FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ________________
Commission File number: 0-23986
SWIFT ENERGY OPERATING PARTNERS 1993-B, LTD.
(Exact name of registrant as specified in its charter)
Texas 76-0400061
(State or other jurisdiction of organization) (I.R.S. Employer Identification No.)
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(Address of principal executive offices)
(Zip Code)
(281)874-2700
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the 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
----
SWIFT ENERGY OPERATING PARTNERS 1993-B, LTD.
INDEX
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Financial Statements
Balance Sheets
- September 30, 1998 and December 31, 1997 3
Statements of Operations
- Three month and nine month periods ended September 30, 1998 and 1997 4
Statements of Cash Flows
- Nine month periods ended September 30, 1998 and 1997 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 11
SIGNATURES 12
SWIFT ENERGY OPERATING PARTNERS 1993-B, LTD.
BALANCE SHEETS
September 30, December 31,
1998 1997
--------------- ---------------
(Unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents $ 47,732 $ 332,870
Oil and gas sales receivable 237,547 478,853
--------------- ----------------
Total Current Assets 285,279 811,723
--------------- ----------------
Gas Imbalance Receivable 25,184 25,219
--------------- ----------------
Oil and Gas Properties, using full cost
accounting 9,418,472 9,309,496
Less-Accumulated depreciation, depletion
and amortization (7,360,536) (6,147,139)
--------------- ----------------
2,057,936 3,162,357
--------------- ----------------
$ 2,368,399 $ 3,999,299
=============== ================
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Accounts Payable $ 144,603 $ 174,126
--------------- ----------------
Deferred Revenues 20,404 20,404
Interest Holders' Capital (9,627,683 Interest Holders' SDIs;
$1.00 per SDI) 2,203,311 3,786,265
General Partners' Capital 81 18,504
--------------- ----------------
Total Partners' Capital 2,203,392 3,804,769
--------------- ----------------
$ 2,368,399 $ 3,999,299
=============== ================
See accompanying notes to financial statements.
3
SWIFT ENERGY OPERATING PARTNERS 1993-B, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ----------------------------------
1998 1997 1998 1997
---------------- --------------- --------------- ---------------
REVENUES:
Oil and gas sales $ 138,211 $ 340,577 $ 457,115 $ 1,105,204
Interest income 1,243 3,205 7,830 11,392
Other income 2,638 3,705 8,988 12,671
--------------- --------------- --------------- ---------------
142,092 347,487 473,933 1,129,267
--------------- --------------- --------------- ---------------
COSTS AND EXPENSES:
Lease Operating 91,530 103,500 252,960 288,336
Production taxes 7,463 21,841 24,605 61,918
Depreciation, depletion
and amortization -
Normal provision 81,532 149,512 277,781 487,410
Additional provision 413,619 -- 935,616 223,077
General and administrative 32,236 35,498 105,939 110,570
--------------- --------------- --------------- ---------------
626,380 310,351 1,596,901 1,171,311
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (484,288) $ 37,136 $ (1,122,968) $ (42,044)
=============== =============== =============== ===============
Limited Partners' net income (loss)
per unit $ .05 $ -- $ .12 $ --
=============== =============== =============== ===============
See accompanying notes to financial statements.
4
SWIFT ENERGY OPERATING PARTNERS 1993-B, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
----------------------------------------
1998 1997
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (Loss) $ (1,122,968) $ (42,044)
Adjustments to reconcile income (loss) to
net cash provided by operations:
Depreciation, depletion and amortization 1,213,397 710,487
Change in gas imbalance receivable
and deferred revenues 35 (25)
Change in assets and liabilities:
(Increase) decrease in oil and gas sales receivable 241,306 36,775
Increase (decrease) in accounts payable (29,523) (23,639)
--------------- ---------------
Net cash provided by (used in) operating activities 302,247 681,554
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (115,527) (155,230)
Proceeds from sales of oil and gas properties 6,551 --
--------------- ---------------
Net cash provided by (used in) investing activities (108,976) (155,230)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (478,409) (698,806)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (285,138) (172,482)
--------------- ---------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 332,870 451,530
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 47,732 $ 279,048
=============== ===============
See accompanying notes to financial statements.
