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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, 2001
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 14.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed financial statements included herein have been
prepared by the Registrant (herein also referred to as the "Partnership")
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments necessary for a fair presentation have been included and are of
a normal recurring nature. The financial statements should be read in
conjunction with the audited financial statements and the notes thereto for
the year ended December 31, 2000 which are found in the Registrant's Form
10-K Report for 2000 filed with the Securities and Exchange Commission.
The December 31, 2000 balance sheet included herein has been taken from the
Registrant's 2000 Form 10-K Report. Operating results for the three and
six month periods ended June 30, 2001 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,
2001 2000
--------- ------------
(unaudited)
Assets
------
Current assets:
Cash and cash equivalents $ 85,508 36,446
Receivable from Managing General Partner 29,859 59,613
--------- ---------
Total current assets 115,367 96,059
--------- ---------
Oil and gas properties - using the
full-cost method of accounting 1,986,334 2,006,334
Less accumulated depreciation,
depletion and amortization 1,707,721 1,682,721
--------- ---------
Net oil and gas properties 278,613 323,613
--------- ---------
$ 393,980 419,672
========= =========
Liabilities and Partners' Equity
--------------------------------
Partners' equity:
General partners $ 9,634 9,703
Limited partners 384,346 409,969
--------- ---------
Total partners' equity 393,980 419,672
--------- ---------
$ 393,980 419,672
========= =========
Southwest Royalties Institutional Income Fund XI-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2001 2000 2001 2000
----- ----- ----- -----
Revenues
Income from net profits
interests $ 54,130 75,605 168,032 146,758
Interest income from
operations 857 510 1,471 946
------- ------- ------- -------
54,987 76,115 169,503 147,704
------- ------- ------- -------
Expenses
General and administrative 10,448 9,985 20,195 20,004
Depreciation, depletion and
amortization 15,000 2,000 25,000 13,000
------- ------- ------- -------
25,448 11,985 45,195 33,004
------- ------- ------- -------
Net income $ 29,539 64,130 124,308 114,700
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 4,009 5,952 13,438 11,493
======= ======= ======= =======
General Partner $ 445 661 1,493 1,277
======= ======= ======= =======
Limited partners $ 25,085 57,517 109,377 101,930
======= ======= ======= =======
Per limited partner unit $ 5.17 11.86 22.55 21.01
======= ======= ======= =======
Southwest Royalties Institutional Income Fund XI-B, L.P.
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
2001 2000
----- -----
Cash flows from operating activities:
Cash received from oil and gas sales $ 205,624 139,725
Cash paid to suppliers (28,033) (25,123)
Interest received 1,471 946
------- --------
Net cash provided by operating activities 179,062 115,548
------- --------
Cash flows from investing activities:
Sale of oil and gas properties 20,000 -
------- --------
Cash flows used in financing activities:
Distributions to partners (150,000) (109,930)
------- --------
Net increase in cash and cash equivalents 49,062 5,618
Beginning of period 36,446 24,784
------- --------
End of period $ 85,508 30,402
======= ========
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 124,308 114,700
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 25,000 13,000
Decrease (increase) in receivables 37,592 (7,033)
Decrease in payables (7,838) (5,119)
------- -------
Net cash provided by operating activities $ 179,062 115,548
======= =======
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, 2001, and for the
three and six months ended June 30, 2001, 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, 2000.
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 2001. The Partnership could possibly experience a 11% per
year 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, 2001.
Results of Operations
A. General Comparison of the Quarters Ended June 30, 2001 and 2000
The following table provides certain information regarding performance
factors for the quarters ended June 30, 2001 and 2000:
Three Months
Ended Percentage
June 30, Increase
2001 2000 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 25.11 28.39 (12%)
Average price per mcf of gas $ 4.27 4.35 (2%)
Oil production in barrels 1,550 1,600 (3%)
Gas production in mcf 16,800 17,300 (3%)
Income from net profits interests $ 54,130 75,605 (28%)
Partnership distributions $ 75,000 55,000 36%
Limited partner distributions $ 67,500 49,500 36%
Per unit distribution to limited
partners $ 13.91 10.20 36%
Number of limited partner units 4,851 4,851
Revenues
The Partnership's income from net profits interests decreased to $54,130
from $75,605 for the quarters ended June 30, 2001 and 2000, respectively, a
decrease of 28%. The principal factors affecting the comparison of the
quarters ended June 30, 2001 and 2000 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended June 30, 2001 as compared to the
quarter ended June 30, 2000 by 12%, or $3.28 per barrel, resulting in a
decrease of approximately $5,200 in income from net profits interests.
Oil sales represented 35% of total oil and gas sales during the quarter
ended June 30, 2001 as compared to 38% during the quarter ended June
30, 2000.
The average price for an mcf of gas received by the Partnership
decreased during the same period by 2%, or $.08 per mcf, resulting in a
decrease of approximately $1,400 in income from net profits interests.
The total decrease in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$6,600. The market price for oil and gas has been extremely volatile
over the past decade, and management expects a certain amount of
volatility to continue in the foreseeable future.
2. Oil production decreased approximately 50 barrels or 3% during the
quarter ended June 30, 2001 as compared to the quarter ended June 30,
2000, resulting in a decrease of approximately $1,300 in income from
net profits interests.
Gas production decreased approximately 500 mcf or 3% during the same
period, resulting in a decrease of approximately $2,100 in income from
net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $3,400.
