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, 1996
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 0-15408
Southwest Royalties, Inc. Income Fund V
(Exact name of registrant as specified
in its limited partnership agreement)
Tennessee 75-2104619
(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.
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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, 1995 which are found in the Registrant's Form 10-K Report
for 1995 filed with the Securities and Exchange Commission. The December 31,
1995 balance sheet included herein has been taken from the Registrant's 1995
Form 10-K Report. Operating results for the three and six month periods
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the full year.
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Southwest Royalties, Inc. Income Fund V
Balance Sheets
June 30, December 31,
1996 1995
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 21,304 24,788
Receivable from Managing
General Partner 84,517 109,546
Distribution receivable - 47
--------- ---------
Total current assets 105,821 134,381
--------- ---------
Oil and gas properties - using the
full cost method of accounting 6,159,438 6,171,938
Less accumulated depreciation,
depletion and amortization 4,743,520 4,676,520
--------- ---------
Net oil and gas properties 1,415,918 1,495,418
--------- ---------
$ 1,521,739 1,629,799
========= =========
Liabilities and Partners' Equity
Current liability - Distribution payable $ 31 -
--------- ---------
Partners' equity:
General partners (524,023) (514,025)
Limited partners 2,045,731 2,143,824
--------- ---------
Total partners' equity 1,521,708 1,629,799
--------- ---------
$ 1,521,739 1,629,799
========= =========
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Southwest Royalties, Inc. Income Fund V
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Revenues
Income from net profits
interests $ 63,725 93,032 142,346 155,387
Interest 265 247 489 422
------- ------- ------- -------
63,990 93,279 142,835 155,809
------- ------- ------- -------
Expenses
General and administrative 27,900 30,488 62,813 66,282
Depreciation, depletion and
amortization 35,000 63,000 67,000 124,000
------- ------- ------- -------
62,900 93,488 129,813 190,282
------- ------- ------- -------
Net income (loss) $ 1,090 (209) 13,022 (34,473)
======= ======= ======= =======
Net income (loss) allocated to:
Managing General Partner $ 99 (19) 1,172 (3,102)
======= ======= ======= =======
General Partner $ 10 (2) 130 (345)
======= ======= ======= =======
Limited Partners $ 981 (188) 11,720 (31,026)
======= ======= ======= =======
Per limited partner
unit $ .13 (.03) 1.56 (4.14)
======= ======= ======= =======
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Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
1996 1995
Cash flows from operating activities:
Cash received from income from net
profits interests $ 167,375 172,243
Cash paid to suppliers (62,813) (66,462)
Interest received 489 422
-------- -------
Net cash provided by operating
activities 105,051 106,203
-------- -------
Cash flows provided by investing
activities:
Cash received from sale of oil
and gas property interest 12,500 -
-------- -------
Cash flows used in financing
activities:
Distributions to partners (121,035) (94,456)
-------- -------
Net increase (decrease) in cash and
cash equivalents (3,484) 11,747
Beginning of period 24,788 16,645
-------- -------
End of period $ 21,304 28,392
======== =======
(continued)
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Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
1996 1995
Reconciliation of net income (loss)
to net cash provided by operating
activities:
Net income (loss) $ 13,022 (34,473)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, depletion and
amortization 67,000 124,000
Decrease in receivables 25,029 16,856
Decrease in payables - (180)
------- -------
Net cash provided by operating
activities $ 105,051 106,203
======= =======
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Royalties, Inc. Income Fund V was organized as a Tennessee limited
partnership on May 1, 1986, after receipt from investors of $1,000,000 in
limited partner capital contributions. The offering of limited partnership
interests began on January 22, 1986 and concluded on July 22, 1986, with
total limited partner contributions of $7,500,000.
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 the net proceeds from
operations to the limited and general partners. Net revenues from producing
oil and gas properties are not reinvested in other revenue producing assets
except to the extent that production facilities and wells are improved or
reworked or where methods are employed to improve or enable more efficient
recovery of oil and gas reserves.
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, increases and decreases in
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.
