at $26.80
per barrel.
Tighter supplies, rising demand, and the return of more seasonal summer and
winter weather catapulted spot gas prices in 2000 to the highest levels
since the market was deregulated in the mid-1980's. Average monthly spot
prices rose an astounding 72.9% over 1999 levels to average $3.77/MMBTU.
The climb in prices was fairly steady throughout the year, with the first-
quarter spot prices averaging $2.44/MMBtu. After the winter season ended
with a huge storage deficit of 306 BCF, a combination of factors
contributed further to the upward trend in spot prices. As the summer
temperatures heated up and the rate of storage injections remained
sluggish, competition for gas supplies became fierce between power
generators and gas utilities attempting to refill storage. Spot prices
really took off in the fourth quarter as competition for storage gas in the
waning days of the refill season became supercharged. And then came weeks
of early heating-season cold, which caused gas utilities to scramble to
meet the heating loads. A year of record high prices was capped off in
December, with spot prices averaging $6.14/MMBtu, more than two-and-a-half
times the previous five-year December average of $2.43/MMBtu.
Following is a table of the ratios of revenues received from oil and gas
production for the last three years:
Oil Gas
2000 34% 66%
1999 37% 63%
1998 39% 61%
As the table indicates, the majority of the Partnership's revenue is its
gas production, the Partnership revenues will be highly dependent upon the
future prices and demands for gas.
Seasonality of Business
Although the demand for natural gas is highly seasonal, with higher demand
in the colder winter months and in very hot summer months, the Partnership
has been able to sell all of its natural gas, either through contracts in
place or on the spot market at the then prevailing spot market price. As a
result, the volumes sold by the Partnership have not fluctuated materially
with the change of season.
Customer Dependence
No material portion of the Partnership's business is dependent on a single
purchaser, or a very few purchasers, where the loss of one would have a
material adverse impact on the Partnership. Three purchasers accounted for
81% of the Partnership's total oil and gas production during 2000: Sid
Richardson Gasoline Co. for 37%, Navajo Refining Company, Inc. for 20% and
Phillips 66 for 24%. Four purchasers accounted for 80% of the Partnership's
total oil and gas production during 1999: Sid Richardson Gasoline Co. for
29%, Phillip 66 for 23%, Navajo Refining Company, Inc. for 18% and
Southwestern Energy Prod. Company for 10%. Four purchasers accounted for
63% of the Partnership's total oil and gas production during 1998:
American Processing for 22%, Nustar Joint Venture for 14%, Navajo Refining
Company, Inc. for 14% and Southwestern Energy Prod. Company for 13%. All
purchasers of the Partnership's oil and gas production are unrelated third
parties. In the event any of these purchasers were to discontinue
purchasing the Partnership's production, the Managing General Partner
believes that a substitute purchaser or purchasers could be located without
undue delay. No other purchaser accounted for an amount equal to or
greater than 10% of the Partnership's sales of oil and gas production.
Competition
Because the Partnership has utilized all of its funds available for the
acquisition of net profits or royalty interests in producing oil and gas
properties, it is not subject to competition from other oil and gas
property purchasers. See Item 2, Properties
Factors that may adversely affect the Partnership include delays in
completing arrangements for the sale of production, availability of a
market for production, rising operating costs of producing oil and gas and
complying with applicable water and air pollution control statutes,
increasing costs and difficulties of transportation, and marketing of
competitive fuels. Moreover, domestic oil and gas must compete with
imported oil and gas and with coal, atomic energy, hydroelectric power and
other forms of energy.
Regulation
Oil and Gas Production - The production and sale of oil and gas is subject
to federal and state governmental regulation in several respects, such as
existing price controls on natural gas and possible price controls on crude
oil, regulation of oil and gas production by state and local governmental
agencies, pollution and environmental controls and various other direct and
indirect regulation. Many jurisdictions have periodically imposed
limitations on oil and gas production by restricting the rate of flow for
oil and gas wells below their actual capacity to produce and by imposing
acreage limitations for the drilling of wells. The federal government has
the power to permit increases in the amount of oil imported from other
countries and to impose pollution control measures.
Various aspects of the Partnership's oil and gas activities will be
regulated by administrative agencies under statutory provisions of the
states where such activities are conducted and by certain agencies of the
federal government for operations on Federal leases. Moreover, certain
prices at which the Partnership may sell its natural gas production are
controlled by the Natural Gas Policy Act of 1978, the Natural Gas Wellhead
Decontrol Act of 1989 and the regulations promulgated by the Federal Energy
Regulatory Commission.
Environmental - The Partnership's oil and gas activities will be subject to
extensive federal, state and local laws and regulations governing the
generation, storage, handling, emission, transportation and discharge of
materials into the environment. Governmental authorities have the power to
enforce compliance with their regulations, and violations carry substantial
penalties. This regulatory burden on the oil and gas industry increases
its cost of doing business and consequently affects its profitability. The
Managing General Partner is unable to predict what, if any, effect
compliance will have on the Partnership.
Industry Regulations and Guidelines - Industry regulations and guidelines
apply to the registration, qualification and operation of oil and gas
programs in the form of limited partnerships. The Partnership is subject
to these guidelines which regulate and restrict transactions between the
Managing General Partner and the Partnership. The Partnership complies
with these guidelines and the Managing General Partner does not anticipate
that continued compliance will have a material adverse effect on
Partnership operations.
Partnership Employees
The Partnership has no employees; however, the Managing General Partner has
a staff of geologists, engineers, accountants, landmen and clerical staff
who engage in Partnership activities and operations and perform additional
services for the Partnership as needed. In addition to the Managing
General Partner's staff, the Partnership engages independent consultants
such as petroleum engineers and geologists as needed. As of December 31,
2000, there were 92 individuals directly employed by the Managing General
Partner in various capacities.
Item 2. Properties
In determining whether an interest in a particular producing property was
to be acquired, the Managing General Partner considered such criteria as
estimated oil and gas reserves, estimated cash flow from the sale of
production, present and future prices of oil and gas, the extent of
undeveloped and unproved reserves, the potential for secondary, tertiary
and other enhanced recovery projects and the availability of markets.
As of December 31, 2000, the Partnership possessed an interest in oil and
gas properties located in Escambia and Lamar Counties of Alabama; Labette
and Neosho Counties of Kansas; La Fourche, Pointe Coupe and Terrebonne
Parishes of Louisiana; Eddy County of New Mexico; Custer, Roger Mills and
Washita Counties of Oklahoma; and Dewitt, Dickens, Fayette, Gaines,
Hemphill, Howard, Live Oak, Reagan, Reeves, Upton, Ward, Winkler, and
Yoakum Counties of Texas. These properties consist of various interests in
103 wells and units.
Due to the Partnership's objective of maintaining current operations
without engaging in the drilling of any developmental or exploratory wells,
or additional acquisitions of producing properties, there have not been any
significant changes in properties during 2000 and 1999.
In compliance with the Partnership Agreement, if the Partnership should
purchase a producing property from the Managing General Partner, such
purchase price would be prior cost, adjusted for any intervening
operations. If such adjusted cost was greater than fair market value, or
if specific cost was unable to be determined, such purchase price would be
fair market value as determined by an independent reservoir engineer.
