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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 June 30, 2000
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 16.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed financial statements included herein have been
prepared by the Registrant (herein also referred to as the "Partnership")
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments necessary for a fair presentation have been included and are of
a normal recurring nature. The financial statements should be read in
conjunction with the audited financial statements and the notes thereto for
the year ended December 31, 1999 which are found in the Registrant's Form
10-K Report for 1999 filed with the Securities and Exchange Commission.
The December 31, 1999 balance sheet included herein has been taken from the
Registrant's 1999 Form 10-K Report. Operating results for the three and
six month periods ended June 30, 2000 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
June 30, December 31,
2000 1999
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 30,402 24,784
Receivable from Managing General Partner 52,108 39,956
Distribution receivable - 70
--------- ---------
Total current assets 82,510 64,810
--------- ---------
Oil and gas properties - using the
full cost method of accounting 2,006,334 2,006,334
Less accumulated depreciation,
depletion and amortization 1,678,721 1,665,721
--------- ---------
Net oil and gas properties 327,613 340,613
--------- ---------
$ 410,123 405,423
========= =========
Liabilities and Partners' Equity
Partner equity:
General partners $ 8,348 6,578
Limited partners 401,775 398,845
--------- ---------
Total partners' equity 410,123 405,423
--------- ---------
$ 410,123 405,423
========= =========
Southwest Royalties Institutional Income Fund XI-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues
Income from net profits
interests $ 75,605 33,792 146,758 48,533
Interest income from
operations 510 145 946 159
Miscellaneous income - 21,000 - 21,000
------- ------- ------- -------
76,115 54,937 147,704 69,692
------- ------- ------- -------
Expenses
General and administrative 9,985 10,770 20,004 22,484
Depreciation, depletion and
amortization 2,000 8,000 13,000 21,102
------- ------- ------- -------
11,985 18,770 33,004 43,586
------- ------- ------- -------
Net income $ 64,130 36,167 114,700 26,106
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 5,952 3,975 11,493 4,249
======= ======= ======= =======
General Partner $ 661 442 1,277 473
======= ======= ======= =======
Limited partners $ 57,517 31,750 101,930 21,384
======= ======= ======= =======
Per limited partner unit $ 11.86 6.55 21.01 4.41
======= ======= ======= =======
Southwest Royalties Institutional Income Fund XI-B, L.P.
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
2000 1999
Cash flows from operating activities:
Cash received from oil and gas sales $ 139,725 61,018
Cash paid to suppliers (25,123) (26,615)
Interest received 946 159
------- --------
Net cash provided by operating activities 115,548 34,562
------- --------
Cash flows from investing activities:
Cash proceeds from sale of oil and gas properties - 1,571
Additions to oil and gas properties - (728)
------- --------
Net cash provided by investing activities - 843
------- --------
Cash flows used in financing activities:
Distributions to partners (109,930) (25,848)
------- --------
Net increase in cash and cash equivalents 5,618 9,557
Beginning of period 24,784 2,410
------- --------
End of period $ 30,402 11,967
======= ========
(continued)
Southwest Royalties Institutional Income Fund XI-B, L.P.
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
2000 1999
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 114,700 26,106
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 13,000 21,102
(Increase) decrease in receivables (7,033) 12,486
Decrease in payables (5,119) (25,132)
------- -------
Net cash provided by operating activities $ 115,548 34,562
======= =======
Southwest Royalties Institutional Income Fund XI-B, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
1. Organization
Southwest Royalties Institutional Income Fund XI-B, L.P. was organized
under the laws of the state of Delaware on August 31, 1993, 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
Partner 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%
All 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 cost 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 the 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.
2. Summary of Significant Accounting Policies
The interim financial information as of June 30, 2000, and for the
three and six months ended June 30, 2000, is unaudited. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q pursuant
to the rules and regulations of the Securities and Exchange
Commission. However, in the opinion of management, these interim
financial statements include all the necessary adjustments to fairly
present the results of the interim periods and all such adjustments
are of a normal recurring nature. The interim consolidated financial
statements should be read in conjunction with the audited financial
statements for the year ended December 31, 1999.
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. The Partnership's capitalized costs did not exceed the
estimated present value of reserves as of June 30, 2000.