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Results of Operations
A. General Comparison of the Quarters Ended June 30, 1996 and 1995
The following table provides certain information regarding performance
factors for the quarters ended June 30, 1996 and 1995:
Three Months
Ended Percentage
June 30, Increase
1996 1995 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 21.43 18.25 17%
Average price per mcf of gas $ 2.38 1.93 23%
Oil production in barrels 5,500 8,300 (34%)
Gas production in mcf 37,100 52,900 (30%)
Income from net profits interests $ 63,725 93,032 (32%)
Partnership distributions $ 56,113 56,500 (1%)
Limited partner distributions $ 51,313 50,850 1%
Per unit distribution to limited
partners $ 6.84 6.78 1%
Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests decreased to $63,725 from
$93,032 for the quarters ended June 30, 1996 and 1995, respectively, a
decrease of 32%. The principal factors affecting the comparison of the
quarters ended June 30, 1996 and 1995 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended June 30, 1996 as compared to the
quarter ended June 30, 1995 by 17%, or $3.18 per barrel, resulting in an
increase of approximately $26,400 in income from net profits interests.
Oil sales represented 57% of total oil and gas sales during the quarter
ended June 30, 1996 as compared to 60% during the quarter ended June 30,
1995.
The average price for an mcf of gas received by the Partnership increased
during the same period by 23%, or $.45 per mcf, resulting in an increase
of approximately $23,800 in income from net profits interests.
The total increase in income from net profits interests due to the change
in prices received from oil and gas production is approximately $50,200.
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.
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2. Oil production decreased approximately 2,800 barrels or 34% during the
quarter ended June 30, 1996 as compared to the quarter ended June 30,
1995, resulting in a decrease of approximately $60,000 in income from net
profits interests.
Gas production decreased approximately 15,800 mcf or 30% during the same
period, resulting in a decrease of approximately $37,600 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $97,600. The decrease is a result of
property sales, downhole problems causing the loss of one well, and
another well being shut-in due to mechanical failures that are
uneconomical to repair.
3. Lease operating costs and production taxes were 11% lower, or
approximately $17,300 less during the quarter ended June 30, 1996 as
compared to the quarter ended June 30, 1995. The decrease is a result of
a well that was operational in 1995 but shut-in during 1996. Also
contributing to the decline was a well that required pump and rod repairs
in 1995.
Costs and Expenses
Total costs and expenses decreased to $62,900 from $93,488 for the quarters
ended June 30, 1996 and 1995, respectively, a decrease of 33%. The decrease
is the result of lower 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 decreased 8% or
approximately $2,600 during the quarter ended June 30, 1996 as compared
to the quarter ended June 30, 1995. The decline is due to lower annual
report printing expense and filing costs.
2. Depletion expense decreased to $35,000 for the quarter ended June 30,
1996 from $63,000 for the same period in 1995. This represents a
decrease of 44%. Depletion is calculated using the gross 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.
Three factors that attributed to the decline in depletion expense between
the comparative periods were the increase in the price of oil and gas
used to determine the Partnership's reserves for January 1, 1996 as
compared to 1995, the increase in property sales and the decrease in oil
and gas revenues.
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B. General Comparison of the Six Month Periods Ended June 30, 1996 and 1995
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 1996 and 1995:
Six Months
Ended Percentage
June 30, Increase
1996 1995 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 20.32 17.83 14%
Average price per mcf of gas $ 2.26 2.02 12%
Oil production in barrels 11,200 16,200 (31%)
Gas production in mcf 73,900 104,700 (29%)
Income from net profits interests $ 142,346 155,387 (8%)
Partnership distributions $ 121,113 94,500 28%
Limited partner distributions $ 109,813 85,550 28%
Per unit distribution to limited
partners $ 14.64 11.41 28%
Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests decreased to $142,346
from $155,387 for the six months ended June 30, 1996 and 1995, respectively,
a decrease of 8%. The principal factors affecting the comparison of the six
months ended June 30, 1996 and 1995 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the six months ended June 30, 1996 as compared to the
six months ended June 30, 1995 by 14%, or $2.49 per barrel, resulting in
an increase of approximately $40,300 in income from net profits
interests. Oil sales represented 58% of total oil and gas sales during
the six months ended June 30, 1996 and 1995.