There were no property sales during 2000 and 1999. During 1998, fifty-five
leases were sold for approximately $78,900.
On October 15, 1998, Southwest Royalties Institutional Income Fund XI-A
(the "Registrant") sold its interest in 54 oil and gas properties to Parks
& Luttrell, Inc. ("Parks"), an unrelated party. The Registrant's interest
in the properties was sold for net proceeds, after post closing
adjustments, of $70,735. At December 31, 1997, the property sold to Parks
& Luttrell contained proved reserves of 27,531 barrels of oil and 113,835
mcfs of gas and had a SEC 10 value of $120,179 at the time of sale. The
proceeds from the sale represented 7.55% of the Registrant's total assets.
The General Partner sold the above properties and allocated the proceeds to
the Partnership based on current cash flows of the properties sold.
Significant Properties
The following table reflects the significant properties in which the
Partnership has an interest:
Date
Purchased No. of Proved Reserves*
Name and Location and Interest Wells Oil (bbls) Gas (mcf)
- ----------------- ----------- ----- --------- ---------
Custer & Wright 11/94 at 1% 28 32,000 494,000
Winkler County, to 40% net
Texas profits interests
Elizabeth Windham 10/94 at 28.9% 1 - 223,000
Upton County, Texas net profits
interests
*Ryder Scott Petroleum Engineers prepared the reserve and present value
data for the Partnership's existing properties as of January 1, 2001. The
reserve estimates were made in accordance with guidelines established by
the Securities and Exchange Commission pursuant to Rule 4-10(a) of
Regulation S-X. Such guidelines require oil and gas reserve reports be
prepared under existing economic and operating conditions with no
provisions for price and cost escalation except by contractual
arrangements.
The New York Mercantile Exchange price at December 31, 2000 of $26.80 was
used as the beginning basis for the oil price. Oil price adjustments from
$26.80 per barrel were made in the individual evaluations to reflect oil
quality, gathering and transportation costs. The results are an average
price received at the lease of $24.95 per barrel in the preparation of the
reserve report as of January 1, 2001.
In the determination of the gas price, the New York Mercantile Exchange
price at December 31, 2000 of $9.78 was used as the beginning basis. Gas
price adjustments from $9.78 per Mcf were made in the individual
evaluations to reflect BTU content, gathering and transportation costs and
gas processing and shrinkage. The results are an average price received at
the lease of $9.85 per Mcf in the preparation of the reserve report as of
January 1, 2001.
As also discussed in Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, oil prices were subject to
frequent changes in 2000.
The evaluation of oil and gas properties is not an exact science and
inevitably involves a significant degree of uncertainty, particularly with
respect to the quantity of oil or gas that any given property is capable of
producing. Estimates of oil and gas reserves are based on available
geological and engineering data the extent and quality of which may vary in
each case and, in certain instances, may prove to be inaccurate.
Consequently, properties may be depleted more rapidly than the geological
and engineering data have indicated.
Unanticipated depletion, if it occurs, will result in lower reserves than
previously estimated; thus an ultimately lower return for the Partnership.
Basic changes in past reserve estimates occur annually. As new data is
gathered during the subsequent year, the engineer must revise his earlier
estimates. A year of new information, which is pertinent to the estimation
of future recoverable volumes, is available during the subsequent year
evaluation. In applying industry standards and procedures, the new data
may cause the previous estimates to be revised. This revision may increase
or decrease the earlier estimated volumes. Pertinent information gathered
during the year may include actual production and decline rates, production
from offset wells drilled to the same geologic formation, increased or
decreased water production, workovers, and changes in lifting costs, among
others. Accordingly, reserve estimates are often different from the
quantities of oil and gas that are ultimately recovered.
The Partnership has reserves which are classified as proved developed
producing, proved developed non-producing and proved undeveloped. All of
the proved reserves are included in the engineering reports which evaluate
the Partnership's present reserves.
Because the Partnership does not engage in drilling activities, the
development of proved undeveloped reserves is conducted pursuant to farm-
out arrangements with the Managing General Partner or unrelated third
parties. Generally, the Partnership retains a carried interest such as an
overriding royalty interest under the terms of a farm-out, or receives
cash.
The Partnership or the owners of properties in which the Partnership owns
an interest can engage in workover projects or supplementary recovery
projects, for example, to extract behind the pipe reserves which qualify as
proved developed non-producing reserves. See Part II, Item 7, Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Partnership is
a party.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth
quarter of 2000 through the solicitation of proxies or otherwise.
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Market Information
Limited partnership interests, or units, in the Partnership were initially
offered and sold for a price of $500. Limited partner units are not traded
on any exchange and there is no public or organized trading market for
them. The Managing General Partner has become aware of certain limited and
sporadic transfers of units between limited partners and third parties, but
has no verifiable information regarding the prices at which such units have
been transferred. Further, a transferee may not become a substitute
limited partner without the consent of the Managing General Partner.
The Managing General Partner has the right, but not the obligation, to
purchase limited partnership units should an investor desire to sell. The
value of the unit is determined by adding the sum of (1) current assets
less liabilities and (2) the present value of the future net revenues
attributable to proved reserves and by discounting the future net revenues
at a rate not in excess of the prime rate charged by NationsBank, N.A. of
Midland, Texas plus one percent (1%), which value shall be further reduced
by a risk factor discount of no more than one-third (1/3) to be determined
by the Managing General Partner in its sole and absolute discretion. In
2000, 14 limited partner units were tendered to and purchased by the
Managing General Partner at an average base price of $82.78 per unit. In
1999, 10 limited partner units were tendered to and purchased by the
Managing General Partner at an average base price of $108.72 per unit.
There were no limited partner units were purchased by the Managing General
Partner, during 1998.
Number of Limited Partner Interest Holders
As of December 31, 2000, there were 218 holders of limited partner units in
the Partnership.
Distributions
Pursuant to Article III, Section 3.05 of the Partnership's Certificate and
Agreement of Limited Partnership, "Net Cash Flow" shall be distributed to
the partners on a monthly basis. "Net Cash Flow" is defined as "the cash
generated by the Partnership's investments in producing oil and gas
properties, less (i) General and Administrative Costs, (ii) Direct Costs,
(iii) Operating Costs, and (iv) any reserves necessary to meet current and
anticipated needs of the Partnership, as determined in the sole discretion
of the Managing General Partner."
During 2000, quarterly distributions were made totaling $225,035, with
$202,531 distributed to the limited partners and $22,504 to the general
partners. For the year ended December 31, 2000, distributions of $37.38
per limited partner unit were made, based upon 5,418 limited partner units
outstanding. Distributions for 2000 increased significantly due to the
record high oil and gas prices received during the year. During 1999,
distributions were made totaling $179,960, with $165,460 distributed to the
limited partners and $14,500 to the general partners. For the year ended
December 31, 1999, distributions of $30.54 per limited partner unit were
made, based upon 5,418 limited partner units outstanding. During 1998,
distributions were made totaling $179,000, with $163,600 distributed to the
limited partners and $15,400 to the general partners. For the year ended
December 31, 1998, distributions of $30.20 per limited partner unit were
made, based upon 5,418 limited partner units outstanding.
