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 0-15411
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
<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, 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.
PAGE
<PAGE>
Southwest Royalties, Inc. Income Fund VI
Balance Sheets
June 30, December 31,
1996 1995
----------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 87,015 126,941
Receivable from Managing
General Partner 228,615 239,768
--------- ---------
Total current assets 315,630 366,709
--------- ---------
Oil and gas properties - using the
full cost method of accounting 8,538,817 8,552,301
Less accumulated depreciation,
depletion and amortization 5,811,000 5,670,000
--------- ---------
Net oil and gas properties 2,727,817 2,882,301
--------- ---------
$ 3,043,447 3,249,010
========= =========
Liabilities and Partners' Equity
Current liability - Distributions payable $ 194 535
--------- ---------
Partners' equity:
General partners (552,542) (532,508)
Limited partners 3,595,795 3,780,983
--------- ---------
Total partners' equity 3,043,253 3,248,475
--------- ---------
$ 3,043,447 3,249,010
========= =========
<PAGE> <PAGE>
Southwest Royalties, Inc. Income Fund VI
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
Revenues
Income from net profits
interests $ 331,364 284,828 599,755 591,040
Interest 1,319 1,452 2,367 2,975
------- ------- ------- -------
332,683 286,280 602,122 594,015
------- ------- ------- -------
Expenses
General and administrative 36,703 38,680 84,457 87,540
Depreciation, depletion and
amortization 77,000 82,000 141,000 173,000
------- ------- ------- -------
113,703 120,680 225,457 260,540
------- ------- ------- -------
Net income $ 218,980 165,600 376,665 333,475
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 19,708 14,904 33,900 30,013
======= ======= ======= =======
General Partner $ 2,191 1,656 3,767 3,335
======= ======= ======= =======
Limited Partners $ 197,081 149,040 338,998 300,127
======= ======= ======= =======
Per limited partner
unit $ 9.85 7.45 16.95 15.01
======= ======= ======= =======
<PAGE>
<PAGE>
Southwest Royalties, Inc. Income Fund VI
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 $ 610,786 656,799
Cash paid to suppliers (84,335) (87,640)
Interest received 2,367 2,975
------- -------
Net cash provided by operating
activities 528,818 572,134
------- -------
Cash flows provided by investing
activities:
Cash received from sale of oil
and gas property interest 13,484 -
------- -------
Cash flows used in financing
activities:
Distributions to partners (582,228) (579,024)
------- -------
Net decrease in cash and cash equivalents (39,926) (6,890)
Beginning of period 126,941 141,302
------- -------
End of period $ 87,015 134,412
======= =======
(continued)
PAGE
<PAGE>
Southwest Royalties, Inc. Income Fund VI
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
1996 1995
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 376,665 333,475
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and
amortization 141,000 173,000
Decrease in receivables 11,153 65,759
Decrease in payables - (100)
------- -------
Net cash provided by operating
activities $ 528,818 572,134
======= =======
PAGE
<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
<PAGE>
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 $ 19.90 17.86 11%
Average price per mcf of gas $ 2.34 1.79 31%
Oil production in barrels 16,900 14,900 13%
Gas production in mcf 122,700 153,600 (20%)
Income from net profits interests $ 331,364 284,828 16%
Partnership distributions $ 282,173 259,000 9%
Limited partner distributions $ 253,973 233,100 9%
Per unit distribution to limited
partners $ 12.70 11.66 9%
Number of limited partner units 20,000 20,000
Revenues
The Partnership's income from net profits interests increased to $331,364
from $284,828 for the quarters ended June 30, 1996 and 1995, respectively, an
increase of 16%. 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 11%, or $2.04 per barrel, resulting in an
increase of approximately $30,400 in income from net profits interests.
Oil sales represented 54% of total oil and gas sales during the quarter
ended June 30, 1996 as compared to 49% 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 31%, or $.55 per mcf, resulting in an increase
of approximately $84,500 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 $114,900.
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 increased approximately 2,000 barrels or 13% during the
quarter ended June 30, 1996 as compared to the quarter ended June 30,
1995, resulting in an increase of approximately $39,800 in income from
net profits interests.
Gas production decreased approximately 30,900 mcf or 20% during the same
period, resulting in a decrease of approximately $72,300 in income from
net profits interests.
The net total decrease in income from net profits interests due to the
change in production is approximately $32,500. The decrease is primarily
attributable to property sales and two wells being temporarily shut-in by
the gas purchaser due to gas line problems.
3. Lease operating costs and production taxes were 14% higher, or
approximately $36,400 more during the quarter ended June 30, 1996 as
compared to the quarter ended June 30, 1995. The increase is due to the
acidization of one well and the replacement of the salt water disposal
line on another well.
