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, 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.
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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, 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 six
month periods ended June 30, 1997 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
June 30, December 31,
1997 1996
----------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 61,902 65,438
Receivable from Managing General Partner 193,298 338,190
--------- ---------
Total current assets 255,200 403,628
--------- ---------
Oil and gas properties - using the
full cost method of accounting 8,535,829 8,535,904
Less accumulated depreciation,
depletion and amortization 5,994,000 5,895,000
--------- ---------
Net oil and gas properties 2,541,829 2,640,904
--------- ---------
$ 2,797,029 3,044,532
========= =========
Liabilities and Partners' Equity
Current liabilities:
Distributions payable $ 134 270
Accounts payable 1,208 -
--------- ---------
Total current liabilities 1,342 270
--------- ---------
Partners' equity:
General partners (577,298) (552,440)
Limited partners 3,372,985 3,596,702
--------- ---------
Total partners' equity 2,795,687 3,044,262
--------- ---------
$ 2,797,029 3,044,532
========= =========
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Southwest Royalties, Inc. Income Fund VI
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues
Income from net profits
interests $ 191,169 331,364 438,542 599,755
Interest 1,087 1,319 1,960 2,367
------- ------- ------- -------
192,256 332,683 440,502 602,122
------- ------- ------- -------
Expenses
General and administrative 37,590 36,703 85,077 84,457
Depreciation, depletion and
amortization 49,000 77,000 99,000 141,000
------- ------- ------- -------
86,590 113,703 184,077 225,457
------- ------- ------- -------
Net income $ 105,666 218,980 256,425 376,665
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 9,510 19,708 23,078 33,900
======= ======= ======= =======
General Partner $ 1,058 2,191 2,564 3,767
======= ======= ======= =======
Limited Partners $ 95,098 197,081 230,783 338,998
======= ======= ======= =======
Per limited partner unit $ 4.75 9.85 11.54 16.95
======= ======= ======= =======
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Southwest Royalties, Inc. Income Fund VI
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
1997 1996
Cash flows from operating activities:
Cash received from income from net
profits interests $ 583,434 610,786
Cash paid to suppliers (83,869) (84,335)
Interest received 1,960 2,367
-------- --------
Net cash provided by operating activities 501,525 528,818
-------- --------
Cash flows provided by investing activities:
Cash received from sale of oil and gas
property interest 75 13,484
-------- --------
Cash flows used in financing activities:
Distributions to partners (505,136) (582,228)
-------- --------
Net decrease in cash and cash equivalents (3,536) (39,926)
Beginning of period 65,438 126,941
-------- --------
End of period $ 61,902 87,015
======== ========
(continued)
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Southwest Royalties, Inc. Income Fund VI
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
1997 1996
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 256,425 376,665
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 99,000 141,000
Decrease in receivables 144,892 11,153
Increase in payables 1,208 -
------- -------
Net cash provided by operating activities $ 501,525 528,818
======= =======
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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.
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.
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Results of Operations
A. General Comparison of the Quarters Ended June 30, 1997 and 1996
The following table provides certain information regarding performance
factors for the quarters ended June 30, 1997 and 1996:
Three Months
Ended Percentage
June 30, Increase
1997 1996 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 18.80 19.90 (6%)
Average price per mcf of gas $ 2.37 2.34 1%
Oil production in barrels 13,100 16,900 (22%)
Gas production in mcf 118,600 122,700 (3%)
Income from net profits interests $ 191,169 331,364 (42%)
Partnership distributions $ 210,000 282,173 (26%)
Limited partner distributions $ 189,000 253,973 (26%)
Per unit distribution to limited
partners $ 9.45 12.70 (26%)
Number of limited partner units 20,000 20,000
Revenues
The Partnership's income from net profits interests decreased to $191,169
from $331,364 for the quarters ended June 30, 1997 and 1996, respectively, a
decrease of 42%. The principal factors affecting the comparison of the
quarters ended June 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 June 30, 1997 as compared to the
quarter ended June 30, 1996 by 6%, or $1.10 per barrel, resulting in a
decrease of approximately $18,600 in income from net profits interests.
Oil sales represented 47% of total oil and gas sales during the quarter
ended June 30, 1997 as compared to 54% during the quarter ended June 30,
1996.
The average price for an mcf of gas received by the Partnership increased
during the same period by 1%, or $.03 per mcf, resulting in an increase
of approximately $3,700 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
$14,900. 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.
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2. Oil production decreased approximately 3,800 barrels or 22% during the
quarter ended June 30, 1997 as compared to the quarter ended June 30,
1996, resulting in a decrease of approximately $71,400 in income from net
profits interests.
Gas production decreased approximately 4,100 mcf or 3% during the same
period, resulting in a decrease of approximately $9,700 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $81,100. The decrease is primarily
attributable to mechanical problems on three wells and the loss of one
well as a result of being fully depleted. The decrease was partially
offset by an increase on one well as the result of a successful workover.
3. Lease operating costs and production taxes were 15% higher, or
approximately $44,800 more during the quarter ended June 30, 1997 as
compared to the quarter ended June 30, 1996. The increase is primarily
attributable to the workover costs on two wells, pulling expense on one
well and salt water disposal costs on another well.