Item 6. Selected Financial Data
The following selected financial data for the years ended December 31,
2000, 1999, 1998, 1997 and 1996 should be read in conjunction with the
financial statements included in Item 8:
Year ended December 31,
-------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Revenues $ 336,810 221,645 54,628 377,633 531,508
Net income (loss) 275,589 129,630 (588,592)(133,264) 285,720
Partners' share of net
income (loss):
General partners 29,659 15,863 3,061 23,329 40,382
Limited partners 245,930 113,767 (591,653)(156,593) 245,338
Limited partners' net
income per unit 45.39 21.00 (109.20) (28.90) 45.28
Limited partners' cash
distribution per unit 37.38 30.54 30.20 61.14
76.51
Total assets $ 576,406 525,852 576,1821,343,7741,841,014
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Royalties Institutional Income Fund XI-A, L.P. was organized as a
Delaware limited partnership on May 5, 1992. The offering of limited
partnership interests began August 20, 1992, 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 10, 1992, and the Offering Period terminated April 30, 1993 with
213 limited partners purchasing 5,418 units for $2,709,000.
The Partnership was formed to acquire non-operating 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 and on 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 limited
partners has fluctuated over the past few years and is expected to
fluctuate in later years based on these factors.
Based on current conditions, management anticipates performing few
workovers during 2001 to enhance production. Additional workovers may be
performed in the year 2003. The partnership may have an increase in
production volumes for the year 2003, otherwise, the Partnership will most
likely experience the historical production decline of approximately 12%
per year.
Results of Operations
A. General Comparison of the Years Ended December 31, 2000 and 1999
The following table provides certain information regarding performance
factors for the years ended December 31, 2000 and 1999:
Year Ended Percentage
December 31, Increase
2000 1999 (Decrease)
---- ---- --------
Average price per barrel of oil $ 28.44 16.56 72%
Average price per mcf of gas $ 4.06 2.26 80%
Oil production in barrels 6,900 8,390 (18%)
Gas production in mcf 91,800 105,480 (13%)
Income from net profits interests $ 334,178 198,794 68%
Partnership distributions $ 225,035 179,960 25%
Limited partner distributions $ 202,531 165,460 22%
Per unit distribution to limited partners $ 37.38 30.54 22%
Number of limited partner units 5,418 5,418
Revenues
The Partnership's income from net profits interests increased to $334,178
from $198,794 for the years ended December 31, 2000 and 1999, respectively,
an increase of 68%. The principal factors affecting the comparison of the
years ended December 31, 2000 and 1999 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the year ended December 31, 2000 as compared to the
year ended December 31, 1999 by 72%, or $11.88 per barrel, resulting in
an increase of approximately $82,000 in income from net profits
interests. Oil sales represented 34% of total oil and gas sales during
the year ended December 31, 2000 as compared to 37% during the year
ended December 31, 1999.
The average price for an mcf of gas received by the Partnership
increased during the same period by 80%, or $1.80 per mcf, resulting in
an increase of approximately $165,200 in income from net profits
interests.
The total increase in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$247,200. 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 decreased approximately 1,490 barrels or 18% during the
year ended December 31, 2000 as compared to the year ended December 31,
1999, resulting in a decrease of approximately $24,700 in income from
net profits interests.
Gas production decreased approximately 13,680 mcf or 13% during the
same period, resulting in a decrease of approximately $30,900 in income
from net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $55,600. The decrease in
production is due to the decline of several small non-operated wells.
3. Lease operating costs and production taxes were 31% higher, or
approximately $56,100 more during the year ended December 31, 2000 as
compared to the year ended December 31, 1999. The increase in lease
operating costs and production taxes is due in part to an increase in
major repairs and maintenance, and in part to the rise in production
taxes directly associated with the rise in oil and gas prices received
during the past year. The rise in oil and gas prices for 2000 has
allowed the Partnership to perform these repairs and maintenance in the
hopes of increasing production, thereby increasing revenues.
Costs and Expenses
Total costs and expenses decreased to $61,221 from $92,015 for the years
ended December 31, 2000 and 1999, respectively, a decrease of 33%. The
decrease is the result of lower general and administrative costs and
depletion expense.
1. General and administrative costs consist of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs decreased 4%
or approximately $1,800 during the year ended December 31, 2000 as
compared to the year ended December 31, 1999.
2. Depletion expense decreased to $21,000 for the year ended December 31,
2000 from $50,000 for the same period in 1999. This represents a decrease
of 58%. 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.
The major factor to the decrease in depletion expense between the
comparative periods was the increase in the price of oil and gas used
to determine the Partnership's reserves for January 1, 2001 as compared
to 2000. Another contributing factor was due to the impact of
revisions of previous estimates on reserves. Revisions of previous
estimates can be attributed to the changes in production performance,
oil and gas price and production costs. The impact of the revision
would have decreased depletion expense approximately $3,000 as of
December 31, 1999.
Results of Operations
B. General Comparison of the Years Ended December 31, 1999 and 1998
The following table provides certain information regarding performance
factors for the years ended December 31, 1999 and 1998:
Year Ended Percentage
December 31, Increase
1999 1998 (Decrease)
---- ---- --------
Average price per barrel of oil $ 16.56 11.33 46%
Average price per mcf of gas $ 2.26 1.69 34%
Oil production in barrels 8,390 12,000 (30%)
Gas production in mcf 105,480 125,100 (16%)
Income from net profits interests $ 198,794 83,345 139%
Partnership distributions $ 179,960 179,000 1%
Limited partner distributions $ 165,460 163,600 1%
Per unit distribution to limited partners $ 30.54 30.20 1%
Number of limited partner units 5,418 5,418
Revenues
The Partnership's income from net profits interests increased to $198,794
from $83,345 for the years ended December 31, 1999 and 1998, respectively,
an increase of 139%. The principal factors affecting the comparison of the
years ended December 31, 1999 and 1998 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the year ended December 31, 1999 as compared to the
year ended December 31, 1998 by 46%, or $5.23 per barrel, resulting in
an increase of approximately $62,800 in income from net profits
interests. Oil sales represented 37% of total oil and gas sales during
the year ended December 31, 1999 as compared to 39% during the year
ended December 31, 1998.
The average price for an mcf of gas received by the Partnership
increased during the same period by 34%, or $.57 per mcf, resulting in
an increase of approximately $71,300 in income from net profits
interests.
The total increase in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$134,100. 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 3,610 barrels or 30% during the
year ended December 31, 1999 as compared to the year ended December 31,
1998, resulting in a decrease of approximately $59,800 in income from
net profits interests.
Gas production decreased approximately 19,620 mcf or 16% during the
same period, resulting in a decrease of approximately $44,300 in income
from net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $104,100. The decrease in
production is due primarily to property sales during 1998.
3. Lease operating costs and production taxes were 32% lower, or
approximately $85,400 less during the year ended December 31, 1999 as
compared to the year ended December 31, 1998. The decrease in lease
operating costs are due primarily to property sales during 1998.