The average price for an mcf of gas received by the Partnership increased
during the same period by 12%, or $.24 per mcf, resulting in an increase
of approximately $25,100 in income from net profits interests.
The total increase in income from net profits interests due to the change
in prices received from oil and gas production is approximately $65,400.
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.
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2. Oil production decreased approximately 5,000 barrels or 31% during the
six months ended June 30, 1996 as compared to the six months ended June
30, 1995, resulting in a decrease of approximately $101,600 in income
from net profits interests.
Gas production decreased approximately 30,800 mcf or 29% during the same
period, resulting in a decrease of approximately $69,600 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $171,200. The decrease is a result of
property sales, downhole problems causing the loss of one well, and
another well being shut-in due to mechanical failures that are
uneconomical to repair.
3. Lease operating costs and production taxes were 27% lower, or
approximately $91,700 less during the six months ended June 30, 1996 as
compared to the six months ended June 30, 1995. The decrease is a result
of a well that was operational in 1995 but shut-in during 1996. Also
contributing to the decline was a well that required pump and rods
repairs in 1995.
Costs and Expenses
Total costs and expenses decreased to $129,813 from $190,282 for the six
months ended June 30, 1996 and 1995, respectively, a decrease of 32%. The
decrease is the result of lower 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 decreased 5%
or approximately $3,500 during the six months ended June 30, 1996 as
compared to the six months ended June 30, 1995.
2. Depletion expense decreased to $67,000 for the six months ended June 30,
1996 from $124,000 for the same period in 1995. This represents a
decrease of 46%. Depletion is calculated using the gross 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.
Three factors that attributed to the decline in depletion expense between
the comparative periods were the increase in the price of oil and gas
used to determine the Partnership's reserves for January 1, 1996 as
compared to 1995, the increase in property sales and the decrease in oil
and gas revenues.
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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 $105,100 in
the six months ended June 30, 1996 as compared to approximately $106,200 in
the six months ended June 30, 1995. The primary source of the 1996 cash flow
from operating activities was profitable operations.
Cash flows provided by investing activities were $12,500 in the six months
ended June 30, 1996 as compared to none in the six months ended June 30,
1995. The principle source of the 1996 cash flow from investing activities
was the sale of oil and gas properties.
Cash flows used in financing activities were approximately $121,000 in the
six months ended June 30, 1996 as compared to approximately $94,500 in the
six months ended June 30, 1995. The only use in financing activities was the
distributions to partners.
Total distributions during the six months ended June 30, 1996 were $121,113
of which $109,813 was distributed to the limited partners and $11,300 to the
general partners. The per unit distribution to limited partners during the
six months ended June 30, 1996 was $14.64. Total distributions during the
six months ended June 30, 1995 were $94,500 of which $85,550 was distributed
to the limited partners and $8,950 to the general partners. The per unit
distribution to limited partners during the six months ended June 30, 1995
was $11.41.
The sources for the 1996 distributions of $121,113 were oil and gas
operations of approximately $105,100 and the sale of oil and gas properties
of $12,500, with the balance from available cash on hand at the beginning of
the period. The source for the 1995 distributions of $94,500 was oil and gas
operations of approximately $106,200, resulting in excess cash for
contingencies or subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions of
$6,711,043 have been made to the partners. As of June 30, 1996, $6,023,570
or $803.25 per limited partner unit has been distributed to the limited
partners, representing an 80% return of the capital contributed.
As of June 30, 1996, the Partnership had approximately $105,800 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.
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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) None
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
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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, INC.
INCOME FUND V,
a Tennessee 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 12, 1996
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet at June 30, 1996 (Unaudited) and the Statement of Operations for the Six
Months Ended June 30, 1996 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 21,304
<SECURITIES> 0
<RECEIVABLES> 84,517
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 105,821
<PP&E> 6,159,438
<DEPRECIATION> 4,743,520
<TOTAL-ASSETS> 1,521,739
<CURRENT-LIABILITIES> 31
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,521,708
<TOTAL-LIABILITY-AND-EQUITY> 1,521,739
<SALES> 142,346
<TOTAL-REVENUES> 142,835
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 129,813
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 13,022
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,022
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,022
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.56
</TABLE>
