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 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: 0-25950
SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
(Exact name of registrant as specified in its charter)
Texas 76-0441892
(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
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SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
INDEX
PART I. FINANCIAL INFORMATION PAGE
ITEM 1. Financial Statements
Balance Sheets
- June 30, 1998 and December 31, 1997 3
Statements of Operations
- Three month and six month periods ended June 30, 1998 and 1997 4
Statements of Cash Flows
- Six month periods ended June 30, 1998 and 1997 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 10
SIGNATURES 11
SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
BALANCE SHEETS
June 30, December 31,
1998 1997
--------------- ----------------
(Unaudited)
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,826 $ 1,794
Nonoperating interests income receivable 44,347 119,381
--------------- ----------------
Total Current Assets 46,173 121,175
--------------- ----------------
Nonoperating interests in oil and gas
properties, using full cost accounting 4,012,573 3,776,939
Less-Accumulated amortization (2,222,834) (1,657,287)
--------------- ----------------
1,789,739 2,119,652
--------------- ----------------
$ 1,835,912 $ 2,240,827
=============== ================
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Accounts Payable $ 386,147 $ 171,748
--------------- ----------------
Interest Holders' Capital (3,535,809 Interest Holders' SDIs;
$1.00 per SDI) 1,421,773 2,032,562
General Partners' Capital 27,992 36,517
--------------- ----------------
Total Partners' Capital 1,449,765 2,069,079
--------------- ----------------
$ 1,835,912 $ 2,240,827
=============== ================
See accompanying notes to financial statements.
3
SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
REVENUES:
Income from nonoperating interests $ 40,561 $ 77,720 $ 121,216 $ 197,621
Interest income 24 22 32 29
--------------- --------------- --------------- ---------------
40,585 77,742 121,248 197,650
--------------- --------------- --------------- ---------------
COSTS AND EXPENSES:
Amortization 454,549 60,294 565,547 117,254
General and administrative 15,613 15,938 29,026 35,150
--------------- --------------- --------------- ---------------
470,162 76,232 594,573 152,404
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (429,577) $ 1,510 $ (473,325) $ 45,246
=============== =============== =============== ===============
Limited Partners' net income (loss)
per unit $ (.12) $ -- $ (.13) $ .01
=============== =============== =============== ===============
See accompanying notes to financial statements.
4
SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
----------------------------------------
1998 1997
--------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) $ (473,325) $ 45,246
Adjustments to reconcile income (loss) to
net cash provided by operations:
Amortization 565,547 117,254
Change in assets and liabilities:
(Increase) decrease in nonoperating interests income receivable 75,034 (46,589)
Increase (decrease) in accounts payable 214,399 148,202
--------------- ---------------
Net cash provided by (used in) operating activities 381,655 264,113
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to nonoperating interests in oil and gas properties (235,634) (36,332)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (145,989) (227,753)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 32 28
--------------- ---------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,794 1,704
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,826 $ 1,732
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 6,382 $ 2,661
=============== ===============
See accompanying notes to financial statements.
5
SWIFT ENERGY PENSION PARTNERS 1994-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 Pension Partners 1994-B, Ltd., a Texas limited
partnership ("the Partnership"), was formed on June 30, 1994, for the
purpose of purchasing net profits interest, overriding royalty interests
and royalty interests (collectively, "nonoperating interests") in
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 323 Interest Holders made total capital
contributions of $3,535,809.
Generally, all continuing costs (including 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. Certain reclassifications have been
made to prior year amounts to conform to the current year presentation.
Nonoperating Interests in 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.
6
SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
For financial reporting purposes, the Partnership follows the
"full-cost" method of accounting for nonoperating interests in oil and
gas property costs. Under this method of accounting, all costs incurred
in the acquisition of nonoperating interests in oil and gas properties
are capitalized. The unamortized cost of nonoperating interests in oil
and gas properties is limited to the "ceiling limitation", (calculated
separately for the partnership, limited partner, and general partners).
The "ceiling limitation" is calculated on a quarterly basis and
represents the estimated future net revenues from nonoperating interests
in proved properties using current prices, discounted at ten percent.
Proceeds from the sale or disposition of nonoperating interests in oil
and gas properties are treated as a reduction of the cost of the
nonoperating interests with no gains or losses recognized except in
significant transactions.