4. As of December 31, 1998, miscellaneous expense was approximately
$30,159. The Partnership entered into a purchase agreement on the Tar
Baby lease that guaranteed net income each month from October 1994
through January 1998. This income was recorded on the Partnerships
books as miscellaneous income. Based on new information obtained in
May 1998, an adjustment of $52,706 was found to be necessary. This
adjustment was recorded as miscellaneous expense on the Partnerships
books for the quarter ended June 30, 1998.
Costs and Expenses
Total costs and expenses decreased to $92,015 from $643,220 for the years
ended December 31, 1999 and 1998, respectively, a decrease of 86%. The
decrease is the result of lower general and administrative costs, provision
for impairment and depletion expense.
1. General and administrative costs consist of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs decreased
22% or approximately $12,200 during the year ended December 31, 1999 as
compared to the year ended December 31, 1998. The decrease of general
and administrative costs were due in part to additional accounting
costs incurred in 1998 in relation to the outsourcing of K-1 tax
package preparation and a change in auditors requiring opinions from
both the predecessors and successor auditors. Additionally, the
Managing General Partner in its effort to cut back on general and
administrative costs whenever and wherever possible was able to reduce
the cost of reserve reports and K-1 tax package preparation during
1999.
3. Depletion expense decreased to $50,000 for the year ended December 31,
1999 from $187,000 for the same period in 1998. This represents a decrease
of 73%. 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.
A contributing factor to the decrease in depletion expense between the
comparative periods was the increase in the price of oil and gas used
to determine the Partnership's reserves for January 1, 2000 as compared
to 1999. Another contributing factor was due to the impact of
revisions of previous estimates on reserves. Revisions of previous
estimates can be attributed to the changes in production performance,
oil and gas price and production costs. The impact of the revision
would have decreased depletion expense approximately $74,000 as of
December 31, 1998.
The Partnership reduced the net capitalized costs of oil and gas
properties during 1998 by $402,040. This provision for impairment had
the effect of reducing net income, but did not affect cash flow or
partner distributions. See Summary of Significant Accounting Policies
- Oil and Gas Properties.
C. Revenue and Distribution Comparison
Partnership net income (loss) for the years ended December 31, 2000, 1999
and 1998 was $275,589, $129,630 and $(588,592), respectively. Excluding
the effects of depreciation, depletion, amortization and provision for
impairment, net income for the years ended December 31, 2000, 1999 and 1998
would have been $296,589, $179,630 and $448, respectively. Correspondingly,
Partnership distributions for the years ended December 31, 2000, 1999 and
1998 were $225,035, $179,960 and $179,000, respectively. These differences
are indicative of the changes in oil and gas prices, production and
properties during 2000, 1999 and 1998.
The sources for the 2000 distributions of $225,035 were oil and gas
operations of approximately $252,100, resulting in excess cash for
contingencies or subsequent distributions. The sources for the 1999
distributions of $179,960 were oil and gas operations of approximately
$152,700, with the balance from available cash on hand at the beginning of
the period. The sources for the 1998 distributions of $179,000 were oil
and gas operations of approximately $106,900 and the change in oil and gas
properties of approximately $77,300, result in excess cash for
contingencies or subsequent distributions.
Total distributions during the year ended December 31, 2000 were $225,035
of which $202,531 was distributed to the limited partners and $22,504 to
the general partners. The per unit distribution to limited partners during
the same period was $37.38. Total distributions during the year ended
December 31, 1999 were $179,960 of which $165,460 was distributed to the
limited partners and $14,500 to the general partners. The per unit
distribution to limited partners during the same period was $30.54. Total
distributions during the year ended December 31, 1998 were $179,000 of
which $163,600 was distributed to the limited partners and $15,400 to the
general partners. The per unit distribution to limited partners during the
same period was $30.20.
Since inception of the Partnership, cumulative monthly cash distributions
of $1,939,443 have been made to the partners. As of December 31, 2000,
$1,771,189 or $326.91 per limited partner unit, has been distributed to the
limited partners, representing a 65% return of the capital contributed.
Liquidity and Capital Resources
The primary source of cash is from operations, the receipt of income from
net profits 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 $252,100 in
2000 compared to $152,700 in 1999 and approximately $106,900 in 1998. The
primary source of the 2000 cash flow from operating activities was
profitable operations.
There were no investing activities for 2000 and 1999. Cash flows provided
by investing activities were approximately $77,300 in 1998.
Cash flows used in financing activities were approximately $225,000 in 2000
compared to $180,000 in 1999 and approximately $179,000 in 1998. The only
2000 use in financing activities was the distributions to partners.
As of December 31, 2000, the Partnership had approximately $159,500 in
working capital. The Managing General Partner knows of no other
commitments and believes the revenues generated from operations will be
adequate to meet the operating needs of the Partnership.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is not a party to any derivative or embedded derivative
instruments.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
Page
Independent Auditors Report 19
Balance Sheets 20
Statements of Operations 21
Statement of Changes in Partners' Equity 22
Statements of Cash Flows 23
Notes to Financial Statements 25
INDEPENDENT AUDITORS REPORT
The Partners
Southwest Royalties Institutional
Income Fund XI-A, L.P.
