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 March 31, 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 0-16493
Southwest Oil & Gas Income Fund VII-A, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2145576
(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 15.
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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, except as discussed in Note A of the Notes to Financial
Statements. 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 and restated as discussed in Note A of the Notes to
Financial Statements. Operating results for the three month period ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the full year.
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Southwest Oil & Gas Income Fund VII-A, L.P.
Balance Sheets
Restated
March 31, December 31,
1997 1996
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 11,644 4,240
Receivable from Managing General Partner - 3,883
--------- ---------
Total current assets 11,644 8,123
--------- ---------
Oil and gas properties - using the
full-cost method of accounting 4,611,680 4,609,211
Less accumulated depreciation,
depletion and amortization 3,367,737 3,333,737
--------- ---------
Net oil and gas properties 1,243,943 1,275,474
--------- ---------
$ 1,255,587 1,283,597
========= =========
Liabilities and Partners' Equity
Current liabilities:
Accounts payable $ 6,750 -
Payable to Managing General Partner 49,096 -
Distribution payable 210 122
--------- ---------
Total current liabilities 56,056 122
--------- ---------
Partners' equity:
General partners (521,721) (513,327)
Limited partners 1,721,252 1,796,802
--------- ---------
Total partners' equity 1,199,531 1,283,475
--------- ---------
$ 1,255,587 1,283,597
========= =========
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Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Operations
(unaudited)
Three Months Ended
March 31,
Restated
1997 1996
---- ----
Revenues
Oil and gas $ 257,038 275,951
Interest 224 358
------- -------
257,262 276,309
------- -------
Expenses
Production 119,345 113,187
General and administrative 36,361 36,813
Depreciation, depletion and
amortization 34,000 40,000
------- -------
189,706 190,000
------- -------
Net income $ 67,556 86,309
======= =======
Net income allocated to:
Managing General Partner $ 6,080 7,768
======= =======
General partner $ 676 863
======= =======
Limited partners $ 60,800 77,678
======= =======
Per limited partner unit $ 4.05 5.18
======= =======
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Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Cash Flows
(unaudited)
Three Months Ended
March 31,
Restated
1997 1996
---- ----
Cash flows from operating activities:
Cash received from oil and gas sales $ 318,784 273,525
Cash paid to suppliers (157,723) (153,191)
Interest received 224 358
------- -------
Net cash provided by operating activities 161,285 120,692
------- -------
Cash flows from investing activities:
Sale of oil and gas properties 122 2,557
Additions to oil and gas properties (2,591) (1,864)
------- -------
Net cash provided by (used in) investing
activities (2,469) 693
------- -------
Cash flows used in financing activities:
Distributions to partners (151,412) (152,832)
------- -------
Net increase (decrease) in cash and
cash equivalents 7,404 (31,447)
Beginning of period 4,240 44,954
------- -------
End of period $ 11,644 13,507
======= =======
(continued)
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Southwest Oil & Gas Income Fund VII-A, L.P.
Statements of Cash Flows, continued
(unaudited)
Three Months Ended
March 31,
Restated
1997 1996
---- ----
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 67,556 86,309
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 34,000 40,000
(Increase) decrease in receivables 61,746 (2,426)
Decrease in payables (2,017) (3,191)
------- -------
Net cash provided by operating activities $ 161,285 120,692
======= =======
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Oil & Gas Income Fund VII-A, L.P. was organized as a Delaware
limited partnership on January 30, 1987. The offering of limited partnership
interests began on March 4, 1987, minimum capital requirements were met on
April 28, 1987 and the offering concluded on September 21, 1987, with total
limited partner contributions of $7,500,000.
The Partnership was formed to acquire 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 are not 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, increases and decreases in
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 and as
discussed in Note A of the Notes to Financial Statements.
Based on current conditions, management anticipates performing workovers
during the next two years to enhance production. The Partnership may undergo
an increase later in 1997 and possibly another increase in 1998. Thereafter,
the Partnership could possibly experience a normal decline of 8% to 10% per
year.
