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 September 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 nine month periods
ended September 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
September 30, December 31,
1995 1994
------------- ------------
(unaudited)
Assets
Current assets:
Cash $ 139,786 141,302
Receivable from Managing General Partner 235,105 323,741
--------- ---------
Total current assets 374,891 465,043
--------- ---------
Oil and gas properties - using the full
cost method of accounting 8,594,778 8,594,778
Less accumulated depreciation,
depletion and amortization 5,664,000 5,411,000
--------- ---------
Net oil and gas properties 2,930,778 3,183,778
--------- ---------
$ 3,305,669 3,648,821
========= =========
Liabilities and Partners' Equity
Current liabilities:
Accounts payable $ - 700
Distributions payable 567 320
--------- ---------
Total current liabilities 567 1,020
--------- ---------
Partners' equity:
General partners (528,579) (494,309)
Limited partners 3,833,681 4,142,110
--------- ---------
Total partners' equity 3,305,102 3,647,801
--------- ---------
$ 3,305,669 3,648,821
========= =========
<PAGE>
Southwest Royalties, Inc. Income Fund VI
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
Revenues
Income from net profits
interests $ 225,019 288,963 816,059 724,299
Interest income from
operations 1,255 2,271 4,230 4,078
------- ------- ------- -------
226,274 291,234 820,289 728,377
------- ------- ------- -------
Expenses
General and administrative 35,448 37,535 122,988 128,286
Depreciation, depletion and
amortization 80,000 139,000 253,000 367,000
------- ------- ------- -------
115,448 176,535 375,988 495,286
------- ------- ------- -------
Net income $ 110,826 114,699 444,301 233,091
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 9,974 10,323 39,987 20,978
======= ======= ======= =======
General partner $ 1,109 1,147 4,443 2,331
======= ======= ======= =======
Limited partners $ 99,743 103,229 399,871 209,782
======= ======= ======= =======
Per limited partner unit $ 4.99 5.16 19.99 10.49
======= ======= ======= =======
<PAGE>
Southwest Royalties, Inc. Income Fund VI
Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
1995 1994
---- ----
Cash flows from operating activities:
Cash received from income from net
profits interests $ 904,695 864,722
Cash paid to suppliers (123,688) (128,086)
Interest received 4,230 4,078
------- -------
Net cash provided by operating
activities 785,237 740,714
------- -------
Cash provided by investing activities:
Cash received from sale of oil and gas
property interest - 4,790
------- -------
Cash used in financing activities:
Distributions to partners (786,753) (557,823)
------- -------
Net increase (decrease) in cash (1,516) 187,681
Cash:
Beginning of period 141,302 19,851
------- -------
End of period $ 139,786 207,532
======= =======
(continued)
<PAGE>
Southwest Royalties, Inc. Income Fund VI
Statements of Cash Flows, continued
(unaudited)
Nine Months Ended
September 30,
1995 1994
---- ----
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 444,301 233,091
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and amortization 253,000 367,000
Increase in accounts receivable 88,636 140,423
Increase (decrease) in accounts payable (700) 200
------- -------
Net cash provided by operating
activities $ 785,237 740,714
======= =======
<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 farmout
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 September 30, 1995 and 1994
The following table provides certain information regarding performance
factors for the quarters ended September 30, 1995 and 1994:
Three Months
Ended Percentage
September 30, Increase
1995 1994 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 16.23 16.68 (3%)
Average price per mcf of gas $ 1.77 2.00 (12%)
Oil production in barrels 15,800 21,300 (26%)
Gas production in mcf 151,200 155,700 (3%)
Income from net profits interests $ 225,019 288,963 (22%)
Partnership distributions $ 208,000 235,000 (11%)
Limited partner distributions $ 187,200 211,500 (11%)
Per unit distribution to limited
partners $ 9.36 10.58 (11%)
Number of limited partner units 20,000 20,000
Net Profits Interests
The Partnership's income from net profits interests decreased to $225,019
from $288,963 for the quarters ended September 30, 1995 and 1994,
respectively, a decrease of 22%. The principal factors affecting the
comparison of the quarters ended September 30, 1995 and 1994 are as follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended September 30, 1995 as compared to the
quarter ended September 30, 1994 by 3%, or $.45 per barrel, resulting in
a decrease of approximately $9,600 in income from net profits interests.
Oil sales represented 49% of total oil and gas sales during the quarter
ended September 30, 1995 as compared to 53% during the quarter ended
September 30, 1994.
The average price for an mcf of gas received by the Partnership decreased
during the same period by 12%, or $.23 per mcf, resulting in a decrease
of approximately $35,800 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 $45,400.
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.
<PAGE>
2. Oil production decreased approximately 5,500 barrels or 26% during the
quarter ended September 30, 1995 as compared to the quarter ended
September 30, 1994, resulting in a decrease of approximately $89,300 in
income from net profits interests.
Gas production decreased approximately 4,500 mcf or 3% during the same
period, resulting in a decrease of approximately $8,000 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $97,300. The decrease is a result of
increased downtime due to mechanical failures.
3. Lease operating costs and production taxes were 21% lower, or
approximately $78,700 less during the quarter ended September 30, 1995 as
compared to the quarter ended September 30, 1994. The decrease is a
result of workovers on wells in 1994.
Costs and Expenses
Total costs and expenses decreased to $115,448 from $176,535 for the quarters
ended September 30, 1995 and 1994, respectively, a decrease of 35%. 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 6%
or approximately $2,100 during the quarter ended September 30, 1995 as
compared to the quarter ended September 30, 1994.
2. Depletion expense decreased to $80,000 for the quarter ended
September 30, 1995 from $139,000 for the same period in 1994. This
represents a decrease of 42%. 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. As noted above, oil and gas revenues declined due to a decline
in price and production for the quarter ended September 30, 1995 as
compared to the same period for 1994. Depletion reflected a comparable
decline.