(A Delaware Limited Partnership):
We have audited the accompanying balance sheets of Southwest Royalties
Institutional Income Fund XI-A, L.P. (the "Partnership") as of December 31,
2000 and 1999, and the related statements of operations, changes in
partners' equity and cash flows for each of the years in the three-year
period ended December 31, 2000. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Southwest Royalties
Institutional Income Fund XI-A, L.P. as of December 31, 2000 and 1999 and
the results of its operations and its cash flows for each of the years in
the three-year period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Midland, Texas
March 21, 2001
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Balance Sheets
December 31, 2000 and 1999
2000 1999
---- ----
Assets
Current assets:
Cash and cash equivalents $ 57,241 30,195
Receivable from Managing General Partner 102,258 57,750
- --------- ---------
Total current assets
159,499 87,945
- --------- ---------
Oil and gas properties - using the full-
cost method of accounting 2,029,769 2,029,769
Less accumulated depreciation,
depletion and amortization
1,612,862 1,591,862
- --------- ---------
Net oil and gas properties
416,907 437,907
- --------- ---------
$
576,406 525,852
========= =========
Liabilities and Partners' Equity
Partners' equity:
General partners $ (16,660) (23,815)
Limited partners 593,066 549,667
- --------- ---------
Total partners' equity
576,406 525,852
- --------- ---------
$
576,406 525,852
========= =========
The accompanying notes are an integral
part of these financial statements.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Statements of Operations
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Revenues
Income from net profits interests $ 334,178 198,794 83,346
Interest 2,632 1,851 1,441
Miscellaneous income - 21,000 (30,159)
-------
- ------- -------
336,810
221,645 54,628
-------
- ------- -------
Expenses
General and administrative 40,221 42,015 54,180
Depreciation, depletion and amortization 21,000 50,000 187,000
Provision for impairment of oil and gas
properties - - 402,040
-------
- ------- -------
61,221
92,015 643,220
-------
- ------- -------
Net income (loss) $ 275,589 129,630(588,592)
=======
======= =======
Net income (loss) allocated to:
Managing General Partner $ 26,693 14,277 2,755
=======
======= =======
General partner $ 2,966 1,586 306
=======
======= =======
Limited partners $ 245,930 113,767(591,653)
=======
======= =======
Per limited partner unit $ 45.39 21.00 (109.20)
=======
======= =======
The accompanying notes are an integral
part of these financial statements.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Statement of Changes in Partners' Equity
Years ended December 31, 2000, 1999, 1998
General Limited
Partners Partners Total
-------- -------- -----
Balance at December 31, 1997 $ (12,839) 1,356,6131,343,774
Net income (loss) 3,061 (591,653)(588,592)
Distributions (15,400) (163,600)(179,000)
-------
- --------- ---------
Balance at December 31, 1998 (25,178) 601,360 576,182
Net income 15,863 113,767 129,630
Distributions (14,500) (165,460)(179,960)
-------
- --------- ---------
Balance at December 31, 1999 (23,815) 549,667 525,852
Net income 29,659 245,930 275,589
Distributions (22,504) (202,531)(225,035)
-------
- --------- ---------
Balance at December 31, 2000 $ (16,660) 593,066 576,406
=======
========= =========
The accompanying notes are an integral
part of these financial statements.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Statements of Cash Flows
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Cash received from net profits interests $ 294,075 163,960 139,461
Cash paid to Managing General Partner
for administrative fees and general
and administrative overhead
(44,626) (13,062)(33,964)
Interest received 2,632 1,851 1,441
---------
- --------- ---------
Net cash provided by operating activities 252,081 152,749
106,938
---------
- --------- ---------
Cash flows from investing activities:
Sale of oil and gas properties - - 77,278
---------
- --------- ---------
Cash flows from financing activities:
Distributions to partners (225,035) (179,960)(179,000)
---------
- --------- ---------
Net increase (decrease) in cash and cash
equivalents 27,046 (27,211)
5,216
Beginning of period 30,195 57,406 52,190
---------
- --------- ---------
End of period $ 57,241 30,195 57,406
=========
========= =========
(continued)
The accompanying notes are an integral
part of these financial statements.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Statements of Cash Flows, continued
Years ended December 31, 2000, 1999 and 1998
2000 1999 1998
---- ---- ----
Reconciliation of net income (loss) to net
cash provided by operating activities:
Net income (loss) $ 275,589 129,630(588,592)
Adjustments to reconcile net income (loss) to
net cash provided by operating
activities:
Depreciation, depletion and amortization 21,000 50,000
187,000
Provision for impairment of oil and gas
properties - -
402,040
(Increase) decrease in receivables (40,103) (34,834) 56,116
(Decrease) increase in payables (4,405) 7,953 50,374
-------
- ------- -------
Net cash provided by operating activities $ 252,081 152,749 106,938
=======
======= =======
The accompanying notes are an integral
part of these financial statements.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
1. Organization
Southwest Royalties Institutional Income Fund XI-A, L.P. was organized
under the laws of the state of Delaware on May 5, 1992, 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 will sell 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. Partnership profits
and losses, as well as all items of income, gain, loss, deduction, or
credit, will be credited or charged as follows:
Limited General
Partners Partners (1)
-------- --------
Organization and offering expenses (2) 100% -
Acquisition costs 100% -
Operating costs 90% 10%
Administrative costs (3) 90% 10%
Direct costs 90% 10%
All other costs 90% 10%
Interest income earned on capital
contributions 100% -
Oil and gas revenues 90% 10%
Other revenues 90% 10%
Amortization 100% -
Depletion allowances 100% -
(1) H.H. Wommack, III, President of the Managing General
Partner, is an additional general partner in the Partnership and
has a one percent interest in the Partnership. Mr. Wommack is
the majority stockholder of the Managing General Partner whose
continued involvement in Partnership management is important to
its operations. Mr. Wommack, as a general partner, shares also
in Partnership liabilities.
(2) Organization and Offering Expenses (including all costs of
selling and organizing the offering) include a payment by the
Partnership of an amount equal to three percent (3%) of Capital
Contributions for reimbursement of such expenses. All
Organization Costs (which excludes sales commissions and fees) in
excess of three percent (3%) of Capital Contributions with
respect to a Partnership will be allocated to and paid by the
Managing General Partner.
(3) Administrative Costs will be paid from the Partnership's
revenues; however; Administrative Costs in the Partnership year
in excess of two percent (2%) of Capital Contributions shall be
allocated to and paid by the Managing General Partner.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
2. Summary of Significant Accounting Policies
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.
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.
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 December 31, 2000 and 1999 the net
capitalized costs did not exceed the estimated present value of oil
and gas reserves. As of December 31, 1998, the net capitalized cost
exceeded the estimated present value of oil and gas reserves thus an
adjustment of $402,040 was made to the financial statement.
The Partnership's interest in oil and gas properties consists of net
profits interests in proved properties located within the continental
United States. A net profits interest is created when the owner of a
working interest in a property enters into an arrangement providing
that the net profits interest owner will receive a stated percentage
of the net profit from the property. The net profits interest owner
will not otherwise participate in additional costs and expenses of the
property.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
2. Summary of Significant Accounting Policies - continued
Estimates and Uncertainties
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 and disclosure of contingent 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 those estimates.
Syndication Costs
Syndication costs are accounted for as a reduction of partnership
equity.
Environmental Costs
The Partnership is subject to extensive federal, state and local
environmental laws and regulations. These laws, which are constantly
changing, regulate the discharge of materials into the environment and
may require the Partnership to remove or mitigate the environmental
effects of the disposal or release of petroleum or chemical substances
at various sites. Environmental expenditures are expensed or
capitalized depending on their future economic benefit. Costs which
improve a property as compared with the condition of the property when
originally constructed or acquired and costs which prevent future
environmental contamination are capitalized. Expenditures that relate
to an existing condition caused by past operations and that have no
future economic benefits are expensed. Liabilities for expenditures
of a non-capital nature are recorded when environmental assessment
and/or remediation is probable, and the costs can be reasonably
estimated.
Gas Balancing
The Partnership utilizes the sales method of accounting for gas-
balancing arrangements. Under this method, the Partnership recognizes
sales revenue on all gas sold. As of December 31, 2000, 1999 and 1998
there were no significant amounts of imbalance in terms of units and
value.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
2. Summary of Significant Accounting Policies - continued
Income Taxes
No provision for income taxes is reflected in these financial
statements, since the tax effects of the Partnership's income or loss
are passed through to the individual partners.
In accordance with the requirements of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," the
Partnership's tax basis in its net oil and gas properties at December
31, 2000 and 1999 is $427,018 and $482,437 more, respectively, as that
shown on the accompanying Balance Sheets in accordance with generally
accepted accounting principles.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Partnership
considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents. The Partnership
maintains its cash at one financial institution.
Number of Limited Partner Units
As of December 31, 2000, 1999 and 1998 there were 5,418 limited
partner units outstanding held by 218, 220 and 221 partners.
