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 33-11576
Southwest Royalties Institutional Income Fund VII-B, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2165825
(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 Institutional Income Fund VII-B, L.P.
Balance Sheets
September 30, December 31,
1996 1995
------------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 23,744 28,684
Receivable from Managing
General Partner 106,356 122,722
--------- ---------
Total current assets 130,100 151,406
--------- ---------
Oil and gas properties - using the
full cost method of accounting 4,353,685 4,353,685
Less accumulated depreciation,
depletion and amortization 2,822,370 2,699,370
--------- ---------
Net oil and gas properties 1,531,315 1,654,315
--------- ---------
$ 1,661,415 1,805,721
========= =========
Liabilities and Partners' Equity
Current liability - Distributions payable $ 865 418
--------- ---------
Partners' equity:
General partners (478,715) (464,239)
Limited partners 2,139,265 2,269,542
--------- ---------
Total partners' equity 1,660,550 1,805,303
--------- ---------
$ 1,661,415 1,805,721
========= =========
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Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues
Income from net profits
interests $ 143,851 109,644 440,457 469,348
Interest 419 470 1,157 1,615
------- ------- ------- -------
144,270 110,114 441,614 470,963
------- ------- ------- -------
Expenses
General and administrative 27,333 26,845 91,367 93,492
Depreciation, depletion and
amortization 42,000 46,000 123,000 163,000
------- ------- ------- -------
69,333 72,845 214,367 256,492
------- ------- ------- -------
Net income $ 74,937 37,269 227,247 214,471
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 6,744 3,354 20,452 19,302
======= ======= ======= =======
General Partner $ 749 373 2,272 2,145
======= ======= ======= =======
Limited Partners $ 67,444 33,542 204,523 193,024
======= ======= ======= =======
Per limited partner
unit $ 4.50 2.24 13.63 12.87
======= ======= ======= =======
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Southwest Royalties Institutional Income Fund VII-B, L.P.
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 $ 456,823 473,792
Cash paid to suppliers (91,367) (94,155)
Interest received 1,157 1,615
------- -------
Net cash provided by operating
activities 366,613 381,252
------- -------
Cash flows used in financing
activities:
Distributions to partners (371,553) (362,131)
------- -------
Net increase (decrease) in cash and
cash equivalents (4,940) 19,121
Beginning of period 28,684 29,657
------- -------
End of period $ 23,744 48,778
======= =======
(continued)
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Southwest Royalties Institutional Income Fund VII-B, L.P.
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 $ 227,247 214,471
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation, depletion and
amortization 123,000 163,000
Decrease in receivables 16,366 4,444
Decrease in payables - (663)
------- -------
Net cash provided by operating
activities $ 366,613 381,252
======= =======
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Royalties Institutional Income Fund VII-B, L.P. was organized as a
Delaware limited partnership on January 28, 1987. The offering of such
limited partnership interests began March 23, 1987; minimum capital
requirements were met May 20, 1987 and concluded December 1, 1987, with total
limited partner contributions of $7,500,000.
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 farmout
arrangements, sale 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 $ 21.44 16.12 33%
Average price per mcf of gas $ 2.10 1.66 27%
Oil production in barrels 8,300 10,100 (18%)
Gas production in mcf 31,000 32,300 (4%)
Income from net profits interests $ 143,851 109,644 31%
Partnership distributions $ 115,000 100,400 15%
Limited partner distributions $ 103,500 90,360 15%
Per unit distribution to limited
partners $ 6.90 6.02 15%
Number of limited partner units 15,000 15,000
Revenues
The Partnership's income from net profits interests increased to $143,851
from $109,644 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 $5.32 per barrel, resulting
in an increase of approximately $53,700 in income from net profits
interests. Oil sales represented 73% of total oil and gas sales during
the quarter ended September 30, 1996 as compared to 75% 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 27%, or $.44 per mcf, resulting in an increase
of approximately $14,200 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 $67,900.
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 1,800 barrels or 18% during the
quarter ended September 30, 1996 as compared to the quarter ended
September 30, 1995, resulting in a decrease of approximately $38,600 in
income from net profits interests.
Gas production decreased approximately 1,300 mcf or 4% during the same
period, resulting in a decrease of approximately $2,700 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $41,300. The decrease is primarily
attributable to lease downtime.
3. Lease operating costs and production taxes were 7% lower, or
approximately $7,000 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 $69,333 from $72,845 for the quarters
ended September 30, 1996 and 1995, respectively, a decrease of 5%. 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 2%
or approximately $500 during the quarter ended September 30, 1996 as
compared to the quarter ended September 30, 1995.