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Results of Operations
A. General Comparison of the Quarters Ended March 31, 1997 and 1996, as
restated
The following table provides certain information regarding performance
factors for the quarters ended March 31, 1997 and 1996, as restated:
Three Months
Ended
March 31, Percentage
Restated Increase
1997 1996 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 21.97 18.09 21%
Average price per mcf of gas $ 2.67 2.10 27%
Oil production in barrels 8,200 11,300 (27%)
Gas production in mcf 28,800 34,000 (15%)
Gross oil and gas revenue $ 257,038 275,951 (7%)
Net oil and gas revenue $ 137,693 162,764 (15%)
Partnership distributions $ 151,500 153,000 (1%)
Limited partner distributions $ 136,350 137,700 (1%)
Per unit distribution to limited
partners $ 9.09 9.18 (1%)
Number of limited partner units 15,000 15,000
Revenues
The Partnership's oil and gas revenues decreased to $257,038 from $275,951
for the quarters ended March 31, 1997 and 1996, respectively, a decrease of
7%. The principal factors affecting the comparison of the quarters ended
March 31, 1997 and 1996 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended March 31, 1997 as compared to the
quarter ended March 31, 1996 by 21%, or $3.88 per barrel, resulting in an
increase of approximately $43,800 in revenues. Oil sales represented 70%
of total oil and gas sales during the quarter ended March 31, 1997 as
compared to 74% during the quarter ended March 31, 1996.
The average price for an mcf of gas received by the Partnership increased
during the same period by 27%, or $.57 per mcf, resulting in an increase
of approximately $19,400 in revenues.
The total increase in revenues due to the change in prices received from
oil and gas production is approximately $63,200. 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 3,100 barrels or 27% during the
quarter ended March 31, 1997 as compared to the quarter ended March 31,
1996, resulting in a decrease of approximately $68,100 in revenues.
Gas production decreased approximately 5,200 mcf or 15% during the same
period, resulting in a decrease of approximately $13,900 in revenues.
The total decrease in revenues due to the change in production is
approximately $82,000. The decrease is primarily a result of mechanical
problems resulting in lease downtime.
Costs and Expenses
Total costs and expenses increased to $189,706 from $190,000 for the quarters
ended March 31, 1997 and 1996, as restated, respectively, an increase of less
than 1%. The increase is the result of higher lease operating costs,
partially offset by a decrease in general and administrative expense and
depletion expense.
1. Lease operating costs and production taxes were 5% higher, or
approximately $6,200 more during the quarter ended March 31, 1997 as
compared to the quarter ended March 31, 1996, as restated.
2. General and administrative costs consist of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs decreased 1%
or approximately $500 during the quarter ended March 31, 1997 as compared
to the quarter ended March 31, 1996.
3. Depletion expense decreased to $34,000 for the quarter ended March 31,
1997 from $40,000 for the same period in 1996. This represents a
decrease of 15%. 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. Contributing factors to
the decline in depletion expense between comparative periods were the
decrease in oil and gas sales and the increase in the price of oil and
gas used to determine the Partnership's reserves for January 1, 1997 as
compared to 1996.
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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, except as discussed in Note A of the Notes to Financial Statements,
nor does it anticipate any such change.
Cash flows provided by operating activities were approximately $161,300 in
the quarter ended March 31, 1997 as compared to approximately $120,700 in the
quarter ended March 31, 1996. The primary source of the 1997 cash flow from
operating activities was profitable operations.
Cash flows provided by or (used in) investing activities were approximately
$(2,500) in the quarter ended March 31, 1997 as compared to approximately
$700 in the quarter ended March 31, 1996. The principle use of the 1997 cash
flow from investing activities was the additions to oil and gas properties,
partially offset by the sale of oil and gas properties.
Cash flows used in financing activities were approximately $151,400 in the
quarter ended March 31, 1997 as compared to approximately $152,800 in the
quarter ended March 31, 1996. The only use in financing activities was the
distributions to partners.
Total distributions during the quarter ended March 31, 1997 were $151,500 of
which $136,350 was distributed to the limited partners and $15,150 to the
general partners. The per unit distribution to limited partners during the
quarter ended March 31, 1997 was $9.09. Total distributions during the
quarter ended March 31, 1996 were $153,000 of which $137,700 was distributed
to the limited partners and $15,300 to the general partners. The per unit
distribution to limited partners during the quarter ended March 31, 1996 was
$9.18.
The sources for the 1997 distributions of $151,500 were oil and gas
operations of approximately $161,300 and the sale of oil and gas properties
of approximately $100, offset by additions to oil and gas properties of
approximately $2,600, resulting in excess cash for contingencies or
subsequent distributions. The sources for the 1996 distributions of $153,000
were oil and gas operations of approximately $120,700 and the sale of oil and
gas properties of approximately $2,600, offset by additions to oil and gas
properties of approximately $1,900 , with the balance from available cash on
hand at the beginning of the period.
Since inception of the Partnership, cumulative monthly cash distributions of
$9,422,032 have been made to the partners. As of March 31, 1997, $8,490,823
or $566.05 per limited partner unit has been distributed to the limited
partners, representing a 113% return of the capital contributed.