Concentrations of Credit Risk
The Partnership is subject to credit risk through trade receivables.
Although a substantial portion of its debtors' ability to pay is
dependent upon the oil and gas industry, credit risk is minimized due
to a large customer base. All partnership revenues are received by
the Managing General Partner and subsequently remitted to the
partnership and all expenses are paid by the Managing General Partner
and subsequently reimbursed by the partnership.
Fair Value of Financial Instruments
The carrying amount of cash and accounts receivable approximates fair
value due to the short maturity of these instruments.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
2. Summary of Significant Accounting Policies - continued
Net Income (loss) per limited partnership unit
The net income (loss) per limited partnership unit is calculated by
using the number of outstanding limited partnership units.
3. Commitments and Contingent Liabilities
The Managing General Partner has the right, but not the obligation, to
purchase limited partnership units should an investor desire to sell.
The value of the unit is determined by adding the sum of (1) current
assets less liabilities and (2) the present value of the future net
revenues attributable to proved reserves and by discounting the future
net revenues at a rate not in excess of the prime rate charged by
NationsBank, N.A. of Midland, Texas plus one percent (1%), which value
shall be further reduced by a risk factor discount of no more than one-
third (1/3) to be determined by the Managing General Partner in its
sole and absolute discretion.
The Partnership is subject to various federal, state, and local
environmental laws and regulations, which establish standards and
requirements for protection of the environment. The Partnership
cannot predict the future impact of such standards and requirements,
which are subject to change and can have retroactive effectiveness.
The Partnership continues to monitor the status of these laws and
regulations.
As of December 31, 2000, the Partnership has not been fined, cited or
notified of any environmental violations and management is not aware
of any unasserted violations which would have a material adverse
effect upon capital expenditures, earnings or the competitive position
in the oil and gas industry. However, the Managing General Partner
does recognize by the very nature of its business, material costs
could be incurred in the near term to bring the Partnership into total
compliance. The amount of such future expenditures is not reliably
determinable due to several factors, including the unknown magnitude
of possible contaminations, the unknown timing and extent of the
corrective actions which may be required, the determination of the
Partnership's liability in proportion to other responsible parties and
the extent to which such expenditures are recoverable from insurance
or indemnifications from prior owners of Partnership's properties.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
4. Related Party Transactions
A significant portion of the oil and gas properties in which the
Partnership has an interest are operated by and purchased from the
Managing General Partner. As is usual in the industry and as provided
for in the operating agreement for each respective oil and gas
property in which the Partnership has an interest, the operator is
paid an amount for administrative overhead attributable to operating
such properties, with such amounts to Southwest Royalties, Inc. as
operator approximating $56,200, $58,400 and $60,100 for the years
ended December 31, 2000, 1999 and 1998, respectively. In addition,
the Managing General Partner and certain officers and employees may
have an interest in some of the properties that the Partnership also
participates.
Certain subsidiaries or affiliates of the Managing General Partner
perform various oilfield services for properties in which the
Partnership owns an interest. Such services aggregated approximately
$1,000, $5,000 and $10 for the years ended December 31, 2000, 1999 and
1998, respectively and the Managing General Partner believes that
these costs are comparable to similar charges paid by the Partnership
to unrelated third parties.
Southwest Royalties, Inc., the Managing General Partner, was paid
$36,000 during 2000, $37,000 during 1999 and $37,442 during 1998, as
an administrative fee for indirect general and administrative overhead
expenses.
Receivables from Southwest Royalties, Inc., the Managing General
Partner, of approximately $102,300 and $57,750 are from oil and gas
production, net of lease operating costs and production taxes, as of
December 31, 2000 and 1999.
In addition, a director and officer of the Managing General Partner is
a partner in a law firm, with such firm providing legal services to
the Partnership. There were no legal service provided to the
Partnership for the year ended December 31, 2000, 1999 and 1998.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
5. Major Customers
No material portion of the Partnership's business is dependent on a
single purchaser, or a very few purchasers, where the loss of one
would have a material adverse impact on the Partnership. Three
purchasers accounted for 81% of the Partnership's total oil and gas
production during 2000: Sid Richardson Gasoline Co. for 37%, Navajo
Refining Company, Inc. for 20% and Phillips 66 for 24%. Four
purchasers accounted for 80% of the Partnership's total oil and gas
production during 1999: Sid Richardson Gasoline Co. for 29%, Phillip
66 for 23%, Navajo Refining Company, Inc. for 18% and Southwestern
Energy Prod. Company for 10%. Four purchasers accounted for 63% of
the Partnership's total oil and gas production during 1998: American
Processing for 22%, Nustar Joint Venture for 14%, Navajo Refining
Company, Inc. for 14% and Southwestern Energy Prod. Company for 13%.
In the event any of these purchasers were to discontinue purchasing
the Partnership's production, the Managing General Partner believes
that a substitute purchaser or purchasers could be located without
undue delay. No other purchaser accounted for an amount equal to or
greater than 10% of the Partnership's sales of oil and gas production.
6. Estimated Oil and Gas Reserves (unaudited)
The Partnership's interest in proved oil and gas reserves is as
follows:
Oil (bbls) Gas (mcf)
---------- ---------
Proved developed and undeveloped
reserves -
December 31, 1997 92,000 1,008,000
Revision of estimates in place (33,000) (16,000)
Production (12,000) (125,000)
Sale of minerals in place (20,000) (104,000)
------- ---------
December 31, 1998 27,000 763,000
Revision of estimates in place 51,000 206,000
Production (8,000) (105,000)
------- ---------
December 31, 1999 70,000 864,000
Revision of estimates in place 1,000 190,000
Production (7,000) (92,000)
------- ---------
December 31, 2000 64,000 962,000
======= =========
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
6. Estimated Oil and Gas Reserves (unaudited) - continued
Proved developed reserves -
Oil (bbls) Gas
(mcf)
---------- --------
- -
December 31, 1998 27,000 753,000
======= =========
December 31, 1999 70,000 855,000
======= =========
December 31, 2000 63,000 951,000
======= =========
All of the Partnership's reserves are located within the continental
United States.
*Ryder Scott Petroleum Engineers prepared the reserve and present
value data for the Partnership's existing properties as of January 1,
2001. The reserve estimates were made in accordance with guidelines
established by the Securities and Exchange Commission pursuant to Rule
4-10(a) of Regulation S-X. Such guidelines require oil and gas
reserve reports be prepared under existing economic and operating
conditions with no provisions for price and cost escalation except by
contractual arrangements.
The New York Mercantile Exchange price at December 31, 2000 of $26.80
was used as the beginning basis for the oil price. Oil price
adjustments from $26.80 per barrel were made in the individual
evaluations to reflect oil quality, gathering and transportation
costs. The results are an average price received at the lease of
$24.95 per barrel in the preparation of the reserve report as of
January 1, 2001.
In the determination of the gas price, the New York Mercantile
Exchange price at December 31, 2000 of $9.78 was used as the beginning
basis. Gas price adjustments from $9.78 per Mcf were made in the
individual evaluations to reflect BTU content, gathering and
transportation costs and gas processing and shrinkage. The results
are an average price received at the lease of $9.85 per Mcf in the
preparation of the reserve report as of January 1, 2001.
