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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 March 31, 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 0-15408
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 13.
<PAGE>
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 month
period ended March 31, 1998 are not necessarily indicative of the results
that may be expected for the full year.
<PAGE>
Southwest Royalties, Inc. Income Fund V
Balance Sheets
March 31, December 31,
1998 1997
---- ----
(unaudited)
Assets
Current assets:
Cash and equivalents $ 13,312 4,418
Receivable from Managing General Partner 84,546 123,280
Distribution receivable - 114
--------- ---------
Total current assets 97,858 127,812
--------- ---------
Oil and gas properties - using
the full-cost method of accounting 6,159,438 6,159,438
Less accumulated depreciation,
depletion and amortization 5,022,520 4,985,520
--------- ---------
Net oil and gas properties 1,136,918 1,173,918
--------- ---------
$ 1,234,776 1,301,730
========= =========
Liabilities and Partners' Equity
Current liabilities - Distributions payable $ 100 -
--------- ---------
Partners' equity:
General partners (552,725) (546,020)
Limited partners 1,787,401 1,847,750
--------- ---------
Total partners' equity 1,234,676 1,301,730
--------- ---------
$ 1,234,776 1,301,730
========= =========
<PAGE>
Southwest Royalties, Inc. Income Fund V
Statements of Operations
(unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
Revenues
Income from net profits interests $ 74,109 137,592
Interest 349 436
------- -------
74,458 138,028
------- -------
Expenses
General and administrative 35,512 34,432
Depreciation, depletion and amortization 37,000 35,000
------- -------
72,512 69,432
------- -------
Net income $ 1,946 68,596
======= =======
Net income allocated to:
Managing General Partner $ 175 6,174
======= =======
General partner $ 20 686
======= =======
Limited partners $ 1,751 61,736
======= =======
Per limited partner unit $ .24 8.23
======= =======
<PAGE>
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows
(unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
Cash flows from operating activities:
Cash received from income from net profits
interests $ 112,843 196,336
Cash paid to suppliers (35,512) (29,132)
Interest received 349 436
-------- -------
Net cash provided by operating activities 77,680 167,640
-------- -------
Cash flows used in financing activities:
Distributions to partners (68,786) (162,757)
-------- -------
Net increase in cash and cash equivalents 8,894 4,883
Beginning of period 4,418 16,380
-------- -------
End of period $ 13,312 21,263
======== =======
(continued)
<PAGE>
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows, continued
(unaudited)
Three Months Ended
March 31,
1998 1997
---- ----
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 1,946 68,596
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 37,000 35,000
Decrease in receivables 38,734 58,744
Increase in payables - 5,300
------- -------
Net cash provided by operating activities $ 77,680 167,640
======= =======
<PAGE>
Southwest Royalties, Inc. Income Fund V
(a Tennessee limited partnership)
Notes to Financial Statements
1. Organization
Southwest Royalties, Inc. Income Fund V was organized under the laws
of the state of Tennessee on May 1, 1986, for the purpose of acquiring
producing oil and gas properties and to produce and market crude oil
and natural gas produced from such properties for a term of 50 years,
unless terminated at an earlier date as provided for in the
Partnership Agreement. The Partnership sells its oil and gas
production to a variety of purchasers with the prices it receives
being dependent upon the oil and gas economy. Southwest Royalties,
Inc. serves as the Managing General Partner and H. H. Wommack, III, as
the individual general partner. Revenues, costs and expenses are
allocated as follows:
Limited General
Partners Partners
-------- --------
Interest income on capital contributions 100% -
Oil and gas sales 90% 10%
All other revenues 90% 10%
Organization and offering costs (1) 100% -
Amortization of organization costs 100% -
Property acquisition costs 100% -
Gain/loss on property disposition 90% 10%
Operating and administrative costs (2) 90% 10%
Depreciation, depletion and amortization
of oil and gas properties 90% 10%
All other costs 90% 10%
(1) All organization costs in excess of 3% of initial capital
contributions will be paid by the Managing General Partner and
will be treated as a capital contribution. The Partnership paid
the Managing General Partner an amount equal to 3% of initial
capital contributions for such organization costs.
(2) Administrative costs in any year which exceed 2% of capital
contributions shall be paid by the Managing General Partner and
will be treated as a capital contribution.
2. Summary of Significant Accounting Policies
The interim financial information as of March 31, 1998, and for the
three months ended March 31, 1998, is unaudited. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q pursuant to the rules
and regulations of the Securities and Exchange Commission. However,
in the opinion of management, these interim financial statements
include all the necessary adjustments to fairly present the results of
the interim periods and all such adjustments are of a normal recurring
nature. The interim consolidated financial statements should be read
in conjunction with the audited financial statements for the year
ended December 31, 1997.
<PAGE>
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.