Results of Operations
A. General Comparison of the Quarters Ended June 30, 2000 and 1999
The following table provides certain information regarding performance
factors for the quarters ended June 30, 2000 and 1999:
Three Months
Ended Percentage
June 30, Increase
2000 1999 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 28.39 15.89 79%
Average price per mcf of gas $ 4.35 1.99 119%
Oil production in barrels 1,600 2,000 (20%)
Gas production in mcf 17,300 20,800 (17%)
Income from net profits interests $ 75,605 33,792 124%
Partnership distributions $ 55,000 25,699 114%
Limited partner distributions $ 49,500 23,299 112%
Per unit distribution to limited
partners $ 10.20 4.80 112%
Number of limited partner units 4,851 4,851
Revenues
The Partnership's income from net profits interests increased to $75,605
from $33,792 for the quarters ended June 30, 2000 and 1999, respectively,
an increase of 124%. The principal factors affecting the comparison of the
quarters ended June 30, 2000 and 1999 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended June 30, 2000 as compared to the
quarter ended June 30, 1999 by 79%, or $12.50 per barrel, resulting in
an increase of approximately $25,000 in income from net profits
interests. Oil sales represented 38% of total oil and gas sales during
the quarter ended June 30, 2000 as compared to 43% during the quarter
ended June 30, 1999.
The average price for an mcf of gas received by the Partnership
increased during the same period by 119%, or $2.36 per mcf, resulting
in an increase of approximately $49,100 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
$74,100. 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 400 barrels or 20% during the
quarter ended June 30, 2000 as compared to the quarter ended June 30,
1999, resulting in a decrease of approximately $11,400 in income from
net profits interests.
Gas production decreased approximately 3,500 mcf or 17% during the same
period, resulting in a decrease of approximately $15,200 in income from
net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $26,600. The decrease in
production is primarily due to the occurrence of payout on the Dagger
Draw, upon occurrence of payout the percentage of ownership for the
Partnership decreased significantly.
3. Lease operating costs and production taxes were 17% higher, or
approximately $6,800 more during the quarter ended June 30, 2000 as
compared to the quarter ended June 30, 1999. The increase in lease
operating costs and production taxes is primarily a result of the
higher oil and gas prices received by the Partnership. Higher prices
have made it possible for the Partnership to perform needed major
repairs and maintenance. Since production taxes are based on gross
revenues, the increase in oil and gas prices have directly increased
production taxes.
Costs and Expenses
Total costs and expenses decreased to $11,985 from $18,770 for the quarters
ended June 30, 2000 and 1999, respectively, a decrease of 36%. The
decrease is the result of lower depletion expense and 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 decreased 7%
or approximately $800 during the quarter ended June 30, 2000 as
compared to the quarter ended June 30, 1999.
2. Depletion expense decreased to $2,000 for the quarter ended June 30,
2000 from $8,000 for the same period in 1999. This represents a decrease
of 75%. 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 increase in the
price of oil and gas used to determine the Partnership's reserves for July
1, 2000 as compared to 1999.
3. The Partnership entered into a purchase agreement on the Kaiser State
lease that guaranteed net income each month for a specified period of
time. This income was recorded on the Partnerships books as
miscellaneous income. This property was later sold.
B. General Comparison of the Six Month Periods Ended June 30, 2000 and
1999
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 2000 and 1999:
Six Months
Ended Percentage
June 30, Increase
2000 1999 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 27.90 12.87 117%
Average price per mcf of gas $ 3.78 1.79 111%
Oil production in barrels 3,600 4,300 (16%)
Gas production in mcf 36,400 39,100 (7%)
Income from net profits interests $ 146,758 48,533 202%
Partnership distributions $ 110,000 25,699 328%
Limited partner distributions $ 99,000 23,299 325%
Per unit distribution to limited
partners $ 20.41 4.80 325%
Number of limited partner units 4,851 4,851
Revenues
The Partnership's income from net profits interests increased to $146,758
from $48,533 for the six months ended June 30, 2000 and 1999, respectively,
an increase of 202%. The principal factors affecting the comparison of the
six months ended June 30, 2000 and 1999 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the six months ended June 30, 2000 as compared to the
six months ended June 30, 1999 by 117%, or $15.03 per barrel, resulting
in an increase of approximately $64,600 in income from net profits
interests. Oil sales represented 42% of total oil and gas sales during
the six months ended June 30, 2000 as compared to 44% during the six
months ended June 30, 1999.
The average price for an mcf of gas received by the Partnership
increased during the same period by 111%, or $1.99 per mcf, resulting
in an increase of approximately $77,800 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
$142,400. 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 700 barrels or 16% during the
six months ended June 30, 2000 as compared to the six months ended June
30, 1999, resulting in a decrease of approximately $19,500 in income
from net profits interests.
Gas production decreased approximately 2,700 mcf or 7% during the same
period, resulting in a decrease of approximately $10,200 in income from
net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $29,700. The decrease in
production is primarily due to the occurrence of payout on the Dagger
Draw, upon occurrence of payout the percentage of ownership for the
Partnership decreased significantly.