The evaluation of oil and gas properties is not an exact science and
inevitably involves a significant degree of uncertainty, particularly
with respect to the quantity of oil or gas that any given property is
capable of producing. Estimates of oil and gas reserves are based on
available geological and engineering data, the extent and quality of
which may vary in each case and, in certain instances, may prove to be
inaccurate. Consequently, properties may be depleted more rapidly
than the geological and engineering data have indicated.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
6. Estimated Oil and Gas Reserves (unaudited) - continued
Unanticipated depletion, if it occurs, will result in lower reserves
than previously estimated; thus an ultimately lower return for the
Partnership. Basic changes in past reserve estimates occur annually.
As new data is gathered during the subsequent year, the engineer must
revise his earlier estimates. A year of new information, which is
pertinent to the estimation of future recoverable volumes, is
available during the subsequent year evaluation. In applying industry
standards and procedures, the new data may cause the previous
estimates to be revised. This revision may increase or decrease the
earlier estimated volumes. Pertinent information gathered during the
year may include actual production and decline rates, production from
offset wells drilled to the same geologic formation, increased or
decreased water production, workovers, and changes in lifting costs,
among others. Accordingly, reserve estimates are often different from
the quantities of oil and gas that are ultimately recovered.
The Partnership has reserves which are classified as proved developed
producing, proved developed non-producing and proved undeveloped. All
of the proved reserves are included in the engineering reports which
evaluate the Partnership's present reserves.
Because the Partnership does not engage in drilling activities, the
development of proved undeveloped reserves is conducted pursuant to
farm-out arrangements with the Managing General Partner or unrelated
third parties. Generally, the Partnership retains a carried interest
such as an overriding royalty interest under the terms of a farm-out,
or receives cash.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
7. Estimated Oil & Gas Reserves (unaudited) - continued
The standardized measure of discounted future net cash flows relating
to proved oil and gas reserves at December 31, 2000, 1999 and 1998 is
presented below:
2000 1999 1998
---- ---- ----
Future cash inflows, net of
production and development
costs $ 7,159,000 1,744,000 733,000
10% annual discount for
estimated timing of cash
flows 3,361,000 703,000 245,000
--------- --------- ---------
Standardized measure of
discounted future net cash
flows $ 3,798,000 1,041,000 488,000
========= ========= =========
The principal sources of change in the standardized measure of
discounted future net cash flows for the years ended December 31,
2000, 1999 and 1998 are as follows:
2000 1999 1998
---- ---- ----
Sales of oil and gas produced,
net of production costs $ (334,000) (199,000) (83,000)
Changes in prices and production costs 2,524,000 309,000
(349,000)
Changes of production rates
(timing) and others (90,000) (21,000) (110,000)
Revisions of previous
quantities estimates 553,000 415,000 (118,000)
Accretion of discount 104,000 49,000 115,000
Sales of minerals in place - - (120,000)
Discounted future net
cash flows -
Beginning of year 1,041,000 488,000 1,153,000
--------- --------- ---------
End of year $ 3,798,000 1,041,000 488,000
========= ========= =========
Future net cash flows were computed using year-end prices and costs
that related to existing proved oil and gas reserves in which the
Partnership has mineral interests.
Southwest Royalties Institutional Income Fund XI-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
7. Selected Quarterly Financial Results - (unaudited)
Quarter
----------------------------------------------
First Second Third Fourth
------ ------- ------ ------
2000:
Total revenues $ 80,341 70,990 86,818 98,661
Total expenses 22,416 14,380 16,231 8,194
Net income (loss) 57,925 56,610 70,587 90,467
Net income (loss) per limited
partners unit 9.40 9.33 11.61 15.05
1999:
Total revenues $ 10,045 68,377 59,841 83,382
Total expenses 26,932 24,329 16,563 24,191
Net income (loss) (16,887) 44,048 43,278 59,191
Net income (loss) per limited
partners unit (3.08) 7.46 7.06 9.56
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
Part III
Item 10. Directors and Executive Officers of the Registrant
Management of the Partnership is provided by Southwest Royalties, Inc., as
Managing General Partner. The names, ages, offices, positions and length
of service of the directors and executive officers of Southwest Royalties,
Inc. are set forth below. Each director and executive officer serves for a
term of one year. The present directors of the Managing General Partner
have served in their capacity since the Company's formation in 1983.
Name Age Position
- -------------------- --- -----------------------------------
- -------
H. H. Wommack, III 45 Chairman of the Board,
President,
Chief Executive Officer, Treasurer
and Director
H. Allen Corey 44 Secretary and Director
Bill E. Coggin 46 Vice President and Chief
Financial Officer
J. Steven Person 42 Vice President, Marketing
Paul L. Morris 59 Director
H. H. Wommack, III, is Chairman of the Board, President, Chief Executive
Officer, Treasurer, principal stockholder and a director of the Managing
General Partner, and has served as its President since the Company's
organization in August, 1983. Prior to the formation of the Company, Mr.
Wommack was a self-employed independent oil producer engaged in the
purchase and sale of royalty and working interests in oil and gas leases,
and the drilling of exploratory and developmental oil and gas wells. Mr.
Wommack holds a J.D. degree from the University of Texas from which he
graduated in 1980, and a B.A. from the University of North Carolina in
1977.
H. Allen Corey, a founder of the Managing General Partner, has served as
the Managing General Partner's secretary and a director since its
inception. Mr. Corey is President of Trolley Barn Brewery, Inc., a brew
pub restaurant chain based in the Southeast. Prior to his involvement with
Trolley Barn, Mr. Corey was a partner at the law firm of Miller & Martin in
Chattanooga, Tennessee. He is currently of counsel to the law firm of
Baker, Donelson, Bearman & Caldwell, with the offices in Chattanooga,
Tennessee. Mr. Corey received a J.D. degree from the Vanderbilt University
Law School and B.A. degree from the University of North Carolina at Chapel
Hill.
Bill E. Coggin, Vice President and Chief Financial Officer, has been with
the Managing General Partner since 1985. Mr. Coggin was Controller for Rod
Ric Corporation of Midland, Texas, an oil and gas drilling company, during
the latter part of 1984. He was Controller for C.F. Lawrence & Associates,
Inc., an independent oil and gas operator also of Midland, Texas during the
early part of 1984. Mr. Coggin taught public school for four years prior
to his business experience. Mr. Coggin received a B.S. in Education and a
B.B.A. in Accounting from Angelo State University.
J. Steven Person, Vice President, Marketing, assumed his responsibilities
with the Managing General Partner as National Marketing Director in 1989.
Prior to joining the Managing General Partner, Mr. Person served as Vice
President of Marketing for CRI, Inc., and was associated with Capital
Financial Group and Dean Witter (1983). He received a B.B.A. from Baylor
University in 1982 and an M.B.A. from Houston Baptist University in 1987.
Paul L. Morris has served as a Director of Southwest Royalties Holdings,
Inc. since August 1998 and Southwest Royalties, Inc. since September 1998.