3. Lease operating costs and production taxes were 7% higher, or
approximately $3,400 more during the quarter ended June 30, 2001 as
compared to the quarter ended June 30, 2000.
Costs and Expenses
Total costs and expenses increased to $25,448 from $11,985 for the quarters
ended June 30, 2001 and 2000, respectively, an increase of 112%. The
increase is the result of higher 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 increased 5%
or approximately $500 during the quarter ended June 30, 2001 as
compared to the quarter ended June 30, 2000.
2. Depletion expense increased to $15,000 for the quarter ended June 30,
2001 from $2,000 for the same period in 2000. This represents an increase
of 650%. 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 increase in
depletion expense between the comparative periods were the decrease in the
price of oil and gas used to determine the Partnership's reserves for July
1, 2001 as compared to 2000.
B. General Comparison of the Six Month Periods Ended June 30, 2001 and
2000
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 2001 and 2000:
Six Months
Ended Percentage
June 30, Increase
2001 2000 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 25.58 27.90 (8%)
Average price per mcf of gas $ 5.23 3.78 38%
Oil production in barrels 3,360 3,600 (7%)
Gas production in mcf 33,900 36,400 (7%)
Income from net profits interests $ 168,032 146,758 14%
Partnership distributions $ 150,000 110,000 36%
Limited partner distributions $ 135,000 99,000 36%
Per unit distribution to limited
partners $ 27.83 20.41 36%
Number of limited partner units 4,851 4,851
Revenues
The Partnership's income from net profits interests increased to $168,032
from $146,758 for the six months ended June 30, 2001 and 2000,
respectively, an increase of 14%. The principal factors affecting the
comparison of the six months ended June 30, 2001 and 2000 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the six months ended June 30, 2001 as compared to the
six months ended June 30, 2000 by 8%, or $2.32 per barrel, resulting in
a decrease of approximately $7,800 in income from net profits
interests. Oil sales represented 33% of total oil and gas sales during
the six months ended June 30, 2001 as compared to 42% during the six
months ended June 30, 2000.
The average price for an mcf of gas received by the Partnership
increased during the same period by 38%, or $1.45 per mcf, resulting in
an increase of approximately $49,200 in income from net profits
interests.
The net total increase in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$41,400. 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 240 barrels or 7% during the six
months ended June 30, 2001 as compared to the six months ended June 30,
2000, resulting in a decrease of approximately $6,700 in income from
net profits interests.
Gas production decreased approximately 2,500 mcf or 7% during the same
period, resulting in a decrease of approximately $9,500 in income from
net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $16,200.
3. Lease operating costs and production taxes were 4% higher, or
approximately $4,100 more during the six months ended June 30, 2001 as
compared to the six months ended June 30, 2000.
Costs and Expenses
Total costs and expenses increased to $45,195 from $33,004 for the six
months ended June 30, 2001 and 2000, respectively, an increase of 37%. The
increase is the result of higher general and administrative expense and
depletion expense.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs increased 1%
or approximately $200 during the six months ended June 30, 2001 as
compared to the six months ended June 30, 2000.
2. Depletion expense increased to $25,000 for the six months ended June
30, 2001 from $13,000 for the same period in 2000. This represents an
increase of 92%. 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 increase in
depletion expense between the comparative periods were the decrease in the
price of oil and gas used to determine the Partnership's reserves for July
1, 2001 as compared to 2000 and the increase in oil and gas revenues
received by the Partnership during 2001 as compared to 2000.
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 $179,100 in
the six months ended June 30, 2001 as compared to approximately $115,500 in
the six months ended June 30, 2000. The primary source of the 2001 cash
flow from operating activities was profitable operations.
Cash flows provided by investing activities were approximately $20,000 in
the six months ended June 30, 2001. There were no investing activities in
the six months ended June 30, 2000. The principle source of the 2001 cash
flow from investing activities was the sales of oil and gas properties.
Cash flows used in financing activities were approximately $150,000 in the
six months ended June 30, 2001 as compared to approximately $109,900 in the
six months ended June 30, 2000. The only use in financing activities was
the distributions to partners.
Total distributions during the six months ended June 30, 2001 were $150,000
of which $135,000 was distributed to the limited partners and $15,000 to
the general partners. The per unit distribution to limited partners during
the six months ended June 30, 2001 was $27.83. 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.
The source for the 2001 distributions of $150,000 was oil and gas
operations of approximately $179,100 and the change in oil and gas
properties of approximately $20,000, resulting in excess cash for
contingencies or subsequent distributions. The source for the 2000
distributions of $110,000 was oil and gas operations of approximately
$115,500.
Since inception of the Partnership, cumulative monthly cash distributions
of $1,487,875 have been made to the partners. As of June 30, 2001,
$1,353,115 or $278.94 per limited partner unit has been distributed to the
limited partners, representing a 56% return of the capital contributed.
As of June 30, 2001, the Partnership had approximately $115,400 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is not a party to any derivative
or embedded derivative instruments.
PART II. - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Reports on Form 8-K:
No reports on Form 8-
K were filed during the quarter ended June 30, 2001.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SOUTHWEST ROYALTIES INSTITUTIONAL
INCOME FUND XI-B, L.P.
a Delaware limited partnership
By: Southwest Royalties, Inc.
Managing General Partner
By: /s/ Bill E. Coggin
------------------------------
Bill E. Coggin, Vice President
and Chief Financial Officer
Date: August 15, 2001