Based on current conditions, management anticipates performing workovers
during 1998 to enhance production. The Partnership may have a slight
increase in 1998 and 1999, but thereafter, the Partnership could possibly
experience a normal decline of 8% to 10% a year.
<PAGE>
Results of Operations
A. General Comparison of the Quarters Ended March 31, 1998 and 1997
The following table provides certain information regarding performance
factors for the quarters ended March 31, 1998 and 1997:
Three Months
Ended Percentage
March 31, Increase
1998 1997 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 14.41 20.75 (31%)
Average price per mcf of gas $ 2.33 2.32 1%
Oil production in barrels 8,400 9,000 (7%)
Gas production in mcf 38,500 39,400 (3%)
Income from net profits interests $ 74,109 137,592 (47%)
Partnership distributions $ 69,000 163,000 (58%)
Limited partner distributions $ 62,100 146,700 (58%)
Per unit distribution to limited
partners $ 8.28 19.56 (58%)
Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests decreased to $74,109
from $137,592 for the quarters ended March 31, 1998 and 1997, respectively,
a decrease of 47%. The principal factors affecting the comparison of the
quarters ended March 31, 1998 and 1997 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended March 31, 1998 as compared to the
quarter ended March 31, 1997 by 31%, or $6.34 per barrel, resulting in
a decrease of approximately $57,060 in income from net profits
interests. Oil sales represented 57% of total oil and gas sales during
the quarter ended March 31, 1998 as compared to 67% during the quarter
ended March 31, 1997.
The average price for an mcf of gas received by the Partnership
increased during the same period by 1%, or $.01 per mcf, resulting in
an increase of approximately $400 in income from net profits interests.
The total decrease in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$56,660. 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.
<PAGE>
2. Oil production decreased approximately 600 barrels or 7% during the
quarter ended March 31, 1998 as compared to the quarter ended March 31,
1997, resulting in a decrease of approximately $8,600 in income from
net profits interests.
Gas production decreased approximately 900 mcf or 3% during the same
period, resulting in a decrease of approximately $2,100 in income from
net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $10,700.
3. Lease operating costs and production taxes were 3% lower, or
approximately $3,700 less during the quarter ended March 31, 1998 as
compared to the quarter ended March 31, 1997.
Costs and Expenses
Total costs and expenses increased to $72,512 from $69,432 for the quarters
ended March 31, 1998 and 1997, respectively, an increase of 5%. The
increase is the result of higher depletion and general and administrative
expense.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs increased 4%
or approximately $1,100 during the quarter ended March 31, 1998 as
compared to the quarter ended March 31, 1997.
2. Depletion expense increased to $37,000 for the quarter ended March 31,
1998 from $35,000 for the same period in 1997. This represents an
increase of 6%. 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.
<PAGE>
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 $77,700 in
the quarter ended March 31, 1998 as compared to approximately $167,600 in
the quarter ended March 31, 1997. The primary source of the 1998 cash flow
from operating activities was profitable operations.
Cash flows used in financing activities were approximately $68,800 in the
quarter ended March 31, 1998 as compared to approximately $162,800 in the
quarter ended March 31, 1997. The only use in financing activities was the
distributions to partners.
Total distributions during the quarter ended March 31, 1998 were $69,000 of
which $62,100 was distributed to the limited partners and $6,900 to the
general partners. The per unit distribution to limited partners during the
quarter ended March 31, 1998 was $8.28. Total distributions during the
quarter ended March 31, 1997 were $163,000 of which $146,700 was
distributed to the limited partners and $16,300 to the general partners.
The per unit distribution to limited partners during the quarter ended
March 31, 1997 was $19.56.
The source for the 1998 distributions of $69,000 was oil and gas operations
of approximately $77,700, resulting in excess cash for contingencies or
subsequent distributions. The source for the 1997 distributions of
$163,000 was oil and gas operations of approximately $167,600.
Since inception of the Partnership, cumulative monthly cash distributions
of $7,303,043 have been made to the partners. As of March 31, 1998,
$6,556,370 or $874.30 per limited partner unit has been distributed to the
limited partners, representing an 88% return of the capital contributed.
As of March 31, 1998, the Partnership had approximately $97,700 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.
<PAGE>
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
for which this report is filed.
<PAGE>
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: May 15, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at March 31, 1998 (Unaudited) and the Statement of Operations
for the Three Months Ended March 31, 1998 (Unaudited) and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 13,312
<SECURITIES> 0
<RECEIVABLES> 84,546
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 97,858
<PP&E> 6,159,438
<DEPRECIATION> 5,022,520
<TOTAL-ASSETS> 1,234,776
<CURRENT-LIABILITIES> 100
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,234,676
<TOTAL-LIABILITY-AND-EQUITY> 1,234,776
<SALES> 74,109
<TOTAL-REVENUES> 74,458
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 72,512
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,946
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,946
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,946
<EPS-PRIMARY> .24
<EPS-DILUTED> .24
</TABLE>
