Page 14 of 14
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, 1997
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 note thereto for
the year ended December 31, 1996 which are found in the Registrant's Form
10-K Report for 1996 filed with the Securities and Exchange Commission.
The December 31, 1996 balance sheet included herein has been taken from the
Registrant's 1996 Form 10-K Report. Operating results for the three and
nine month periods ended September 30, 1997 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,
1997 1996
------------- ------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 59,341 65,438
Receivable from Managing General Partner 185,282 338,190
- --------- ---------
Total current assets 244,623 403,628
--------- ---------
Oil and gas properties - using the
full cost method of accounting 8,535,829 8,535,904
Less accumulated depreciation,
depletion and amortization 6,039,000 5,895,000
--------- ---------
Net oil and gas properties 2,496,829 2,640,904
--------- ---------
$2,741,452 3,044,532
========= =========
Liabilities and Partners' Equity
Current liability - Distribution payable $ 504 270
--------- ---------
Partners' equity
General partners (582,771) (552,440)
Limited partners 3,323,719 3,596,702
--------- ---------
Total partners' equity 2,740,948 3,044,262
--------- ---------
$2,741,452 3,044,532
========= =========
<PAGE>
Southwest Royalties, Inc. Income Fund VI
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues
Income from net profits
interests $ 221,161 295,019 659,703 894,774
Interest 757 1,176 2,717 3,543
------- ------- ------- -------
221,918 296,195 662,420 898,317
------- ------- ------- -------
Expenses
General and administrative 36,657 37,223 121,734 121,681
Depreciation, depletion and
amortization 45,000 71,000 144,000 212,000
------- ------- ------- -------
81,657 108,223 265,734 333,681
------- ------- ------- -------
Net income $ 140,261 187,972 396,686 564,636
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 12,623 16,917 35,702 50,817
======= ======= ========= =======
General Partner $ 1,404 1,881 3,967 5,646
======= ======= ========= =======
Limited Partners $ 126,234 169,174 357,017 508,173
======= ======= ========= =======
Per limited partner unit $ 6.31 8.46 17.85 25.41
======= ======= ========= =======
<PAGE>
Southwest Royalties, Inc. Income Fund VI
Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities
Cash received from income net
profits interests $ 812,611 883,680
Cash paid to suppliers (121,734) (121,559)
Interest received 2,717 3,543
------- -------
Net cash provided by operating activities 693,594 765,664
------- -------
Cash flows provided by investing activities
Cash received from sale of oil and gas
property interest 75 16,272
------- -------
Cash flows used in financing activities
Distributions to partners (699,766) (807,180)
------- -------
Net decrease in cash and cash equivalents (6,097) (25,244)
Beginning of period 65,438 126,941
------- -------
End of period $ 59,341 101,697
======= =======
(continued)
<PAGE>
Southwest Royalties, Inc. Income Fund VI
Statements of Cash Flows, continued
(unaudited)
Nine Months Ended
September 30,
1997 1996
Reconciliation of net income to net cash
provided by operating activities
Net income $ 396,686 564,636
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, depletion and amortization 144,000 212,000
(Increase) decrease in receivables 152,908 (10,972)
------- -------
Net cash provided by operating activities $ 693,594 765,664
======= =======
Supplemental schedule of non-cash investing
and financial activities:
Sale of oil and gas property
included in receivable from
Managing General Partner $ - 125
======== ========
<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.
Based on current conditions, management anticipates performing workovers
during the next five years to enhance production. The Partnership has the
opportunity for potential increases with little decline. Thereafter, the
Partnership could possibly experience a normal decline.
