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, 1995
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 0-15411
Southwest Royalties, Inc. Income Fund VI
(Exact name of registrant as specified
in its limited partnership agreement)
Tennessee 75-2127812
(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.
<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, 1994 which are found in the Registrant's Form 10-K Report
for 1994 filed with the Securities and Exchange Commission. The December 31,
1994 balance sheet included herein has been taken from the Registrant's 1994
Form 10-K Report. Operating results for the three and six month periods
ended June 30, 1995 are not necessarily indicative of the results that may be
expected for the full year.
<PAGE>
Southwest Royalties, Inc. Income Fund VI
Balance Sheets
June 30, December 31,
1995 1994
----------- ------------
(unaudited)
Assets
Current assets:
Cash $ 134,412 141,302
Receivable from Managing General Partner 257,982 323,741
--------- ---------
Total current assets 392,394 465,043
--------- ---------
Oil and gas properties - using the full
cost method of accounting 8,594,778 8,594,778
Less accumulated depreciation,
depletion and amortization 5,584,000 5,411,000
--------- ---------
Net oil and gas properties 3,010,778 3,183,778
--------- ---------
$ 3,403,172 3,648,821
========= =========
Liabilities and Partners' Equity
Current liabilities:
Accounts payable $ 600 700
Distributions payable 296 320
--------- ---------
Total current liabilities 896 1,020
--------- ---------
Partners' equity:
General partners (518,861) (494,309)
Limited partners 3,921,137 4,142,110
--------- ---------
Total partners' equity 3,402,276 3,647,801
--------- ---------
$ 3,403,172 3,648,821
========= =========
<PAGE>
Southwest Royalties, Inc. Income Fund VI
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
Revenues
Income from net profits interests $ 284,828 265,823 591,040 435,338
Interest income from operations 1,452 1,194 2,975 1,807
------- ------- ------- -------
286,280 267,017 594,015 437,145
------- ------- ------- -------
Expenses
General and administrative 38,680 39,727 87,540 90,753
Depreciation, depletion and
amortization 82,000 127,000 173,000 228,000
------- ------- ------- -------
120,680 166,727 260,540 318,753
------- ------- ------- -------
Net income $ 165,600 100,290 333,475 118,392
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 14,904 9,026 30,013 10,655
======= ======= ======= =======
General Partner $ 1,656 1,003 3,335 1,184
======= ======= ======= =======
Limited Partners $ 149,040 90,261 300,127 106,553
======= ======= ======= =======
Per limited partner unit $ 7.45 4.52 15.01 5.33
======= ======= ======= =======
<PAGE>
Southwest Royalties, Inc. Income Fund VI
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
1995 1994
---- ----
Cash flows from operating activities:
Cash received from income from net
profits interests $ 656,799 438,746
Cash paid to suppliers (87,640) 1,957
Interest received 2,975 1,807
------- -------
Net cash provided by operating
activities 572,134 442,510
------- -------
Cash flows provided by investing activities:
Cash received from sale of oil and gas
property interest - 3,790
------- -------
Cash flows used in financing activities:
Distributions to partners (579,024) (322,624)
------- -------
Net increase (decrease) in cash (6,890) 123,676
Cash -
beginning of period 141,302 19,851
------- -------
end of period $ 134,412 143,527
======= =======
(continued)
<PAGE>
Southwest Royalties, Inc. Income Fund VI
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
1995 1994
---- ----
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 333,475 118,392
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and amortization 173,000 228,000
Decrease in accounts receivable 65,759 3,408
Increase (decrease) in accounts payable (100) 92,710
------- -------
Net cash provided by operating
activities $ 572,134 442,510
======= =======
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Royalties, Inc. Income Fund VI was organized as a Tennessee limited
partnership on December 4, 1986. The offering of such limited partnership
interests began August 25, 1986, minimum capital requirements were met
October 3, 1986 and concluded January 29, 1987, with total limited partner
contributions of $10,000,000.
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 will not be 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, 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.
<PAGE>
Results of Operations
A. General Comparison of the Quarters Ended June 30, 1995 and 1994
The following table provides certain information regarding performance
factors for the quarters ended June 30, 1995 and 1994:
Three Months
Ended Percentage
June 30, Increase
1995 1994 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 17.86 15.89 12%
Average price per mcf of gas $ 1.79 1.98 (10%)
Oil production in barrels * 14,900 19,900 (25%)
Gas production in mcf * 153,600 148,000 4%
Income from net profits interests $ 284,828 265,823 7%
Partnership distributions $ 259,000 165,000 57%
Limited partner distributions $ 233,100 148,500 57%
Per unit distribution to limited partners $ 11.66 7.43 57%
Number of limited partner units 20,000 20,000
*In the Form 10-Q, for the quarter ended June 30, 1994, the oil and gas
production volumes were calculated by rounding to the nearest 500 barrels or
mcf, respectively. In the Form 10-Q, for the quarter ended June 30, 1995,
the oil and gas production volumes were calculated by rounding to the nearest
100 barrels or mcf, respectively.