2. Depletion expense decreased to $42,000 for the quarter ended September
30, 1996 from $46,000 for the same period in 1995. This represents a
decrease of 9%. 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. One factor that
attributed to the decline in depletion expense between the comparative
periods was the increase in the price of oil and gas used to determine
the Partnership's reserves for January 1, 1996 as compared to 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 $ 20.10 16.87 19%
Average price per mcf of gas $ 2.20 1.75 26%
Oil production in barrels 27,400 35,300 (22%)
Gas production in mcf 78,300 99,800 (22%)
Income from net profits interests $ 440,457 469,348 (6%)
Partnership distributions $ 372,000 362,400 3%
Limited partner distributions $ 334,800 326,160 3%
Per unit distribution to limited
partners $ 22.32 21.74 3%
Number of limited partner units 15,000 15,000
Revenues
The Partnership's income from net profits interests decreased to $440,457
from $469,348 for the nine months ended September 30, 1996 and 1995,
respectively, a decrease of 6%. 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 $3.23 per barrel,
resulting in an increase of approximately $114,000 in income from net
profits interests. Oil sales represented 76% of total oil and gas sales
during the nine months ended September 30, 1996 as compared to 77% 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 26%, or $.45 per mcf, resulting in an increase
of approximately $44,900 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 $158,900.
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 7,900 barrels or 22% during the
nine months ended September 30, 1996 as compared to the nine months ended
September 30, 1995, resulting in a decrease of approximately $158,800 in
income from net profits interests.
Gas production decreased approximately 21,500 mcf or 22% during the same
period, resulting in a decrease of approximately $47,300 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $206,100. The decrease is primarily
attributable lease downtime.
3. Lease operating costs and production taxes were 6% lower, or
approximately $19,100 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 $214,367 from $256,492 for the nine
months ended September 30, 1996 and 1995, respectively, a decrease of 16%.
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 $2,100 during the nine months ended September 30, 1996
as compared to the nine months ended September 30, 1995.
2. Depletion expense decreased to $123,000 for the nine months ended
September 30, 1996 from $163,000 for the same period in 1995. This
represents a decrease of 25%. 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. Two factors that
attributed to the decline in depletion expense between the comparative
periods were the increase in the price of oil and gas used to determine
the Partnership's reserves for January 1, 1996 as compared to 1995 and
the decrease in oil and reserves.
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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 $366,600 in
the nine months ended September 30, 1996 as compared to approximately
$381,300 in the nine months ended September 30, 1995. The primary source of
the 1996 cash flow from operating activities was profitable operations.
Cash flows used in financing activities were approximately $371,600 in the
nine months ended September 30, 1996 as compared to approximately $362,100 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
$372,000 of which $334,800 was distributed to the limited partners and
$37,200 to the general partners. The per unit distribution to limited
partners during the nine months ended September 30, 1996 was $22.32. Total
distributions during the nine months ended September 30, 1995 were $362,400
of which $326,160 was distributed to the limited partners and $36,240 to the
general partner. The per unit distribution to limited partners during the
nine months ended September 30, 1995 was $21.74.
The source for the 1996 distributions of $372,000 was oil and gas operations
of approximately $366,600, with the balance from available cash on hand at
the beginning of the period. The source for the 1995 distributions of
$362,400 was oil and gas operations of approximately $381,300, resulting in
excess cash for contingencies or subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions of
$8,089,644 have been made to the partners. As of September 30, 1996,
$7,288,716 or $485.91 per limited partner unit has been distributed to the
limited partners, representing a 97% return of the capital contributed.
As of September 30, 1996, the Partnership had approximately $129,200 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 INSTITUTIONAL
INCOME FUND VII-B, 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: 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 financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 23,744
<SECURITIES> 0
<RECEIVABLES> 106,356
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 130,100
<PP&E> 4,353,685
<DEPRECIATION> 2,822,370
<TOTAL-ASSETS> 1,661,415
<CURRENT-LIABILITIES> 865
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,660,550
<TOTAL-LIABILITY-AND-EQUITY> 1,661,415
<SALES> 440,457
<TOTAL-REVENUES> 441,614
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 214,367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 227,247
<INCOME-TAX> 0
<INCOME-CONTINUING> 227,247
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 227,247
<EPS-PRIMARY> 13.63
<EPS-DILUTED> 13.63
</TABLE>