Mr. Morris is President and CEO of Wagner & Brown, Ltd., one of the largest
independently owned oil and gas companies in the United States. Prior to
his position with Wagner & Brown, Mr. Morris served as President of Banner
Energy and in various managerial positions with the Columbia Gas System,
Inc.
Key Employees
Jon P. Tate, Vice President, Land and Assistant Secretary, age 43, assumed
his responsibilities with the Managing General Partner in 1989. Prior to
joining the Managing General Partner, Mr. Tate was employed by C.F.
Lawrence & Associates, Inc., an independent oil and gas company, as Land
Manager from 1981 through 1989. Mr. Tate is a member of the Permian Basin
Landman's Association and American Association of Petroleum Landmen. Mr.
Tate received his B.B.S. degree from Hardin-Simmons University.
R. Douglas Keathley, Vice President, Operations, age 45, assumed his
responsibilities with the Managing General Partner as a Production Engineer
in October, 1992. Prior to joining the Managing General Partner, Mr.
Keathley was employed for four (4) years by ARCO Oil & Gas Company as
senior drilling engineer working in all phases of well production (1988-
1992), eight (8) years by Reading & Bates Petroleum Company as senior
petroleum engineer responsible for drilling (1980-1988) and two (2) years
by Tenneco Oil Company as drilling engineer responsible for all phases of
drilling (1978-1980). Mr. Keathley received his B.S. in Petroleum
Engineering in 1977 from the University of Oklahoma.
In certain instances, the Managing General Partner will engage professional
petroleum consultants and other independent contractors, including
engineers and geologists in connection with property acquisitions,
geological and geophysical analysis, and reservoir engineering. The
Managing General Partner believes that, in addition to its own "in-house"
staff, the utilization of such consultants and independent contractors in
specific instances and on an "as-needed" basis allows for greater
flexibility and greater opportunity to perform its oil and gas activities
more economically and effectively.
Item 11. Executive Compensation
The Partnership does not have any directors or executive officers. The
executive officers of the Managing General Partner do not receive any cash
compensation, bonuses, deferred compensation or compensation pursuant to
any type of plan, from the Partnership. The Managing General Partner
received $36,000 during 2000 as an annual administrative fee.
Item 12. Security Ownership of Certain Beneficial Owners and Management
There are no limited partners who own of record, or are known by the
Managing General Partner to beneficially own, more than five percent of the
Partnership's limited partnership interests.
The Managing General Partner owns a nine percent interest in the
Partnership as a general partner. Through prior purchases, the Managing
General Partner also owns 350 limited partner units, or 6.5% limited
partner interest. The Managing General Partner total percentage interest
ownership in the Partnership is 14.8%.
No officer or director of the Managing General Partner owns Units in the
Partnership. H. H. Wommack, III, as the individual general partner of the
Partnership, owns a one percent interest as a general partner. The
officers and directors of the Managing General Partner are considered
beneficial owners of the limited partner units acquired by the Managing
General Partner by virtue of their status as such. A list of beneficial
owners of limited partner units, acquired by the Managing General Partner,
is as follows:
Amount and
Nature of Percent
Name and Address of Beneficial of
Title of Class Beneficial Owner Ownership Class
- ------------------- --------------------------- --------------- -------
Limited Partnership Southwest Royalties, Inc. Directly Owns 6.5%
Interest Managing General Partner
350 Units
407 N. Big Spring Street
Midland, TX 79701
Limited Partnership H. H. Wommack, III Indirectly Owns 6.5%
Interest Chairman of the Board,
350 Units
President, CEO, Treasurer
and Director of Southwest
Royalties, Inc., the
Managing General Partner
407 N. Big Spring Street
Midland, TX 79701
Limited Partnership H. Allen Corey Indirectly Owns 6.5%
Interest Secretary and Director of
350 Units
Southwest Royalties, Inc.,
the Managing General
Partner
633 Chestnut Street
Chattanooga, TN 37450-1800
Limited Partnership Bill E. Coggin Indirectly Owns 6.5%
Interest Vice President and CFO of
350 Units
Southwest Royalties, Inc.,
the Managing General
Partner
407 N. Big Spring Street
Midland, TX 79701
Limited Partnership J. Steven Person Indirectly Owns 6.5%
Interest Vice President, Marketing
350 Units
of Southwest Royalties, Inc.,
the Managing General
Partner
407 N. Big Spring Street
Midland, TX 79701
Limited Partnership Paul L. Morris Indirectly Owns 6.5%
Interest Director of Southwest
350 Units
Royalties, Inc., the
Managing General Partner
407 N. Big Spring Street
Midland, TX 79701
There are no arrangements known to the Managing General Partner which may
at a subsequent date result in a change of control of the Partnership.
Item 13. Certain Relationships and Related Transactions
In 2000, the Managing General Partners received $36,000 as an
administrative fee. This amount is part of the general and administrative
expenses incurred by the Partnership.
In some instances the Managing General Partner and certain officers and
employees may be working interest owners in an oil and gas property in
which the Partnership also has a working interest. Certain properties in
which the Partnership has an interest are operated by the Managing General
Partner, who was paid approximately $56,200 for administrative overhead
attributable to operating such properties during 2000.
Certain subsidiaries or affiliates of the Managing General Partner perform
various oilfield services for properties in which the Partnership owns an
interest. Such services aggregated approximately $1,000 for the year ended
December 31, 2000.
In the opinion of management, the terms of the above transactions are
similar to ones with unaffiliated third parties.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements:
Included in Part II of this report --
Independent Auditors Report
Balance Sheet
Statement of Operations
Statement of Changes in Partners' Equity
Statement of Cash Flows
Notes to Financial Statements
(2) Schedules required by Article 12 of
Regulation S-X are either omitted because they are not
applicable, or because the required information is shown
in the financial statements or the notes thereto.
(3) Exhibits:
4 (a) Certificate of Limited Partnership
of Southwest Royalties Institutional Income Fund
XI-A, L.P., dated May 5, 1992. (Incorporated by
reference from the Partnership's Form 10-K for
the fiscal year ended December 31, 1992.)
(b) Agreement of Limited Partnership
of Southwest Royalties Institutional Income Fund
XI-A, L.P., dated May 5, 1992. (Incorporated by
reference from the Partnership's Form 10-K for
the fiscal year ended December 31, 1992.)
27 Financial Data Schedule
(b) Report on Form 8-K
There were no reports filed on Form 8-K during the
quarter ended December 31, 2000.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Partnership has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Southwest Royalties Institutional Income
Fund XI-A, L.P., a Delaware limited partnership
By: Southwest Royalties, Inc., Managing
General
Partner
By: /s/ H. H. Wommack, III
-----------------------------
H. H. Wommack, III,
President
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Partnership and in the capacities and on the dates indicated.
By: /s/ H. H. Wommack, III
-----------------------------------
H. H. Wommack, III, Chairman of the
Board, President, Chief Executive
Officer, Treasurer and Director
Date: March 30, 2001
By: /s/ H. Allen Corey
-----------------------------
H. Allen Corey, Secretary and
Director
Date: March 30, 2001