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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, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number 33-47668-02
SOUTHWEST ROYALTIES INSTITUTIONAL 1992-93 INCOME PROGRAM
Southwest Royalties Institutional Income Fund XI-B, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2427289
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
407 N. Big Spring, Suite 300
Midland, Texas 79701
(Address of principal executive offices)
(915) 686-9927
(Registrant's telephone number,
including area code)
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days:
Yes X No
The total number of pages contained in this report is 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, 1997 which are found in the Registrant's Form
10-K Report for 1997 filed with the Securities and Exchange Commission.
The December 31, 1997 balance sheet included herein has been taken from the
Registrant's 1997 Form 10-K Report. Operating results for the three and
six month periods ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the full year.
Southwest Royalties Institutional Income Fund XI-B, L.P.
Balance Sheets
June 30, December 31,
1998 1997
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 3,481 4,948
Receivable from Managing General Partner - 54,454
Other receivable 10,063 51,887
--------- ---------
Total current assets 13,544 111,289
--------- ---------
Oil and gas properties - using the
full cost method of accounting 2,008,049 2,008,569
Less accumulated depreciation,
depletion and amortization 1,318,567 1,217,154
--------- ---------
Net oil and gas properties 689,482 791,415
--------- ---------
Organization costs, net of amortization 3,202 6,922
--------- ---------
$ 706,228 909,626
========= =========
Liabilities and Partners' Equity
Current liabilities:
Distribution payable $ 43 6
Payable to Managing General Partner 28,638 -
--------- ---------
Total current liabilities 28,681 6
--------- ---------
Partner equity:
General partners (1,416) 11,278
Limited partners 678,963 898,342
--------- ---------
Total partners' equity 677,547 909,620
--------- ---------
$ 706,228 909,626
========= =========
Southwest Royalties Institutional Income Fund XI-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues
Income (loss) from net profits
interests $ (17,019) 38,364 16,045 109,323
Interest income from
operations 266 241 428 464
Miscellaneous income - 13,553 - 19,906
------- ------- ------- -------
(16,753) 52,158 16,473 129,693
------- ------- ------- -------
Expenses
General and administrative 12,787 11,013 30,818 28,105
Depreciation, depletion and
amortization 20,360 29,860 47,220 67,720
Provision for impairment oil
and gas properties 57,913 - 57,913 -
Miscellaneous expense 52,707 - 55,095 -
------- ------- ------- -------
143,767 40,873 191,046 95,825
------- ------- ------- -------
Net income (loss) $ (160,520) 11,285 (174,573) 33,868
======= ======= ======= =======
Net income (loss) allocated to:
Managing General Partner $ (7,402) 3,703 (6,250) 9,143
======= ======= ======= =======
General Partner $ (823) 411 (694) 1,016
======= ======= ======= =======
Limited partners $ (152,295) 7,171 (167,629) 23,709
======= ======= ======= =======
Per limited partner unit $ (31.39) 1.48 (34.56) 4.89
======= ======= ======= =======
Southwest Royalties Institutional Income Fund XI-B, L.P.
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
Cash received from oil and gas sales $ 59,045 170,684
Cash paid to suppliers (3,997) (28,052)
Interest received 428 464
------- --------
Net cash provided by operating activities 55,476 143,096
------- --------
Cash flows from investing activities:
Cash proceeds from sale of oil and gas properties 520 -
------- --------
Cash flows used in financing activities:
Distributions to partners (57,463) (161,924)
------- --------
Net decrease in cash and cash equivalents (1,467) (18,828)
Beginning of period 4,948 20,225
------- --------
End of period $ 3,481 1,397
======= ========
(continued)
Southwest Royalties Institutional Income Fund XI-B, L.P.
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
1998 1997
Reconciliation of net income (loss) to net
cash provided by operating activities:
Net income (loss) $ (174,573) 33,868
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation, depletion and amortization 47,220 67,720
Provision for impairment for oil and gas
properties 57,913 -
Decrease in receivables 43,000 41,455
Increase in payables 81,916 53
------- -------
Net cash provided by operating activities $ 55,476 143,096
======= =======
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
slight increase during that time and thereafter, 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 reduced the net capitalized costs of oil
and gas properties in the quarter ended June 30, 1998 by approximately
$57,913. The write-down has the effect of reducing net income, but did not
affect cash flow or partner distributions. A continuation of the oil price
environment experienced during the first half of 1998 will have an adverse
affect on the Company's revenues and operating cash flow. Also, further
declines in oil prices could result in additional decreases in the carrying
value of the Company's oil and gas properties.