Costs and Expenses
Total costs and expenses decreased to $86,590 from $113,703 for the quarters
ended June 30, 1997 and 1996, respectively, a decrease of 24%. The decrease
is the result of lower depletion expense, partially 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 2%
or approximately $900 during the quarter ended June 30, 1997 as compared
to the quarter ended June 30, 1996.
2. Depletion expense decreased to $49,000 for the quarter ended June 30,
1997 from $77,000 for the same period in 1996. This represents a
decrease of 36%. 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 revenues.
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B. General Comparison of the Six Month Periods Ended June 30, 1997 and 1996
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 1997 and 1996:
Six Months
Ended Percentage
June 30, Increase
1997 1996 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 19.73 19.38 2%
Average price per mcf of gas $ 2.38 2.23 7%
Oil production in barrels 25,100 30,300 (17%)
Gas production in mcf 237,300 251,200 (6%)
Income from net profits interests $ 438,542 599,755 (27%)
Partnership distributions $ 505,000 581,887 (13%)
Limited partner distributions $ 454,500 524,187 (13%)
Per unit distribution to limited
partners $ 22.73 26.21 (13%)
Number of limited partner units 20,000 20,000
Revenues
The Partnership's income from net profits interests decreased to $438,542
from $599,755 for the six months ended June 30, 1997 and 1996, respectively,
a decrease of 27%. The principal factors affecting the comparison of the six
months ended June 30, 1997 and 1996 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the six months ended June 30, 1997 as compared to the
six months ended June 30, 1996 by 2%, or $.35 per barrel, resulting in an
increase of approximately $10,600 in income from net profits interests.
Oil sales represented 47% of total oil and gas sales during the six
months ended June 30, 1997 as compared to 51% during the six months ended
June 30, 1996.
The average price for an mcf of gas received by the Partnership increased
during the same period by 7%, or $.15 per mcf, resulting in an increase
of approximately $37,700 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 $48,300.
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 5,200 barrels or 17% during the
six months ended June 30, 1997 as compared to the six months ended June
30, 1996, resulting in a decrease of approximately $102,600 in income
from net profits interests.
Gas production decreased approximately 13,900 mcf or 6% during the same
period, resulting in a decrease of approximately $33,100 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $135,700. The decrease is primarily
attributable to mechanical problems on three wells and the loss of one
well as a result of being fully depleted. The decrease was partially
offset by an increase on one well as the result of a successful workover.
3. Lease operating costs and production taxes were 14% higher, or
approximately $74,400 more during the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996. The increase is
primarily attributable to the workover costs on two wells, pulling
expense on one well and salt water disposal costs on another well.
Costs and Expenses
Total costs and expenses decreased to $184,077 from $225,457 for the six
months ended June 30, 1997 and 1996, respectively, a decrease of 18%. The
decrease is the result of lower depletion expense, partially 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 1%
or approximately $600 during the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996.
2. Depletion expense decreased to $99,000 for the six months ended June 30,
1997 from $141,000 for the same period in 1996. This represents a
decrease of 30%. 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 revenues.
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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 $501,500 in
the six months ended June 30, 1997 as compared to approximately $528,800 in
the six months ended June 30, 1996. The primary source of the 1997 cash flow
from operating activities was profitable operations.
Cash flows provided by investing activities were $75 in the six months ended
June 30, 1997 as compared to approximately $13,500 in the six months ended
June 30, 1996. The principle source of the 1997 cash flow from investing
activities was the sale of oil and gas properties.
Cash flows used in financing activities were approximately $505,100 in the
six months ended June 30, 1997 as compared to approximately $582,200 in the
six months ended June 30, 1996. The only use in financing activities was the
distributions to partners.
Total distributions during the six months ended June 30, 1997 were $505,000
of which $454,500 was distributed to the limited partners and $50,500 to the
general partners. The per unit distribution to limited partners during the
six months ended June 30, 1997 was $22.73. 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.
The sources for the 1997 distributions of $505,000 were oil and gas
operations of approximately $501,500 and property sales of $75, with the
balance from available cash on hand at the beginning of the period. 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.
Since inception of the Partnership, cumulative monthly cash distributions of
$13,812,498 have been made to the partners. As of June 30, 1997, $12,444,421
or $622.22 per limited partner unit has been distributed to the limited
partners, representing a 124% return of the capital contributed.
As of June 30, 1997, the Partnership had approximately $253,900 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) Exhibits:
27 Financial Data Schedule
(b) Reports on Form 8-K:
On June 12, 1997, the Partnership filed Form 8-K and on June
24, 1997, the Partnership filed Form 8-K Amended, with respect
to Item 4, Changes in Registrant's Certifying Accountant.
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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: August 15, 1997
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at June 30, 1997 (Unaudited) and the Statement of Operations
for the Six Months Ended June 30, 1997 (Unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 61,902
<SECURITIES> 0
<RECEIVABLES> 193,298
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 255,200
<PP&E> 8,535,829
<DEPRECIATION> 5,994,000
<TOTAL-ASSETS> 2,797,029
<CURRENT-LIABILITIES> 1,342
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,795,687
<TOTAL-LIABILITY-AND-EQUITY> 2,797,029
<SALES> 438,542
<TOTAL-REVENUES> 440,502
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 184,077
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 256,425
<INCOME-TAX> 0
<INCOME-CONTINUING> 256,425
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 256,425
<EPS-PRIMARY> 11.54
<EPS-DILUTED> 11.54
</TABLE>
