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, 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.
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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 nine
month periods ended September 30, 1996 are not necessarily
indicative of the results that may be expected for the full year.
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Southwest Royalties, Inc. Income Fund VI
Balance Sheets
September 30, December 31,
1996 1995
------------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 101,697 126,941
Receivable from Managing
General Partner 250,865 239,768
--------- ---------
Total current assets 352,562 366,709
--------- ---------
Oil and gas properties - using the
full cost method of accounting 8,535,904 8,552,301
Less accumulated depreciation,
depletion and amortization 5,882,000 5,670,000
--------- ---------
Net oil and gas properties 2,653,904 2,882,301
--------- ---------
$ 3,006,466 3,249,010
========= =========
Liabilities and Partners' Equity
Current liability - Distributions payable $ 242 535
--------- ---------
Partners' equity:
General partners (556,245) (532,508)
Limited partners 3,562,469 3,780,983
--------- ---------
Total partners' equity 3,006,224 3,248,475
--------- ---------
$ 3,006,466 3,249,010
========= =========
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Southwest Royalties, Inc. Income Fund VI
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues
Income from net profits
interests $ 295,019 225,019 894,774 816,059
Interest 1,176 1,255 3,543 4,230
------- ------- ------- -------
296,195 226,274 898,317 820,289
------- ------- ------- -------
Expenses
General and administrative 37,223 35,448 121,681 122,988
Depreciation, depletion and
amortization 71,000 80,000 212,000 253,000
------- ------- ------- -------
108,223 115,448 333,681 375,988
------- ------- ------- -------
Net income $ 187,972 110,826 564,636 444,301
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 16,917 9,974 50,817 39,987
======= ======= ======= =======
General Partner $ 1,881 1,109 5,646 4,443
======= ======= ======= =======
Limited Partners $ 169,174 99,743 508,173 399,871
======= ======= ======= =======
Per limited partner
unit $ 8.46 4.99 25.41 19.99
======= ======= ======= =======
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Southwest Royalties, Inc. Income Fund VI
Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Cash received from income from net
profits interests $ 883,680 904,695
Cash paid to suppliers (121,559) (123,688)
Interest received 3,543 4,230
------- -------
Net cash provided by operating
activities 765,664 785,237
------- -------
Cash flows provided by investing
activities:
Cash received from sale of oil
and gas property interest 16,272 -
------- -------
Cash flows used in financing
activities:
Distributions to partners (807,180) (786,753)
------- -------
Net decrease in cash and cash equivalents (25,244) (1,516)
Beginning of period 126,941 141,302
------- -------
End of period $ 101,697 139,786
======= =======
(continued)
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Southwest Royalties, Inc. Income Fund VI
Statements of Cash Flows, continued
(unaudited)
Nine Months Ended
September 30,
1996 1995
Reconciliation of net income to
net cash provided by operating
activities:
Net income $ 564,636 444,301
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and
amortization 212,000 253,000
(Increase) decrease in receivables (10,972) 88,636
Decrease in payables - (700)
------- -------
Net cash provided by operating
activities $ 765,664 785,237
======= =======
Supplemental schedule of noncash investing
and financing activities:
Sale of oil and gas property
included in receivable from
Managing General Partner $ 125 -
======= =======
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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.
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Results of Operations
A. General Comparison of the Quarters Ended September 30, 1996 and 1995
The following table provides certain information regarding performance
factors for the quarters ended September 30, 1996 and 1995:
Three Months
Ended Percentage
September 30, Increase
1996 1995 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 21.58 16.23 33%
Average price per mcf of gas $ 2.26 1.77 28%
Oil production in barrels 14,000 15,800 (11%)
Gas production in mcf 123,400 151,200 (18%)
Income from net profits interests $ 295,019 225,019 31%
Partnership distributions $ 225,000 208,000 8%
Limited partner distributions $ 202,500 187,200 8%
Per unit distribution to limited
partners $ 10.13 9.36 8%
Number of limited partner units 20,000 20,000
Revenues
The Partnership's income from net profits interests increased to $295,019
from $225,019 for the quarters ended September 30, 1996 and 1995,
respectively, an increase of 31%. The principal factors affecting the
comparison of the quarters ended September 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 September 30, 1996 as compared to the
quarter ended September 30, 1995 by 33%, or $5.35 per barrel, resulting
in an increase of approximately $84,500 in income from net profits
interests. Oil sales represented 52% of total oil and gas sales during
the quarter ended September 30, 1996 as compared to 49% during the
quarter ended September 30, 1995.
The average price for an mcf of gas received by the Partnership increased
during the same period by 28%, or $.49 per mcf, resulting in an increase
of approximately $74,100 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 $158,600.
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.
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2. Oil production decreased approximately 1,800 barrels or 11% during the
quarter ended September 30, 1996 as compared to the quarter ended
September 30, 1995, resulting in a decrease of approximately $38,800 in
income from net profits interests.
Gas production decreased approximately 27,800 mcf or 18% during the same
period, resulting in a decrease of approximately $62,800 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $101,600. 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 4% lower, or
approximately $13,000 less during the quarter ended September 30, 1996 as
compared to the quarter ended September 30, 1995.
