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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, 2000
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 16.
<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, 1999 which are found in the Registrant's Form
10-K Report for 1999 filed with the Securities and Exchange Commission.
The December 31, 1999 balance sheet included herein has been taken from the
Registrant's 1999 Form 10-K Report. Operating results for the three and
six month periods ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the full year.
<PAGE>
Southwest Royalties, Inc. Income Fund V
Balance Sheets
June 30, December 31,
2000 1999
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 66,500 44,339
Receivable from Managing General Partner 128,018 87,770
---------- ---------
Total current assets 194,518 132,109
---------- ---------
Oil and gas properties - using the
full cost method of accounting 6,159,438 6,159,438
Less accumulated depreciation,
depletion and amortization 5,765,800 5,750,800
---------- ---------
Net oil and gas properties 393,638 408,638
---------- ---------
$ 588,156 540,747
========== =========
Liabilities and Partners' Equity
Current liability - Distribution payable $ 103 71
---------- ---------
Partners' equity:
General partners (617,387) (622,125)
Limited partners 1,205,440 1,162,801
---------- ---------
Total partners' equity 588,053 540,676
---------- ---------
$ 588,156 540,747
========== =========
<PAGE>
Southwest Royalties, Inc. Income Fund V
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues
Income from net profits
interests $ 111,130 88,467 222,683 73,487
Interest 885 8 1,441 69
------- ------ ------- -------
112,015 88,475 224,124 73,556
------- ------ ------- -------
Expenses
General and administrative 32,977 29,721 61,747 59,371
Depreciation, depletion and
amortization 4,000 12,000 15,000 26,000
------- ------ ------- -------
36,977 41,721 76,747 85,371
------- ------ ------- -------
Net income (loss) $ 75,038 46,754 147,377 (11,815)
======= ====== ======= =======
Net income (loss) allocated to:
Managing General Partner $ 6,754 4,208 13,264 (1,063)
======= ====== ======= =======
General Partner $ 750 467 1,474 (118)
======= ====== ======= =======
Limited Partners $ 67,534 42,079 132,639 (10,634)
======= ====== ======= =======
Per limited partner unit $ 9.01 5.61 17.69 (1.42)
======= ====== ======= =======
<PAGE>
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
2000 1999
Cash flows from operating activities:
Cash received from income from net
profits interests $ 176,350 38,363
Cash paid to suppliers (55,662) (50,488)
Interest received 1,441 69
-------- --------
Net cash provided by (used in) operating activities 122,129 (12,056)
-------- --------
Cash flows used in financing activities:
Distributions to partners (99,968) 1,918
-------- --------
Net increase (decrease) in cash and cash
equivalents 22,161 (10,138)
Beginning of period 44,339 12,785
-------- --------
End of period $ 66,500 2,647
======== ========
(continued)
<PAGE>
Southwest Royalties, Inc. Income Fund V
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
2000 1999
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities:
Net income (loss) $ 147,377 (11,815)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 15,000 26,000
Increase in receivables (46,333) (35,124)
Increase in payables 6,085 8,883
------- -------
Net cash provided by (used in) operating activities $ 122,129 (12,056)
======= =======
<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 June 30, 2000, and for the
three and six months ended June 30, 2000, 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, 1999.
<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 some
workovers during 2000. The Partnership could possibly experience a normal
decline of 8% to 10% a year.
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. As of June 30, 2000, the net capitalized costs did not
exceed the estimated present value of oil and gas reserves.
<PAGE>
Results of Operations
A. General Comparison of the Quarters Ended June 30, 2000 and 1999
The following table provides certain information regarding performance
factors for the quarters ended June 30, 2000 and 1999:
Three Months
Ended Percentage
June 30, Increase
2000 1999 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 27.75 14.89 86%
Average price per mcf of gas $ 4.47 1.80 148%
Oil production in barrels 4,800 5,900 (19%)
Gas production in mcf 24,600 31,100 (21%)
Income from net profits interests $ 111,130 88,467 26%
Partnership distributions $ 50,000 - 100%
Limited partner distributions $ 45,000 - 100%
Per unit distribution to limited
partners $ 6.00 - 100%
Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests increased to $111,130
from $88,467 for the quarters ended June 30, 2000 and 1999, respectively,
an increase of 26%. The principal factors affecting the comparison of the
quarters ended June 30, 2000 and 1999 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended June 30, 2000 as compared to the
quarter ended June 30, 1999 by 86%, or $12.86 per barrel, resulting in
an increase of approximately $76,000 in income from net profits
interests. Oil sales represented 55% of total oil and gas sales during
the quarter ended June 30, 2000 as compared to 61% during the quarter
ended June 30, 1999.