The Partnership computes the provision for amortization of
nonoperating interests in oil and gas properties on the
units-of-production method. Under this method, the provision is
calculated by multiplying the total unamortized cost of nonoperating
interests in oil and gas properties by an overall rate 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 attributable to
the Partnership's nonoperating interests 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 -
The Partnership entered into a Net Profits and Overriding
Royalty Interest Agreement ("NP/OR Agreement") with Swift Energy
Operating Partners 1994-B, Ltd. ("Operating Partnership"), an affiliated
partnership managed by Swift for the purpose of acquiring working
interests in producing oil and gas properties. Under the terms of the
NP/OR Agreement, the Partnership has been conveyed 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
Partnership's proportionate share of the property acquisition costs.
(5) 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.
(6) 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.
7
SWIFT ENERGY PENSION PARTNERS 1994-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 nonoperating
interests 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
results of operations. When the Partnership was formed, it commenced its
"acquisition" phase, with all funds placed in short-term investments until
required for the acquisition of nonoperating interests. Therefore, the interest
earned on these pre-acquisition investments becomes the primary cash flow source
for initial partner distributions. As the Partnership acquires nonoperating
interests in producing properties, net cash from ownership of nonoperating
interests becomes available for distribution, along with the investment income.
After all partnership funds have been expended on nonoperating interests in
producing oil and gas properties, the Partnership enters its "operations" phase.
During this phase, income from nonoperating interests in oil and gas sales
generates 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 nonoperating interests in acquired oil
and gas properties, when the sale of such interests is economically appropriate
or preferable to continued operations.
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 $381,655 and $264,113 for the six
months ended June 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 $145,989 and $227,753 for the six months ended June 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 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 June 30, 1998 (current quarter) when compared
to the quarter ended June 30, 1997 (corresponding quarter), and for the six
months ended June 30, 1998 (current period), when compared to the six months
ended June 30, 1997 (corresponding period).
Three Months Ended June 30, 1998 and 1997
Income from nonoperating interests decreased 48 percent in the second
quarter of 1998 when compared to the same quarter in 1997. Oil and gas sales
declined $41,247 or 28 percent in the second quarter of 1998 when compared to
the corresponding quarter in 1997, primarily due to decreased oil prices.
Current quarter oil prices declined 45 percent or $7.67/BBL. The decrease in oil
prices had a significant impact on partnership performance. Also, oil production
decreased 33 percent and gas production declined 8 percent, further contributing
to decreased revenues. Declines in revenues were partially offset by an increase
in gas prices of 18 percent or $.31/MCF when compared to second quarter 1997
prices.
8
SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Total amortization expense for the second quarter of 1998 increased 654
percent or $394,255 when compared to the second quarter of 1997. Two components,
the normal provision, calculated on the units of production method, and the
additional provision, relating to the ceiling limitation, make up total
amortization expense. Normal amortization expense decreased 8 percent or $4,923
in the second quarter of 1998 when compared to the second quarter of 1997,
relating to the decrease in production volumes.
The Partnership recorded an additional provision in amortization for the
second quarter in 1998 of $399,178 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 for oil and gas properties resulting in a full cost ceiling impairment.
Six Months Ended June 30, 1998 and 1997
Income from nonoperating interests decreased 39 percent in the first six
months of 1998 when compared to the same period in 1997. Oil and gas sales
declined $111,820 or 33 percent in the first six months of 1998 when compared to
the corresponding period in 1997, primarily due to decreased oil and gas prices.
A decline in oil prices of 45 percent or $8.29/BBL and in gas prices of 14
percent or $.34/MCF, had a significant impact on partnership performance. Also,
current period oil and gas production declined 19 percent and 7 percent,
respectively, when compared to the same period in 1997, further contributing to
decreased revenues.
Total amortization expense for the first six months of 1998 increased 382
percent or $448,293 when compared to the first six months of 1997. Two
components, the normal provision, calculated on the units of production method,
and the additional provision, relating to the ceiling limitation, make up total
amortization expense. Normal amortization expense decreased 4 percent or $4,366
in the first six months of 1998 when compared to the first six months of 1997,
relating to the decrease in production volumes.
The Partnership recorded an additional provision in amortization for the
first six months in 1998 of $452,659 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 for oil and gas properties resulting in a full cost ceiling impairment.
During 1998, partnership revenues and costs will be shared between the
Interest Holders and general partners in an 85:15 ratio.
9
SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-NONE-
10
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 PENSION
PARTNERS 1994-B, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
Managing General Partner
Date: August 4, 1998 By: /s/ John R. Alden
-------------- --------------------------------
John R. Alden
Senior Vice President, Secretary
and Principal Financial Officer
Date: August 4, 1998 By: /s/ Alton D. Heckaman, Jr.
-------------- --------------------------------
Alton D. Heckaman, Jr.
Vice President, Controller
and Principal Accounting Officer
11