Costs and Expenses
Total costs and expenses decreased to $113,703 from $120,680 for the quarters
ended June 30, 1996 and 1995, respectively, a decrease of 6%. 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 $2,000 during the quarter ended June 30, 1996 as
compared to the quarter ended June 30, 1995.
2. Depletion expense decreased to $77,000 for the quarter ended June 30,
1996 from $82,000 for the same period in 1995. This represents a
decrease of 6%. 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. Although oil and gas
revenues increased during the comparative quarters, depletion expense
decreased due to the change in oil prices since 1995.
<PAGE>
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 $ 19.38 17.24 12%
Average price per mcf of gas $ 2.23 1.85 21%
Oil production in barrels 30,300 32,300 (6%)
Gas production in mcf 251,200 311,500 (19%)
Income from net profits interests $ 599,755 591,040 1%
Partnership distributions $ 581,887 579,000 .05%
Limited partner distributions $ 524,187 521,100 1%
Per unit distribution to limited
partners $ 26.21 26.06 1%
Number of limited partner units 20,000 20,000
Revenues
The Partnership's income from net profits interests increased to $599,755
from $591,040 for the six months ended June 30, 1996 and 1995, respectively,
an increase of 1%. 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 12%, or $2.14 per barrel, resulting in
an increase of approximately $69,100 in income from net profits
interests. Oil sales represented 51% of total oil and gas sales during
the six months ended June 30, 1996 as compared to 49% during the six
months ended June 30, 1995.
The average price for an mcf of gas received by the Partnership increased
during the same period by 21%, or $.38 per mcf, resulting in an increase
of approximately $118,400 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 $187,500.
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 2,000 barrels or 6% during the six
months ended June 30, 1996 as compared to the six months ended June 30,
1995, resulting in a decrease of approximately $38,800 in income from net
profits interests.
Gas production decreased approximately 60,300 mcf or 19% during the same
period, resulting in a decrease of approximately $134,500 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $173,300. The decrease is primarily
attributable to property sales and two wells being temporarily shut-in by
the gas purchaser due to gas line problems.
3. Lease operating costs and production taxes were 1% higher, or
approximately $5,900 more during the six months ended June 30, 1996 as
compared to the six months ended June 30, 1995.
Costs and Expenses
Total costs and expenses decreased to $225,457 from $260,540 for the six
months ended June 30, 1996 and 1995, respectively, a decrease of 13%. The
decrease is the result of a decrease in 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 4%
or approximately $3,100 during the six months ended June 30, 1996 as
compared to the six months ended June 30, 1995.
2. Depletion expense decreased to $141,000 for the six months ended June 30,
1996 from $173,000 for the same period in 1995. This represents a
decrease of 18%. 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 production
for the six months ended June 30, 1996 as compared to the same period for
1995. Depletion reflected a comparable decline.
PAGE
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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 $528,800 in
the six months ended June 30, 1996 as compared to approximately $572,100 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 approximately $13,500 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 $582,200 in the
six months ended June 30, 1996 as compared to approximately $579,000 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 $581,887
of which $524,187 was distributed to the limited partners and $57,700 to the
general partners. The per unit distribution to limited partners during the
six months ended June 30, 1996 was $26.21. 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 to the general partners. The
per unit distribution to limited partners during the six months ended June
30, 1995 was $26.06.
The sources for the 1996 distributions of $581,887 were oil and gas
operations of approximately $528,800 and property sales of approximately
$13,500, with the balance from available cash on hand at the beginning of the
period. 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.
Since inception of the Partnership, cumulative monthly cash distributions of
$12,750,498 have been made to the partners. As of June 30, 1996, $11,488,621
or $574.43 per limited partner unit has been distributed to the limited
partners, representing a 115% return of the capital contributed.
As of June 30, 1996, the Partnership had approximately $315,400 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
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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.
PAGE
<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
By: /s/ Bill E. Coggin
Bill E. Coggin, Vice President
and Chief Financial Officer
Date: August 12, 1996
<PAGE>
<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> 87,015
<SECURITIES> 0
<RECEIVABLES> 228,615
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 315,630
<PP&E> 8,538,817
<DEPRECIATION> 5,811,000
<TOTAL-ASSETS> 3,043,447
<CURRENT-LIABILITIES> 194
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,043,253
<TOTAL-LIABILITY-AND-EQUITY> 3,043,447
<SALES> 599,755
<TOTAL-REVENUES> 602,122
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 225,457
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 376,665
<INCOME-TAX> 0
<INCOME-CONTINUING> 376,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 376,665
<EPS-PRIMARY> 16.95
<EPS-DILUTED> 16.95
</TABLE>