The average price for an mcf of gas received by the Partnership
increased by 148% or $2.67 per mcf, resulting in an increase of
approximately $83,100 in income from net profits interest.
The total increase in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$159,100. 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 1,110 barrels or 19% during the
quarter ended June 30, 2000 as compared to the quarter ended June 30,
1999, resulting in a decrease of approximately $30,800 in income from
net profits interests.
Gas production decreased approximately 6,520 mcf or 21% during the same
period, resulting in a decrease of approximately $29,100 in income from
net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $59,900. The decrease in
production is due primarily to one well, which a workover was performed
on during the first quarter of 1999, dramatically increasing production
during the second quarter of 1999. This same well by year end 1999 had
shut down and was no longer a producing well, thus the decrease for the
quarter ended June 30, 2000. The decrease in production for the
quarter due to the above well was partially offset by increased
production from wells previously shut-in due to low oil and gas prices
and in turn the inability to perform repairs and maintenance.
3. Lease operating costs and production taxes were 73% higher, or
approximately $61,500 more during the quarter ended June 30, 2000 as
compared to the quarter ended June 30, 1999. The increase in lease
operating costs and production taxes is primarily a result of the
higher oil and gas prices received by the Partnership. Higher prices
have made it possible for the Partnership to perform needed major
repairs and maintenance. Since production taxes are based on gross
revenues, the increase in oil and gas prices have directly increased
production taxes.
Costs and Expenses
Total costs and expenses decreased to $36,977 from $41,721 for the quarters
ended June 30, 2000 and 1999, respectively, a decrease of 11%. The
decrease is the result of lower depletion expense, partially offset by an
increase in 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
11% or approximately $3,300 during the quarter ended June 30, 2000 as
compared to the quarter ended June 30, 1999.
2. Depletion expense decreased to $4,000 for the quarter ended June 30,
2000 from $12,000 for the same period in 1999. This represents a
decrease of 67%. 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 increase in the price of oil and gas used to determine
the Partnership's reserves for July 1, 2000 as compared to 1999.
<PAGE>
B. General Comparison of the Six Month Periods Ended June 30, 2000 and
1999
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 2000 and 1999:
Six Months
Ended Percentage
June 30, Increase
2000 1999 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 27.86 13.37 108%
Average price per mcf of gas $ 4.00 1.75 129%
Oil production in barrels 9,800 11,560 (15%)
Gas production in mcf 50,800 59,220 (14%)
Income from net profits interests $ 222,683 73,487 203%
Partnership distributions $ 100,000 - 100%
Limited partner distributions $ 90,000 - 100%
Per unit distribution to limited
partners $ 12.00 - 100%
Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests increased to $222,683
from $73,487 for the six months ended June 30, 2000 and 1999, respectively,
an increase of 203%. The principal factors affecting the comparison of the
six months ended June 30, 2000 and 1999 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the six months ended June 30, 2000 as compared to the
six months ended June 30, 1999 by 108%, or $14.49 per barrel, resulting
in an increase of approximately $167,500 in income from net profits
interests. Oil sales represented 57% of total oil and gas sales during
the six months ended June 30, 2000 as compared to 60% during the six
months ended June 30, 1999.
The average price for an mcf of gas received by the Partnership
increased during the same period by 129%, or $2.25 per mcf, resulting
in an increase of approximately $133,200 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
$300,700. 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 1,760 barrels or 15% during the
six months ended June 30, 2000 as compared to the six months ended June
30, 1999, resulting in a decrease of approximately $49,000 in income
from net profits interests.