Revenues:
The Partnership's income from net profits interests increased to $284,828
from $265,823 for the quarters ended June 30, 1995 and 1994, respectively, an
increase of 7%. The principal factors affecting the comparison of the
quarters ended June 30, 1995 and 1994 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended June 30, 1995 as compared to the
quarter ended June 30, 1994 by 12%, or $1.97 per barrel, resulting in an
increase of approximately $39,200 in income from net profits interests.
Oil sales represented 49% of total oil and gas sales during the quarter
ended June 30, 1995 as compared to 52% during the quarter ended June 30,
1994.
The average price for an mcf of gas received by the Partnership decreased
during the same period by 10%, or $.19 per mcf, resulting in a decrease
of approximately $28,100 in income from net profits interests.
The net increase in income from net profits interests due to the change
in prices received from oil and gas production is approximately $11,100.
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 5,000 barrels or 25% during the
quarter ended June 30, 1995 as compared to the quarter ended June 30,
1994, resulting in a decrease of approximately $89,300 in income from net
profits interests.
Gas production increased approximately 5,600 mcf or 4% during the same
period, resulting in an increase of approximately $10,000 in income from
net profits interests.
The net decrease in income from net profits interests due to the change
in production is approximately $79,300. The decrease is a result of
decreased oil production due to one well being shut-in, and downtime
experienced by three wells due to workovers.
3. Lease operating costs and production taxes were 26% lower, or
approximately $88,500 less during the quarter ended June 30, 1995 as
compared to the quarter ended June 30, 1994. The decrease is a result of
increased salt water disposal revenues that offset lease operating costs
in 1995 and decreased workover costs in 1995 as compared to 1994.
Costs and Expenses:
Total costs and expenses decreased to $120,680 from $166,727 for the quarters
ended June 30, 1995 and 1994, respectively, a decrease of 28%. The decrease
is the result of a decrease in general and administrative expense and
depletion.
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 3%
or approximately $1,000 during the quarter ended June 30, 1995 as
compared to the quarter ended June 30, 1994.
2. Depletion expense decreased to $82,000 for the quarter ended June 30,
1995 from $127,000 for the same period in 1994. This represents a
decrease of 35%. 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. Consequently, depletion
will generally fluctuate in direct relation to oil and gas revenues.
Although oil and gas revenues increased for the quarter ended June 30,
1995 as compared to the quarter ended June 30, 1994, the decrease in
depletion expense is the result of the change in oil prices since 1994.
<PAGE>
B. General Comparison of the Six Month Periods Ended June 30, 1995 and 1994
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 1995 and 1994:
Six Months
Ended Percentage
June 30, Increase
1995 1994 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 17.24 14.26 21%
Average price per mcf of gas $ 1.85 1.92 (4%)
Oil production in barrels * 32,300 36,300 (11%)
Gas production in mcf * 311,500 299,700 4%
Income from net profits interests $ 591,040 435,338 36%
Partnership distributions $ 579,000 323,000 79%
Limited partner distributions $ 521,000 290,700 79%
Per unit distribution to limited partners $ 26.06 14.54 79%
Number of limited partner units 20,000 20,000
*In the Form 10-Q, for the six months ended June 30, 1994, the oil and gas
production volumes were calculated by rounding to the nearest 500 barrels or
mcf, respectively. In the Form 10-Q, for the six months ended June 30, 1995,
the oil and gas production volumes were calculated by rounding to the nearest
100 barrels or mcf, respectively.
Revenues:
The Partnership's income from net profits interests increased to $591,040
from $435,338 for the six months ended June 30, 1995 and 1994, respectively,
an increase of 36%. The principal factors affecting the comparison of the
six months ended June 30, 1995 and 1994 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the six months ended June 30, 1995 as compared to the
six months ended June 30, 1994 by 21%, or $2.98 per barrel, resulting in
an increase of approximately $108,200 in income from net profits
interests. Oil sales represented 49% of total oil and gas sales during
the six months ended June 30, 1995 as compared to 47% during the six
months ended June 30, 1994.
The average price for an mcf of gas received by the Partnership decreased
during the same period by 4%, or $.07 per mcf, resulting in a decrease of
approximately $21,000 in income from net profits interests.