5
SWIFT ENERGY OPERATING PARTNERS 1993-B, LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) General Information -
The financial statements included herein have been prepared by
the Partnership and are unaudited except for the balance sheet at
December 31, 1997 which has been taken from the audited financial
statements at that date. The financial statements reflect adjustments,
all of which were of a normal recurring nature, which are, in the
opinion of the managing general partner necessary for a fair
presentation. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). The
Partnership believes adequate disclosure is provided by the information
presented. The financial statements should be read in conjunction with
the audited financial statements and the notes included in the latest
Form 10-K.
(2) Organization and Terms of Partnership Agreement -
Swift Energy Operating Partners 1993-B, Ltd., a Texas limited
partnership ("the Partnership"), was formed on June 30, 1993, for the
purpose of purchasing and operating producing oil and gas properties
within the continental United States and Canada. Swift Energy Company
("Swift"), a Texas corporation, and VJM Corporation ("VJM"), a
California corporation, serve as Managing General Partner and Special
General Partner of the Partnership, respectively. The sole limited
partner of the Partnership is Swift Depositary Company, which has
assigned all of its beneficial (but not of record) rights and interest
as limited partner to the investors in the Partnership ("Interest
Holders"), in the form of Swift Depositary Interests ("SDIs").
The Managing General Partner has paid or will pay out of its
own corporate funds (as a capital contribution to the Partnership) all
selling commissions, offering expenses, printing, legal and accounting
fees and other formation costs incurred in connection with the offering
of SDIs and the formation of the Partnership, for which the Managing
General Partner will receive an interest in continuing costs and
revenues of the Partnership.
The 606 Interest Holders made total capital contributions of $9,627,683.
Generally, all continuing costs (including development costs,
operating costs, general and administrative reimbursements and direct
expenses) and revenues are allocated 85 percent to the interest holders
and 15 percent to the general partners. After partnership payout, as
defined in the Partnership Agreement, continuing costs and revenues will
be shared 75 percent by the Interest Holders, and 25 percent by the
general partners.
(3) Significant Accounting Policies -
Use of Estimates --
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 at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from estimates.
Oil and Gas Properties --
The Partnership accounts for its ownership interest in oil and
gas properties using the proportionate consolidation method, whereby the
Partnership's share of assets, liabilities, revenues and expenses is
included in the appropriate classification in the financial statement.
For financial reporting purposes the Partnership follows the
"full-cost" method of accounting for oil and gas property costs. Under
this method of accounting, all productive and nonproductive costs
incurred in the acquisition and development of oil and gas reserves are
capitalized. Such costs include lease acquisitions, geological and
geophysical services, drilling, completion, equipment and certain
general and administrative costs directly associated with acquisition
and development activities. General and administrative costs related to
production and general overhead are expensed as incurred. No general and
administrative costs were capitalized during the nine months ended
September 30, 1998 and 1997.
6
SWIFT ENERGY OPERATING PARTNERS 1993-B, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Future development, site restoration, dismantlement and
abandonment costs, net of salvage values, are estimated on a
property-by-property basis based on current economic conditions and are
amortized to expense as the Partnership's capitalized oil and gas
property costs are amortized.
The unamortized cost of oil and gas properties is limited to
the "ceiling limitation" (calculated separately for the Partnership,
limited partners and general partners). The "ceiling limitation" is
calculated on a quarterly basis and represents the estimated future net
revenues from proved properties using current prices, discounted at ten
percent, and the lower of cost or fair value of unproved properties.
Proceeds from the sale or disposition of oil and gas properties are
treated as a reduction of oil and gas property costs with no gains or
losses being recognized except in significant transactions.