Gas production decreased approximately 8,420 mcf or 14% during the same
period, resulting in a decrease of approximately $33,700 in income from
net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $82,700. The decrease in
production is due primarily to one well, which a workover was performed
on during the first quarter of 1999, dramatically increasing production
during the second quarter of 1999. This same well by year end 1999 had
shut down and was no longer a producing well, thus the decrease for the
six months ended June 30, 2000. The decrease in production for the six
months that is due to the above well was partially offset by increased
production from wells previously shut-in due to low oil and gas prices
and in turn the inability to perform repairs and maintenance.
3. Lease operating costs and production taxes were 37% higher, or
approximately $69,000 more during the six months ended June 30, 2000 as
compared to the six months ended June 30, 1999. The increase in lease
operating costs and production taxes is primarily a result of the
higher oil and gas prices received by the Partnership. Higher prices
have made it possible for the Partnership to perform needed major
repairs and maintenance. Since production taxes are based on gross
revenues, the increase in oil and gas prices have directly increased
production taxes.
Costs and Expenses
Total costs and expenses decreased to $76,747 from $85,371 for the six
months ended June 30, 2000 and 1999, respectively, a decrease of 10%. The
decrease is the result of lower depletion expense, partially offset by an
increase in 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 $2,400 during the six months ended June 30, 2000 as
compared to the six months ended June 30, 1999.
2. Depletion expense decreased to $15,000 for the six months ended June
30, 2000 from $26,000 for the same period in 1999. This represents a
decrease of 42%. 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 increase in the price of oil and gas used to determine
the Partnership's reserves for July 1, 2000 as compared to 1999.
<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 or (used in) operating activities were approximately
$122,100 in the six months ended June 30, 2000 as compared to approximately
$(12,100) in the six months ended June 30, 1999. The primary source of the
2000 cash flow from operating activities was operations.
There were no cash flows provided by investing activities in the six months
ended June 30, 2000 and 1999.
Cash flows (used in) or provided by financing activities were approximately
$(100,000) in the six months ended June 30, 2000 as compared to
approximately $1,900 in the six months ended June 30, 1999. The only use
in financing activities was the distributions to partners.
Total distributions during the six months ended June 30, 2000 were $100,000
of which $90,000 was distributed to the limited partners and $10,000 to the
general partners. The per unit distribution to limited partners during the
six months ended June 30, 2000 was $12.00. There were no distributions
during the six months ended June 30, 1999.
The sources for the 2000 distributions of $100,000 were oil and gas
operations of approximately $122,100, resulting in excess cash for
contingencies or subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions
of $7,488,543 have been made to the partners. As of June 30, 2000,
$6,723,320 or $896.56 per limited partner unit has been distributed to the
limited partners, representing an 90% return of the capital contributed.
As of June 30, 2000, the Partnership had approximately $194,400 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>
Liquidity - Managing General Partner
The Managing General Partner has a highly leveraged capital structure with
over $50.1 million principal due by December 31, 2000 and $15.3 million
interest payments due within the next twelve months on its debt
obligations. The Managing General Partner is currently in the process of
renegotiating the terms of its various obligations with its creditors
and/or attempting to seek new lenders or equity investors. Additionally,
the Managing General Partner would consider disposing of certain assets in
order to meet its obligations.
There can be no assurance that the Managing General Partner's debt
restructuring efforts will be successful or that the lenders will agree to
a course of action consistent with the Managing General Partners
requirements in restructuring the obligations. Even if such agreement is
reached, it may require approval of additional lenders, which is not
assured. Furthermore, there can be no assurance that the sales of assets
can be successfully accomplished on terms acceptable to the Managing
General Partner. Under current circumstances, the Managing General
Partner's ability to continue as a going concern depends upon its ability
to (1) successfully restructure its obligations or obtain additional
financing as may be required, (2) maintain compliance with all debt
covenants, (3) generate sufficient cash flow to meet its obligations on a
timely basis, and (4) achieve satisfactory levels of future earnings. If
the Managing General Partner is unsuccessful in its efforts, it may be
unable to meet its obligations making it necessary to undertake such other
actions as may be appropriate to preserve asset values.
<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: No reports on Form 8-
K were filed during the quarter ended June 30, 2000.
<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/ J Steven Person
------------------------------
J Steven Person, Vice-President of
Marketing and Chief Financial Officer
of Southwest Royalties, Inc.
the Managing General Partner
Date: August 15, 2000
<PAGE>