The net increase in income from net profits interests due to the change
in prices received from oil and gas production is approximately $87,200.
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.
<PAGE>
2. Oil production decreased approximately 4,000 barrels or 11% during the
six months ended June 30, 1995 as compared to the six months ended June
30, 1994, resulting in a decrease of approximately $69,000 in income from
net profits interests.
Gas production increased approximately 11,800 mcf or 4% during the same
period, resulting in an increase of approximately $21,800 in income from
net profits interests.
The net decrease in income from net profits interests due to the change
in production is approximately $47,200. The decrease is a result of
decreased oil production due to one well being shut-in, and downtime
experienced by one well due to a workover.
3. Lease operating costs and production taxes were 18% lower, or
approximately $116,800 less during the six months ended June 30, 1995 as
compared to the six months ended June 30, 1994. The decrease is a result
of increased salt water disposal revenues that offset lease operating
costs in 1995 and decreased workover costs in 1995 as compared to 1994.
Costs and Expenses:
Total costs and expenses decreased to $260,540 from $318,753 for the six
months ended June 30, 1995 and 1994, respectively, a decrease of 18%. The
decrease is the result of a decrease in general and administrative expense
and depletion.
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 4%
or approximately $3,200 during the six months ended June 30, 1995 as
compared to the six months ended June 30, 1994.
2. Depletion expense decreased to $173,000 for the six months ended June 30,
1995 from $228,000 for the same period in 1994. This represents a
decrease of 24%. 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. Consequently, depletion
will generally fluctuate in direct relation to oil and gas revenues.
Although oil and gas revenues increased for the six months ended June 30,
1995 as compared to the six months ended June 30, 1994, the decrease in
depletion expense is the result of the change in oil prices since 1994.
Liquidity and Capital Resources:
The primary source of cash is from operations, the receipt of income from net
profits 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 $572,100 in
the six months ended June 30, 1995 as compared to approximately $442,500 in
the six months ended June 30, 1994. Primary source of the 1995 cash flow
from operating activities was profitable operations.
<PAGE>
There were no cash flows provided by or used in investing activities in the
six months ended June 30, 1995 as compared to approximately $3,800 of cash
provided from the sale of oil and gas properties in the six months ended June
30, 1994.
Cash flows used in financing activities were approximately $579,000 in the
six months ended June 30, 1995 as compared to approximately $322,600 in the
six months ended June 30, 1994. The only use in financing activities was the
distributions to partners.
Total distributions during the six months ended June 30, 1995 were $579,000
of which $521,100 was distributed to the limited partners and $57,900 was
distributed to the general partners. The per unit distribution to limited
partners during the six months ended June 30, 1995 was $26.06. Total
distributions during the six months ended June 30, 1994 were $323,000 of
which $290,700 was distributed to the limited partners and $32,300 was
distributed to the general partners. The per unit distribution to limited
partners during the six months ended June 30, 1994 was $14.54. The source
for the 1995 distributions of $579,000 was oil and gas operations of
approximately $572,100, with the balance from available cash on hand at the
beginning of the period. The sources for the 1994 distributions of $323,000
were oil and gas operations of approximately $442,500 and equipment sales of
approximately $3,800, resulting in excess cash for contingencies or
subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions of
$11,738,270 have been made to the partners. As of June 30, 1995, $10,575,393
or $528.77 per limited partner unit has been distributed to the limited
partners, representing a 100% return of the original capital contributed and
a 6% return on the contributed capital.
As of June 30, 1995, the Partnership had approximately $391,500 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) None
(b) 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 VI,
a Tennessee limited partnership
By: Southwest Royalties, Inc.
Managing General Partner
Date: August 2, 1995 By: /s/ Bill E. Coggin
------------------------------
Bill E. Coggin, Vice President
and Chief Financial Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet at June 30, 1995 (Unaudited) and the Statement of Operations for the Six
Months Ended June 30, 1995 (Unaudited) and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 134,412
<SECURITIES> 0
<RECEIVABLES> 257,982
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 392,394
<PP&E> 8,594,778
<DEPRECIATION> 5,584,000
<TOTAL-ASSETS> 3,403,172
<CURRENT-LIABILITIES> 896
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 3,402,276
<TOTAL-LIABILITY-AND-EQUITY> 3,403,172
<SALES> 591,040
<TOTAL-REVENUES> 594,015
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 260,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 333,475
<INCOME-TAX> 0
<INCOME-CONTINUING> 333,475
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 333,475
<EPS-PRIMARY> 15.01
<EPS-DILUTED> 15.01
</TABLE>