The Partnership computes the provision for depreciation,
depletion and amortization of oil and gas properties on the
units-of-production method. Under this method, the provision is
calculated by multiplying the total unamortized cost of oil and gas
properties, including future development, site restoration,
dismantlement and abandonment costs, by an overall amortization rate
that is determined by dividing the physical units of oil and gas
produced during the period by the total estimated units of proved oil
and gas reserves at the beginning of the period.
The calculation of the "ceiling limitation" and the provision
for depreciation, depletion and amortization is based on estimates of
proved reserves. There are numerous uncertainties inherent in estimating
quantities of proved reserves and in projecting the future rates of
production, timing and plan of development. The accuracy of any reserve
estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Results of
drilling, testing and production subsequent to the date of the estimate
may justify revision of such estimate. Accordingly, reserve estimates
are often different from the quantities of oil and gas that are
ultimately recovered.
(4) Related-Party Transactions -
Effective June 30, 1993, the Partnership entered into a Net
Profits and Overriding Royalty Interest Agreement ("NP/OR Agreement")
with Swift Energy Pension Partners 1993-B, Ltd. ("Pension Partnership"),
an affiliated partnership managed by Swift for the purpose of acquiring
nonoperating interests in producing oil and gas properties. Under the
terms of the NP/OR Agreement, the Partnership will convey to the Pension
Partnership a nonoperating interest in the aggregate net profits (i.e.,
oil and gas sales net of related operating costs) of the properties
acquired equal to the Pension Partnership's proportionate share of the
property acquisition costs.
(5) Gas Imbalances -
The Partnership recognizes its ownership interest in natural
gas production as revenue. Actual production quantities sold may be
different than the Partnership's ownership share in a given period. If
the Partnership's sales exceed its ownership share of production, the
differences are recorded as deferred revenue. Gas balancing receivables
are recorded when the Partnership's ownership share of production
exceeds sales.
(6) Vulnerability Due to Certain Concentrations -
The Partnership's revenues are primarily the result of sales
of its oil and natural gas production. Market prices of oil and natural
gas may fluctuate and adversely affect operating results.
In the normal course of business, the Partnership extends
credit, primarily in the form of monthly oil and gas sales receivables,
to various companies in the oil and gas industry which results in a
concentration of credit risk. This concentration of credit risk may be
affected by changes in economic or other conditions and may accordingly
impact the Partnership's overall credit risk. However, the Managing
General Partner believes that the risk is mitigated by the size,
reputation, and nature of the companies to which the Partnership extends
credit. In addition, the Partnership generally does not require
collateral or other security to support customer receivables.
7
SWIFT ENERGY OPERATING PARTNERS 1993-B, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(7) Fair Value of Financial Instruments -
The Partnership's financial instruments consist of cash and
cash equivalents and short-term receivables and payables. The carrying
amounts approximate fair value due to the highly liquid nature of the
short-term instruments.
(8) Year 2000 -
The Year 2000 issue results from computer programs and
embedded computer chips with date fields that cannot distinguish between
the year 1900 and 2000. The Managing General Partner is currently
implementing the steps necessary to make its operations and the related
operations of the Partnership Year 2000 compliant. These steps include
upgrading, testing and certifying computer systems and field operation
services and obtaining Year 2000 compliance certification from all
important business suppliers. The Managing General Partner formed a task
force during the year to address the Year 2000 issue to ensure that all
of its business systems are Year 2000 compliant by mid-1999 with mission
critical systems projected to be compliant by the end of 1998.
The Managing General Partner's business systems are almost
entirely comprised of off-the-shelf software. Most of the necessary
changes in computer instructional code can be made by upgrading this
software. The Managing General Partner is currently in the process of
either upgrading the off-the-shelf software or receiving certification
as to Year 2000 compliance from vendors or third party consultants. A
testing phase will be conducted as the software is updated or certified
and is expected to be complete by mid-1999.