As of March 31, 1997, the Partnership had approximately $(44,000) in working
capital (deficit). The Managing General Partner knows of no unusual
contractual commitments, except as discussed in Note A of the Notes to
Financial Statements and believes the revenues generated from operations are
adequate to meet the needs of the Partnership.
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Southwest Oil & Gas Income Fund VII-A, L. P.
Notes to Financial Statements
NOTE A - PRIOR PERIOD ADJUSTMENT
The Managing General Partner, who is a related party, failed to bill the
Partnership for lease operating expenses on one lease for a three year
period. This error resulted in the understatement of previously reported
production costs in the prior years. The error was corrected in this
quarter's 10-Q. The correction resulted in the following changes to
partners' equity as of December 31, 1996 and 1995.
Limited General
Partners Partners
Equity Equity
--------- --------
As previously reported, December 31, 1995 $ 2,066,098 (483,406)
Unrecorded production cost - 1994 (34,183) (3,798)
Unrecorded production cost - 1995 (47,899) (5,322)
--------- --------
December 31, 1995, as adjusted $ 1,984,016 (492,526)
========= ========
As previously reported, December 31, 1996 $ 1,906,851 (501,100)
Unrecorded production cost - 1994 (34,183) (3,798)
Unrecorded production cost - 1995 (47,899) (5,322)
Unrecorded production cost - 1996 (27,967) (3,107)
--------- --------
December 31, 1996, as adjusted $ 1,796,802 (513,327)
========= ========
(continued)
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Southwest Oil & Gas Income Fund VII-A, L. P.
Notes to Financial Statements
NOTE A - PRIOR PERIOD ADJUSTMENT - CONTINUED
The following schedule shows the effect of the prior period adjustment,
before and after the restatement, to net income and distributions for the
years ended December 31, 1996, 1995 and 1994 and the three months ended March
31, 1996.
Before After
Prior Period Prior Period
Restatement Restatement
--------- --------
For the year ended December 31, 1994
Net Income $ 371,449 333,468
General partners 37,144 33,346
Limited partners 334,305 300,122
Per limited partner unit 22.29 20.01
Distribution
General partners 58,062 54,264
Limited partners 531,438 497,255
For the year ended December 31, 1995
Net Income 458,065 404,844
General partners 45,807 40,485
Limited partners 412,258 364,359
Per limited partner unit 27.48 24.29
Distribution
General partners 62,385 57,063
Limited partners 589,054 541,155
For the year ended December 31, 1996
Net Income 375,059 343,985
General partners 37,506 34,399
Limited partners 337,553 309,586
Per limited partner unit 22.50 20.64
Distribution
General partners 55,200 52,093
Limited partners 496,800 468,833
(continued)
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Southwest Oil & Gas Income Fund VII-A, L. P.
Notes to Financial Statements
NOTE A - PRIOR PERIOD ADJUSTMENT - CONTINUED
Before After
Prior Period Prior Period
Restatement Restatement
--------- --------
For the three months ended March 31, 1996
Net Income 94,078 86,309
General partners 9,408 8,631
Limited partners 84,670 77,678
Per limited partner unit 5.64 5.18
Distribution
General partners 15,300 14,523
Limited partners 137,700 130,708
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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:
No reports on Form 8-K were filed during the quarter for
which this report is filed
PAGE
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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 OIL & GAS
INCOME FUND VII-A, L.P.
a Delaware limited partnership
By: Southwest Royalties, Inc.
Managing General Partner
By: /s/ Bill E. Coggin
------------------------------
Bill E. Coggin, Vice President
and Chief Financial Officer
Date: May 15, 1997
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet at March 31, 1997 (Unaudited) and the Statement of Operations
for the Three Months Ended March 31, 1997 (Unaudited) and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,644
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,644
<PP&E> 4,611,680
<DEPRECIATION> 3,367,737
<TOTAL-ASSETS> 1,255,587
<CURRENT-LIABILITIES> 56,056
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,199,531
<TOTAL-LIABILITY-AND-EQUITY> 1,255,587
<SALES> 257,038
<TOTAL-REVENUES> 257,262
<CGS> 119,345
<TOTAL-COSTS> 119,345
<OTHER-EXPENSES> 70,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 67,556
<INCOME-TAX> 0
<INCOME-CONTINUING> 67,556
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 67,556
<EPS-PRIMARY> 4.05
<EPS-DILUTED> 4.05
</TABLE>