Results of Operations
A. General Comparison of the Quarters Ended June 30, 1998 and 1997
The following table provides certain information regarding performance
factors for the quarters ended June 30, 1998 and 1997:
Three Months
Ended Percentage
June 30, Increase
1998 1997 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 12.29 18.32 (33%)
Average price per mcf of gas $ 1.59 2.01 (21%)
Oil production in barrels 2,500 2,900 (14%)
Gas production in mcf 21,500 27,000 (20%)
Income from net profits interests $ (17,019) 38,364 (144%)
Partnership distributions $ 24,000 67,500 (64%)
Limited partner distributions $ 21,600 60,750 (64%)
Per unit distribution to limited
partners $ 4.45 12.52 (64%)
Number of limited partner units 4,851 4,851
Revenues
The Partnership's income from net profits interests decreased to $(17,019)
from $38,364 for the quarters ended June 30, 1998 and 1997, respectively, a
decrease of 144%. The principal factors affecting the comparison of the
quarters ended June 30, 1998 and 1997 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended June 30, 1998 as compared to the
quarter ended June 30, 1997 by 33%, or $6.03 per barrel, resulting in a
decrease of approximately $17,500 in income from net profits interests.
Oil sales represented 69% of total oil and gas sales during the quarter
ended June 30, 1998 as compared to 49% during the quarter ended June
30, 1997.
The average price for an mcf of gas received by the Partnership
decreased during the same period by 21%, or $.42 per mcf, resulting in
a decrease of approximately $11,340 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
$28,840. 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 14% during the
quarter ended June 30, 1998 as compared to the quarter ended June 30,
1997, resulting in a decrease of approximately $4,900 in income from
net profits interests.
Gas production decreased approximately 5,500 mcf or 20% during the same
period, resulting in a decrease of approximately $8,700 in income from
net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $13,600. The decrease is
primarily attributable to the sharp natural decline on two leases and
downtime, due to mechanical problems.
3. Lease operating costs and production taxes were 11% lower, or
approximately $7,400 less during the quarter ended June 30, 1998 as
compared to the quarter ended June 30, 1997. The decrease is primarily
attributable to repairs on a salt water disposal well during the second
quarter of 1997.
Costs and Expenses
Total costs and expenses increased to $143,767 from $40,873 for the
quarters ended June 30, 1998 and 1997, respectively, an increase of 252%.
The increase is the result of higher depletion expense, 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 increased
16% or approximately $1,770 during the quarter ended June 30, 1998 as
compared to the quarter ended June 30, 1997.
2. Depletion expense decreased to $18,500 for the quarter ended June 30,
1998 from $28,000 for the same period in 1997. This represents a decrease
of 34%. Depletion is calculated using the units of revenue method of
amortization based on a percentage of current period gross revenues to
total future gross oil and gas revenues, as estimated by the Partnership's
independent petroleum consultants. Contributing factors to the decrease in
depletion expense between the comparative periods were the decrease in
gross oil and gas revenues and the decrease in the price of oil used to
determine the Partnership's reserves for January 1, 1998 as compared to
1997. The Partnership reduced the net capitalized costs of oil and gas
properties in the quarter ended June 30, 1998 by approximately $57,913.
The write-down has the effect of reducing net income, but did not affect
cash flow or partner distributions.
3. 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 $52,707 was found to be necessary. This adjustment was
recorded as miscellaneous expense on the Partnerships books for the quarter
ended June 30, 1998.
B. General Comparison of the Six Month Periods Ended June 30, 1998 and
1997
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 1998 and 1997:
Six Months
Ended Percentage
June 30, Increase
1998 1997 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 12.22 20.92 (42%)
Average price per mcf of gas $ 1.59 2.20 (28%)
Oil production in barrels 5,300 6,100 (13%)
Gas production in mcf 41,600 54,000 (23%)
Income from net profits interests $ 16,045 109,323 (85%)
Partnership distributions $ 57,500 162,000 (65%)
Limited partner distributions $ 51,750 145,800 (65%)
Per unit distribution to limited
partners $ 10.67 30.06 (65%)
Number of limited partner units 4,851 4,851
Revenues
The Partnership's income from net profits interests decreased to $16,045
from $109,323 for the six months ended June 30, 1998 and 1997,
respectively, a decrease of 85%. The principal factors affecting the
comparison of the six months ended June 30, 1998 and 1997 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the six months ended June 30, 1998 as compared to the
six months ended June 30, 1997 by 42%, or $8.70 per barrel, resulting
in a decrease of approximately $53,070 in income from net profits
interests. Oil sales represented 49% of total oil and gas sales during
the six months ended June 30, 1998 as compared to 52% during the six
months ended June 30, 1997.