<PAGE>
Results of Operations
A. General Comparison of the Quarters Ended September 30, 1997 and 1996
The following table provides certain information regarding performance
factors for the quarters ended September 30, 1997 and 1996:
Three Months
Ended Percentage
September 30, Increase
1997 1996 (Decrease)
Average price per barrel of oil $ 17.46 21.58 (19%)
Average price per mcf of gas $ 2.27 2.26 -
Oil production in barrels 12,200 14,000 (13%)
Gas production in mcf 118,600 123,400 (4%)
Income from net profits interests $ 221,161 295,019 (25%)
Partnership distributions $ 195,000 225,000 (13%)
Limited partner distributions $ 175,500 202,500 (13%)
Per unit distribution to limited partners $ 8.78 10.13 (13%)
Number of limited partner units 20,000 20,000
Revenues
The Partnership's income from net profits interests decreased to $221,161
from $295,019 for the quarters ended September 30, 1997 and 1996,
respectively, a decrease of 25%. The principal factors affecting the
comparison of the quarters ended September 30, 1997 and 1996 are as
follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the quarter ended September 30, 1997 as compared to
the quarter ended September 30, 1996 by 19%, or $4.12 per barrel,
resulting in a decrease of approximately $57,700 in income from net
profits interests. Oil sales represented 44% of total oil and gas
sales during the quarter ended September 30, 1997 as compared to 52%
during the quarter ended September 30, 1996.
The average price for an mcf of gas received by the Partnership
increased during the same period by less than 1%, or $.01 per mcf,
resulting in an increase of approximately $1,200 in income from net
profits interests.
The net total decrease in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$56,500. 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 1,800 barrels or 13% during the
quarter ended September 30, 1997 as compared to the quarter ended
September 30, 1996, resulting in a decrease of approximately $31,400 in
income from net profits interests.
Gas production decreased approximately 4,800 mcf or 4% during the same
period, resulting in a decrease of approximately $10,900 in income from
net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $42,300. The decrease is
primarily attributable to mechanical problems on three wells and the
loss of one well. The decrease was partially offset by an increase on
one well due to a successful workover.
3. Lease operating costs and production taxes were 9% lower, or
approximately $25,500 less during the quarter ended September 30, 1997
as compared to the quarter ended September 30, 1996.
Costs and Expenses
Total costs and expenses decreased to $81,657 from $108,223 for the
quarters ended September 30, 1997 and 1996, respectively, a decrease of
25%. 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 2%
or approximately $600 during the quarter ended September 30, 1997 as
compared to the quarter ended September 30, 1996.
2. Depletion expense decreased to $45,000 for the quarter ended September
30, 1997 from $71,000 for the same period in 1996. This represents a
decrease of 37%. 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. Two contributing
factors to the decline in depletion expense between the comparative
periods were the increase in the price of oil used to determine the
Partnership's reserves for January 1, 1997 as compared to 1996 and the
decline in gross oil and gas revenues.
<PAGE>
B. General Comparison of the Nine Month Periods Ended September 30, 1997
and 1996
The following table provides certain information regarding performance
factors for the nine month periods ended September 30, 1997 and 1996:
Nine Months
Ended Percentage
September 30, Increase
1997 1996 (Decrease)
Average price per barrel of oil $ 18.99 20.08 (5%)
Average price per mcf of gas $ 2.34 2.24 4%
Oil production in barrels 37,300 44,400 (16%)
Gas production in mcf 355,900 374,600 (5%)
Income from net profits interests $ 659,703 894,774 (26%)
Partnership distributions $ 700,000 806,887 (13%)
Limited partner distributions $ 630,000 726,687 (13%)
Per unit distribution to limited partners $ 31.50 36.33 (13%)
Number of limited partner units $ 20,000 20,000
Revenues
The Partnership's income from net profits interests decreased to $659,703
from $894,774 for the nine months ended September 30, 1997 and 1996,
respectively, a decrease of 26%. The principal factors affecting the
comparison of the nine months ended September 30, 1997 and 1996 are as
follows:
1. The average price for a barrel of oil received by the Partnership
decreased during the nine months ended September 30, 1997 as compared
to the nine months ended September 30, 1996 by 5%, or $1.09 per barrel,
resulting in a decrease of approximately $48,400 in income from net
profits interests. Oil sales represented 46% of total oil and gas
sales during the nine months ended September 30, 1997 as compared to
52% during the nine months ended September 30, 1996.
The average price for an mcf of gas received by the Partnership
increased during the same period by 4%, or $.10 per mcf, resulting in
an increase of approximately $37,500 in income from net profits
interests.