Costs and Expenses
Total costs and expenses decreased to $108,223 from $115,448 for the quarters
ended September 30, 1996 and 1995, respectively, a decrease of 6%. The
decrease is the result of lower depletion expense, 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 5%
or approximately $1,800 during the quarter ended September 30, 1996 as
compared to the quarter ended September 30, 1995.
2. Depletion expense decreased to $71,000 for the quarter ended September
30, 1996 from $80,000 for the same period in 1995. This represents a
decrease of 11%. 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.
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B. General Comparison of the Nine Month Periods Ended September 30, 1996 and
1995
The following table provides certain information regarding performance
factors for the nine month periods ended September 30, 1996 and 1995:
Nine Months
Ended Percentage
September 30, Increase
1996 1995 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 20.08 16.91 19%
Average price per mcf of gas $ 2.24 1.82 23%
Oil production in barrels 44,400 48,100 (8%)
Gas production in mcf 374,600 462,700 (19%)
Income from net profits interests $ 894,774 816,059 10%
Partnership distributions $ 806,887 787,000 3%
Limited partner distributions $ 726,687 708,300 3%
Per unit distribution to limited
partners $ 36.33 35.42 3%
Number of limited partner units 20,000 20,000
Revenues
The Partnership's income from net profits interests increased to $894,774
from $816,059 for the nine months ended September 30, 1996 and 1995,
respectively, an increase of 10%. The principal factors affecting the
comparison of the nine months ended September 30, 1996 and 1995 are as
follows:
1. The average price for a barrel of oil received by the Partnership
increased during the nine months ended September 30, 1996 as compared to
the nine months ended September 30, 1995 by 19%, or $3.17 per barrel,
resulting in an increase of approximately $152,500 in income from net
profits interests. Oil sales represented 52% of total oil and gas sales
during the nine months ended September 30, 1996 as compared to 49% during
the nine months ended September 30, 1995.
The average price for an mcf of gas received by the Partnership increased
during the same period by 23%, or $.42 per mcf, resulting in an increase
of approximately $194,300 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 $346,800.
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.
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2. Oil production decreased approximately 3,700 barrels or 8% during the
nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995, resulting in a decrease of approximately $74,300 in
income from net profits interests.
Gas production decreased approximately 88,100 mcf or 19% during the same
period, resulting in a decrease of approximately $197,300 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $271,600. 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% lower, or
approximately $7,100 less during the nine months ended September 30, 1996
as compared to the nine months ended September 30, 1995.
Costs and Expenses
Total costs and expenses decreased to $333,681 from $375,988 for the nine
months ended September 30, 1996 and 1995, respectively, a decrease of 11%.
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 1%
or approximately $1,300 during the nine months ended September 30, 1996
as compared to the nine months ended September 30, 1995.
2. Depletion expense decreased to $212,000 for the nine months ended
September 30, 1996 from $253,000 for the same period in 1995. This
represents a decrease of 16%. 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.
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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 $765,700 in
the nine months ended September 30, 1996 as compared to approximately
$785,200 in the nine months ended September 30, 1995. The primary source of
the 1996 cash flow from operating activities was profitable operations.
Cash flows provided by investing activities were approximately $16,300 in the
nine months ended September 30, 1996 as compared to none in the nine months
ended September 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 $807,200 in the
nine months ended September 30, 1996 as compared to approximately $786,800 in
the nine months ended September 30, 1995. The only use in financing
activities was the distributions to partners.
Total distributions during the nine months ended September 30, 1996 were
$806,887 of which $726,687 was distributed to the limited partners and
$80,200 to the general partners. The per unit distribution to limited
partners during the nine months ended September 30, 1996 was $36.33. 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 to the
general partners. The per unit distribution to limited partners during the
nine months ended September 30, 1995 was $35.42.
The sources for the 1996 distributions of $806,887 were oil and gas
operations of approximately $765,700 and the sale of oil and gas properties
of approximately $16,300, with the balance from available cash on hand at the
beginning of the period. 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.
Since inception of the Partnership, cumulative monthly cash distributions of
$12,975,498 have been made to the partners. As of September 30, 1996,
$11,691,121 or $584.56 per limited partner unit has been distributed to the
limited partners, representing a 117% return of the capital contributed.
As of September 30, 1996, the Partnership had approximately $352,300 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.
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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) Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter for which
this report is filed.
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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: November 15, 1996
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet at September 30, 1996 (Unaudited) and the Statement of Operations for the
Nine Months Ended September 30, 1996 (Unaudited) and is qualified in its
entirety by reference to such finanical statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 101,697
<SECURITIES> 0
<RECEIVABLES> 250,865
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 352,562
<PP&E> 8,535,904
<DEPRECIATION> 5,882,000
<TOTAL-ASSETS> 3,006,466
<CURRENT-LIABILITIES> 242
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,006,224
<TOTAL-LIABILITY-AND-EQUITY> 3,006,466
<SALES> 894,774
<TOTAL-REVENUES> 898,317
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 333,681
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 564,636
<INCOME-TAX> 0
<INCOME-CONTINUING> 564,636
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 564,636
<EPS-PRIMARY> 25.41
<EPS-DILUTED> 25.41
</TABLE>