3. Lease operating costs and production taxes were 18% higher, or
approximately $14,200 more during the six months ended June 30, 2000 as
compared to the six months ended June 30, 1999. The increase in lease
operating costs and production taxes is primarily a result of the
higher oil and gas prices received by the Partnership. Higher prices
have made it possible for the Partnership to perform needed major
repairs and maintenance. Since production taxes are based on gross
revenues, the increase in oil and gas prices have directly increased
production taxes.
Costs and Expenses
Total costs and expenses decreased to $33,004 from $43,586 for the six
months ended June 30, 2000 and 1999, respectively, a decrease of 24%. The
decrease is the result of lower general and administrative expense and
miscellaneous 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 decreased
11% or approximately $2,500 during the six months ended June 30, 2000
as compared to the six months ended June 30, 1999.
2. Depletion expense decreased to $13,000 for the six months ended June
30, 2000 from $21,000 for the same period in 1999. This represents a
decrease of 38%. 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 increase in the
price of oil and gas used to determine the Partnership's reserves for July
1, 2000 as compared to 1999.
3. The Partnership entered into a purchase agreement on the Kaiser State
lease that guaranteed net income each month for a specified period of
time. This income was recorded on the Partnerships books as
miscellaneous income. This property was later sold.
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 $115,500 in
the six months ended June 30, 2000 as compared to approximately $34,600 in
the six months ended June 30, 1999. The primary source of the 2000 cash
flow from operating activities was profitable operations.
There were no investing activities in the six months ended June 30, 2000.
Cash flows provided by investing activities were approximately $800 in the
six months ended June 30, 1999.
Cash flows used in financing activities were approximately $109,900 in the
six months ended June 30, 2000 as compared to approximately $25,800 in the
six months ended June 30, 1999. The only use in financing activities was
the distributions to partners.
Total distributions during the six months ended June 30, 2000 were $110,000
of which $99,000 was distributed to the limited partners and $11,000 to the
general partners. The per unit distribution to limited partners during the
six months ended June 30, 2000 was $20.41. Total distributions during the
six months ended June 30, 1999 were $25,699 of which $23,299 was
distributed to the limited partners and $2,400 to the general partners.
The per unit distribution to limited partners during the six months ended
June 30, 1999 was $4.80.
The source for the 2000 distributions of $110,000 was oil and gas
operations of approximately $115,500. The source for the 1999
distributions of $25,699 was oil and gas operations of approximately
$34,600 and the net change in oil and gas properties of approximately $800,
resulting in excess cash for contingencies or subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions
of $1,212,138 have been made to the partners. As of June 30, 2000,
$1,104,952 or $227.78 per limited partner unit has been distributed to the
limited partners, representing a 45% return of the capital contributed.
As of June 30, 2000, the Partnership had approximately $82,500 in working
capital. The Managing General Partner knows of no unusual contractual
commitments and believes the revenues generated from operations are
adequate to meet the needs of the Partnership.
Liquidity - Managing General Partner
The Managing General Partner has a highly leveraged capital structure with
over $50.1 million principal due by December 31, 2000 and $15.3 million
interest payments due within the next twelve months on its debt
obligations. The Managing General Partner is currently in the process of
renegotiating the terms of its various obligations with its creditors
and/or attempting to seek new lenders or equity investors. Additionally,
the Managing General Partner would consider disposing of certain assets in
order to meet its obligations.
There can be no assurance that the Managing General Partner's debt
restructuring efforts will be successful or that the lenders will agree to
a course of action consistent with the Managing General Partners
requirements in restructuring the obligations. Even if such agreement is
reached, it may require approval of additional lenders, which is not
assured. Furthermore, there can be no assurance that the sales of assets
can be successfully accomplished on terms acceptable to the Managing
General Partner. Under current circumstances, the Managing General
Partner's ability to continue as a going concern depends upon its ability
to (1) successfully restructure its obligations or obtain additional
financing as may be required, (2) maintain compliance with all debt
covenants, (3) generate sufficient cash flow to meet its obligations on a
timely basis, and (4) achieve satisfactory levels of future earnings. If
the Managing General Partner is unsuccessful in its efforts, it may be
unable to meet its obligations making it necessary to undertake such other
actions as may be appropriate to preserve asset values.
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) Reports on Form 8-K:
No reports on Form 8-
K were filed during the quarter ended June 30, 2000.
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/ J Steven Person
------------------------------
J Steven Person, Vice-President of
Marketing and Chief Financial Officer
of Southwest Royalties, Inc.
the Managing General Partner
Date: August 15, 2000