<PAGE>
B. General Comparison of the Nine Month Periods Ended September 30, 1995 and
1994
The following table provides certain information regarding performance
factors for the nine month periods ended September 30, 1995 and 1994:
Nine Months
Ended Percentage
September 30, Increase
1995 1994 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 16.91 15.16 12%
Average price per mcf of gas $ 1.82 1.95 (7%)
Oil production in barrels 48,100 57,500 (16%)
Gas production in mcf 462,700 455,400 2%
Income from net profits interests $ 816,059 724,299 13%
Partnership distributions $ 787,000 558,000 41%
Limited partner distributions $ 708,300 502,200 41%
Per unit distribution to limited partners $ 35.42 25.11 41%
Number of limited partner units 20,000 20,000
Net Profits Interests
The Partnership's income from net profits interests increased to $816,059
from $724,299 for the nine months ended September 30, 1995 and 1994,
respectively, an increase of 13%. The principal factors affecting the
comparison of the nine months ended September 30, 1995 and 1994 are as
follows:
1. The average price for a barrel of oil received by the Partnership
increased during the nine months ended September 30, 1995 as compared to
the nine months ended September 30, 1994 by 12%, or $1.75 per barrel,
resulting in an increase of approximately $100,600 in income from net
profits interests. Oil sales represented 49% of total oil and gas sales
during the nine months ended September 30, 1995 as compared to 50% during
the nine months ended September 30, 1994.
The average price for an mcf of gas received by the Partnership decreased
during the same period by 7%, or $.13 per mcf, resulting in a decrease of
approximately $59,200 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 $41,400.
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.
<PAGE>
2. Oil production decreased approximately 9,400 barrels or 16% during the
nine months ended September 30, 1995 as compared to the nine months ended
September 30, 1994, resulting in a decrease of approximately $159,000 in
income from net profits interests.
Gas production increased approximately 7,300 mcf or 2% during the same
period, resulting in an increase of approximately $13,300 in income from
net profits interests.
The net decrease in income from net profits interests due to the change
in production is approximately $145,700. The decrease is a result of
increased downtime due to mechanical failures.
3. Lease operating costs and production taxes were 19% lower, or
approximately $195,600 less during the nine months ended September 30,
1995 as compared to the nine months ended September 30, 1994. The
decrease is a result of increased salt water disposal income in 1995 and
workovers on wells in 1994.
Costs and Expenses
Total costs and expenses decreased to $375,988 from $495,286 for the nine
months ended September 30, 1995 and 1994, respectively, a decrease of 24%.
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 $5,300 during the nine months ended September 30, 1995
as compared to the nine months ended September 30, 1994.
2. Depletion expense decreased to $253,000 for the nine months ended
September 30, 1995 from $367,000 for the same period in 1994. This
represents a decrease of 31%. 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. As noted above, oil and gas revenues declined due to a decline
in gas price and oil production for the nine months ended September 30,
1995 as compared to the same period for 1994. Depletion reflected a
comparable decline.
Liquidity and Capital Resources
The primary source of cash is from profitable operations. The Partnership
knows of no material change, nor does it anticipate any such change.
<PAGE>
Cash flows provided by operating activities were approximately $785,200 in
the nine months ended September 30, 1995 as compared to approximately
$740,700 in the nine months ended September 30, 1994. The source of the 1995
cash flow from operating activities was profitable operations.
No cash flows were provided by investing activities in the nine months ended
September 30, 1995 as compared to approximately $4,800 of cash provided from
the sale of oil and gas properties in the nine months ended September 30,
1994.
Cash flows used in financing activities were approximately $786,800 in the
nine months ended September 30, 1995 as compared to approximately $557,800 in
the nine months ended September 30, 1994. The only use in financing
activities was the distributions to partners.
Total distributions during the nine months ended September 30, 1995 were
$787,000, of which $708,300 was distributed to the limited partners and
$78,700 was distributed to the general partners. The per unit distribution
to limited partners during the nine months ended September 30, 1995 was
$35.42. Total distributions during the nine months ended September 30, 1994
were $558,000, of which $502,200 was distributed to the limited partners and
$55,800 was distributed to the general partners. The per unit distribution
to limited partners during the nine months ended September 30, 1994 was
$25.11. The source for the 1995 distributions of $787,000 was oil and gas
operations of approximately $785,200, with the balance from available cash on
hand at the beginning of the period. The sources for the 1994 distributions
of $558,000 was oil and gas operations of approximately $740,700 and property
sales of approximately $4,800, resulting in excess cash for contingencies or
subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions of
$11,946,270 have been made to the partners. As of September 30, 1995,
$10,762,593 or $538.13 per limited partner unit has been distributed to the
limited partners, representing a 108% return of the capital contributed.
As of September 30, 1995, the Partnership had approximately $374,300 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: November 8, 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 September 30, 1995 (Unaudited) and the Statement of Operations for the
Nine Months Ended September 30, 1995 (Unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 139,786
<SECURITIES> 0
<RECEIVABLES> 235,105
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 374,891
<PP&E> 8,594,778
<DEPRECIATION> 5,664,000
<TOTAL-ASSETS> 3,305,669
<CURRENT-LIABILITIES> 567
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 3,305,102
<TOTAL-LIABILITY-AND-EQUITY> 3,305,669
<SALES> 816,059
<TOTAL-REVENUES> 820,289
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 375,988
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 444,301
<INCOME-TAX> 0
<INCOME-CONTINUING> 444,301
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 444,301
<EPS-PRIMARY> 19.99
<EPS-DILUTED> 19.99
</TABLE>