The Managing General Partner does not believe that costs
incurred to address the Year 2000 issue with respect to its business
systems will have a material effect on the Partnership's results of
operations, liquidity and financial condition. The estimated total cost
to the Managing General Partner to address Year 2000 issues is projected
to be less than $150,000, most of which will be spent during the testing
phase in the next nine months. The Partnership's share of this cost is
expected to be insignificant.
The failure to correct a material Year 2000 problem could
result in an interruption, or a failure of, certain normal business
activities or operations. Based on activities to date, the Managing
General Partner believes that it will be able to resolve any Year 2000
problems concerning its financial and administrative systems. The
Managing General Partner is uncertain, however, as to the impact that
the Year 2000 issue will have on field operations or as to how the
Managing General Partner or the Partnership will be indirectly affected
by the impact that the Year 2000 issue will have on companies with which
it conducts business. For example, the pipeline operators to whom the
Managing General Partner sells the Partnership's natural gas, as well as
other customers and suppliers, could be prone to Year 2000 problems that
could not be assessed or detected by the Managing General Partner. The
Managing General Partner plans to contact its major purchasers,
customers, suppliers, financial institutions and others with whom it
conducts business to determine whether they will be Year 2000 compliant
and whether they will be able to resolve in a timely manner any Year
2000 problems. Based upon these responses and any problems that arise
during the testing phase, contingency plans or back-up systems would be
determined and addressed.
8
SWIFT ENERGY OPERATING PARTNERS 1993-B, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Partnership was formed for the purpose of investing in producing oil
and gas properties located within the continental United States and Canada. In
order to accomplish this, the Partnership goes through two distinct yet
overlapping phases with respect to its liquidity and result of operations. When
the Partnership is formed, it commences its "acquisition" phase, with all funds
placed in short-term investments until required for such property acquisitions.
The interest earned on these pre-acquisition investments becomes the primary
cash flow source for initial Interest Holder distributions. As the Partnership
acquires producing properties, net cash from operations becomes available for
distribution, along with the investment income. After partnership funds have
been expended on producing oil and gas properties, the Partnership enters its
"operations" phase. During this phase, oil and gas sales generate substantially
all revenues, and distributions to Interest Holders reflect those revenues less
all associated partnership expenses. The Partnership may also derive proceeds
from the sale of acquired oil and gas properties, when the sale of such
properties is economically appropriate or preferable to continued operation.
LIQUIDITY AND CAPITAL RESOURCES
Oil and gas reserves are depleting assets and therefore often experience
significant production declines each year from the date of acquisition through
the end of the life of the property. The primary source of liquidity to the
Partnership comes almost entirely from the income generated from the sale of oil
and gas produced from ownership interests in oil and gas properties. Net cash
provided by operating activities totaled $302,247 and $681,554 for the nine
months ended September 30, 1998 and 1997, respectively. This source of liquidity
and the related results of operations, and in turn cash distributions, will
decline in future periods as the oil and gas produced from these properties also
declines while production and general and administrative costs remain relatively
stable making it unlikely that the Partnership will hold the properties until
they are fully depleted, but will likely liquidate when a substantial majority
of the reserves have been produced. The Partnership has expended all of the
partners' net commitments available for property acquisitions and development by
acquiring producing oil and gas properties. The partnership invests primarily in
proved producing properties with nominal levels of future costs of development
for proven but undeveloped reserves. Significant purchases of additional
reserves or extensive drilling activity are not anticipated. Cash distributions
totaled $478,409 and $698,806 for the nine months ended September 30, 1998 and
1997, respectively.
The Partnership does not allow for additional assessments from the
partners or interest holders to fund capital requirements. However, funds are
available from partnership revenues, borrowings or proceeds from the sale of
partnership property. The Managing General Partner believes that the funds
currently available to the Partnership will be adequate to meet any anticipated
capital requirements.