The net total decrease in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$10,900. 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 decreased approximately 7,100 barrels or 16% during the
nine months ended September 30, 1997 as compared to the nine months
ended September 30, 1996, resulting in a decrease of approximately
$134,800 in income from net profits interests.
Gas production decreased approximately 18,700 mcf or 5% during the same
period, resulting in a decrease of approximately $43,800 in income from
net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $178,600. The decrease is
primarily attributable to mechanical problems on three wells and the
loss of one well. The decrease was partially offset by an increase on
one well due to a successful workover.
3. Lease operating costs and production taxes were 6% higher, or
approximately $49,000 more during the nine months ended September 30,
1997 as compared to the nine months ended September 30, 1996.
Costs and Expenses
Total costs and expenses decreased to $265,734 from $333,681 for the nine
months ended September 30, 1997 and 1996, respectively, a decrease of 20%.
The decrease is the result of lower depletion expense, partially offset by
an increase in general and administrative costs.
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
less than 1% or approximately $100 during the nine months ended
September 30, 1997 as compared to the nine months ended September 30,
1996.
2. Depletion expense decreased to $144,000 for the nine months ended
September 30, 1997 from $212,000 for the same period in 1996. This
represents a decrease of 32%. 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. Two
contributing factors to the decline in depletion expense between the
comparative periods were the increase in the price of oil used to
determine the Partnership's reserves for January 1, 1997 as compared to
1996 and the decline in oil and gas revenues.
<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 operating activities were approximately $693,600 in
the nine months ended September 30, 1997 as compared to approximately
$765,700 in the nine months ended September 30, 1996. The primary source
of the 1997 cash flow from operating activities was profitable operations.
Cash flows provided by investing activities were approximately $100 in the
nine months ended September 30, 1997 as compared to approximately $16,300
in the nine months ended September 30, 1996. The principle source of the
1997 cash flow from investing activities was the change in oil and gas
properties.
Cash flows used in financing activities were approximately $699,800 in the
nine months ended September 30, 1997 as compared to approximately $807,200
in the nine months ended September 30, 1996. The only use in financing
activities was the distributions to partners.
Total distributions during the nine months ended September 30, 1997 were
$700,000 of which $630,000 was distributed to the limited partners and
$70,000 to the general partners. The per unit distribution to limited
partners during the nine months ended September 30, 1997 was $31.50. 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.
The sources for the 1997 distributions of $700,000 were oil and gas
operations of approximately $693,600 and the change in oil and gas
properties of approximately $100, with the balance from available cash on
hand at the beginning of the period. The sources for the 1996
distributions of $806,887 were oil and gas operations of approximately
$765,700 and the change in oil and gas properties of approximately $16,300,
with the balance from available cash on hand at the beginning of the
period.
Since inception of the Partnership, cumulative monthly cash distributions
of $14,007,498 have been made to the partners. As of September 30, 1997,
$12,619,921 or $631.00 per limited partner unit has been distributed to the
limited partners, representing a 126% return of the capital contributed.
As of September 30, 1997, the Partnership had approximately $244,100 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)Exhibits:
27 Financial Data Schedule
(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
By: /s/ Bill E. Coggin
------------------------------
Bill E. Coggin, Vice President
and Chief Financial Officer
Date: November 15, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at September 30, 1997 (Unaudited) and the Statement of
Operations for the Nine Months Ended September 30, 1997 (Unaudited) and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 59,341
<SECURITIES> 0
<RECEIVABLES> 185,282
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 244,623
<PP&E> 8,535,829
<DEPRECIATION> 6,039,000
<TOTAL-ASSETS> 2,741,452
<CURRENT-LIABILITIES> 504
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,740,948
<TOTAL-LIABILITY-AND-EQUITY> 2,741,452
<SALES> 659,703
<TOTAL-REVENUES> 662,420
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 265,734
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 396,686
<INCOME-TAX> 0
<INCOME-CONTINUING> 396,686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 396,686
<EPS-PRIMARY> 17.85
<EPS-DILUTED> 17.85
</TABLE>