The average price for an mcf of gas received by the Partnership
decreased during the same period by 28%, or $.61 per mcf, resulting in
a decrease of approximately $32,940 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
$86,010. 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 800 barrels or 13% during the
six months ended June 30, 1998 as compared to the six months ended June
30, 1997, resulting in a decrease of approximately $9,770 in income
from net profits interests.
Gas production decreased approximately 12,400 mcf or 23% during the
same period, resulting in a decrease of approximately $19,700 in income
from net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $29,470. The decrease is
primarily attributable to the sharp natural decline on two leases and
downtime, due to mechanical problems.
3. Lease operating costs and production taxes were 16% lower, or
approximately $22,200 less during the six months ended June 30, 1998 as
compared to the six months ended June 30, 1997.
Costs and Expenses
Total costs and expenses increased to $191,046 from $95,825 for the six
months ended June 30, 1998 and 1997, respectively, an increase of 99%. The
increase is the result of higher 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 increased
10% or approximately $2,700 during the six months ended June 30, 1998
as compared to the six months ended June 30, 1997.
2. Depletion expense decreased to $43,500 for the six months ended June
30, 1998 from $64,000 for the same period in 1997. This represents a
decrease of 32%. Depletion is calculated using the units of revenue method
of amortization based on a percentage of current period gross revenues to
total future gross oil and gas revenues, as estimated by the Partnership's
independent petroleum consultants. Contributing factors to the decline in
depletion expense between the comparative periods were the decrease in
gross oil and gas revenues and the decrease in the price of oil used to
determine the Partnership's reserves for January 1, 1998 as compared to
1997. The Partnership reduced the net capitalized costs of oil and gas
properties in the quarter ended June 30, 1998 by approximately $57,913.
The write-down has the effect of reducing net income, but did not affect
cash flow or partner distributions.
3. The Partnership entered into a purchase agreement on the Tar Baby
lease that guaranteed net income each month from October 1994 through
January 1998. The income was recorded on the Partnerships books as
miscellaneous income. Based on new information obtained in May 1998, an
adjustment of $52,707 was found to be necessary. This adjustment was
recorded as miscellaneous expense on the Partnerships books for the six
months ended June 30, 1998.
Liquidity and Capital Resources
The primary source of cash is from operations, the receipt of income from
interests in oil and gas properties. The Partnership knows of no material
change, nor does it anticipate any such change.
Cash flows provided by operating activities were approximately $55,500 in
the six months ended June 30, 1998 as compared to approximately $143,100 in
the six months ended June 30, 1997. The primary source of the 1998 cash
flow from operating activities was profitable operations.
Cash flows provided by investing activities were approximately $520 in the
six months ended June 30, 1998. There were no cash flows provided by
investing activities in the six months ended June 30, 1997. The source for
the cash flows were sale of oil and gas properties.
Cash flows used in financing activities were approximately $57,500 in the
six months ended June 30, 1998 as compared to approximately $161,900 in the
six months ended June 30, 1997. The only use in financing activities was
the distributions to partners.
Total distributions during the six months ended June 30, 1998 were $57,500
of which $51,750 was distributed to the limited partners and $5,750 to the
general partners. The per unit distribution to limited partners during the
six months ended June 30, 1998 was $10.67. Total distributions during the
six months ended June 30, 1997 were $162,000 of which $145,800 was
distributed to the limited partners and $16,200 to the general partners.
The per unit distribution to limited partners during the six months ended
June 30, 1997 was $30.06.
The source for the 1998 distributions of $57,500 were oil and gas
operations of approximately $55,500. The source for the 1997 distributions
of $162,000 was oil and gas operations of approximately $143,100, with the
balance from available cash on hand at the beginning of the period.
Since inception of the Partnership, cumulative monthly cash distributions
of $988,439 have been made to the partners. As of June 30, 1998, $903,453
or $186.24 per limited partner unit has been distributed to the limited
partners, representing a 37% return of the capital contributed.
As of June 30, 1998, the Partnership had approximately $(15,100) 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.
Information Systems for the Year 2000
The Managing General Partner provides all data processing needs of the
Partnership. The Managing General Partner has reviewed and evaluated its
information systems to determine if its systems accurately process data
referencing the year 2000. Primarily all necessary programming
modifications to correct year 2000 referencing in the Managing General
Partners internal accounting and operating systems have been made to-date.
However the Managing General Partner has not completed its evaluation of
its vendors and suppliers systems to determine the effect, if any, the non-
compliance of such systems would have on the operation of the Managing
General Partnership or the operations of the Partnership.
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, 1998.
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, 1998