RESULTS OF OPERATIONS
The following analysis explains changes in the revenue and expense
categories for the quarter ended September 30, 1998 (current quarter) when
compared to the quarter ended September 30, 1997 (corresponding quarter), and
for the nine months ended September 30, 1998 (current period), when compared to
the nine months ended September 30, 1997 (corresponding period).
Three Months Ended September 30, 1998 and 1997
Oil and gas sales declined $202,366 or 59 percent in the third quarter of
1998 when compared to the corresponding quarter in 1997, primarily due to
decreased oil and gas prices. A decline in oil prices of 45 percent or $7.64/BBL
and in gas prices of 18 percent or $.44/MCF had a significant impact on
partnership performance. Also, current quarter gas and oil production declined
40 percent and 44 percent, respectively, when compared to third quarter 1997 oil
production volumes, further contributing to decreased revenues. The
partnership's sale of several properties in the fourth quarter of 1997 had an
impact on 1998 partnership production volumes. Corresponding operating expenses
declined 12 percent in the third quarter of 1998 when compared to the third
quarter of 1997.
Associated depreciation expense decreased 45 percent or $67,980 in 1998
compared to third quarter 1997, also related to the decline in production
volumes.
9
SWIFT ENERGY OPERATING PARTNERS 1993-B, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Partnership recorded an additional provision in depreciation,
depletion and amortization in the third quarter of 1998 for $413,619 when the
present value, discounted at ten percent, of estimated future net revenues from
oil and gas properties based on the prices in effect at the filing date, using
the guidelines of the Securities and Exchange Commission, was below the fair
market value originally paid for oil and gas properties. The additional
provision results from the Managing General Partner's determination that the
fair market value paid for properties may or may not coincide with reserve
valuations determined according to guidelines of the Securities and Exchange
Commission.
Nine Months Ended September 30, 1998 and 1997
Oil and gas sales declined $648,089 or 59 percent in the first nine months
of 1998 when compared to the corresponding period in 1997, primarily due to
decreased gas and oil production. Gas production decreased 44 percent and oil
production declined 36 percent. The decrease in production volumes had a
significant impact on partnership performance. The partnership's sale of several
properties in the fourth quarter of 1997 had an impact on 1998 partnership
production volumes. Also, current period oil and gas prices declined 42 percent
or $7.48/BBL and 21 percent or $.52/MCF, respectively, further contributing to
decreased revenues. Corresponding operating expenses for the first nine months
of 1998 decreased 12 percent when compared to the same period in 1997.
Associated depreciation expense decreased 43 percent or $209,629 in 1998
compared to the first nine months of 1997, also related to the decline in
production volumes.
The Partnership recorded an additional provision in depreciation,
depletion and amortization in the first nine months of 1998 and 1997 for
$935,616 and $223,077, respectively, when the present value, discounted at ten
percent, of estimated future net revenues from oil and gas properties, using the
guidelines of the Securities and Exchange Commission, was below the fair market
value originally paid for oil and gas properties. The additional provision
results from the Managing General Partner's determination that the fair market
value paid for properties may or may not coincide with reserve valuations
determined according to guidelines of the Securities and Exchange Commission.
During 1998, partnership revenues and costs will be shared between the
Interest Holders and general partners in an 85:15 ratio.
10
SWIFT ENERGY OPERATING PARTNERS 1993-B, LTD.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-NONE-
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SWIFT ENERGY OPERATING
PARTNERS 1993-B, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
Managing General Partner
Date: November 4, 1998 By: /s/ John R. Alden
---------------- --------------------------------------
John R. Alden
Senior Vice President, Secretary
and Principal Financial Officer
Date: November 4, 1998 By: /s/ Alton D. Heckaman, Jr.
---------------- --------------------------------------
Alton D. Heckaman, Jr.
Vice President, Controller
and Principal Accounting Officer
12