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 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, 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 Institutional Income Fund VII-B, L.P.
Balance Sheets
June 30, December 31,
1997 1996
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 17,543 10,379
Receivable from Managing General Partner 100,944 126,601
--------- ---------
Total current assets 118,487 136,980
--------- ---------
Oil and gas properties - using the
full cost method of accounting 4,353,685 4,353,685
Less accumulated depreciation,
depletion and amortization 2,908,370 2,838,370
--------- ---------
Net oil and gas properties 1,445,315 1,515,315
--------- ---------
$ 1,563,802 1,652,295
========= =========
Liabilities and Partners' Equity
Current liabilities:
Accounts payable $ 721 -
Distributions payable 950 621
--------- ---------
Total current liabilities 1,671 621
--------- ---------
Partners' equity:
General partners (488,556) (479,602)
Limited partners 2,050,687 2,131,276
--------- ---------
Total partners' equity 1,562,131 1,651,674
--------- ---------
$ 1,563,802 1,652,295
========= =========
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Southwest Royalties Institutional Income Fund VII-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues
Income from net profits
interests $ 155,518 147,861 344,077 296,606
Interest 462 446 748 738
------- ------- ------- -------
155,980 148,307 344,825 297,344
------- ------- ------- -------
Expenses
General and administrative 28,129 27,454 64,368 64,033
Depreciation, depletion and
amortization 34,000 40,000 70,000 81,000
------- ------- ------- -------
62,129 67,454 134,368 145,033
------- ------- ------- -------
Net income $ 93,851 80,853 210,457 152,311
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 8,447 7,277 18,941 13,708
======= ======= ======= =======
General Partner $ 938 809 2,105 1,523
======= ======= ======= =======
Limited Partners $ 84,466 72,767 189,411 137,080
======= ======= ======= =======
Per limited partner unit $ 5.63 4.85 12.63 9.14
======= ======= ======= =======
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Southwest Royalties Institutional Income Fund VII-B, L.P.
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 $ 369,734 311,985
Cash paid to suppliers (63,647) (64,033)
Interest received 748 738
-------- --------
Net cash provided by operating activities 306,835 248,690
-------- --------
Cash flows used in financing activities:
Distributions to partners (299,671) (256,639)
-------- --------
Net increase (decrease) in cash and cash
equivalents 7,164 (7,949)
Beginning of period 10,379 28,684
-------- --------
End of period $ 17,543 20,735
======== ========
(continued)
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Southwest Royalties Institutional Income Fund VII-B, L.P.
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 $ 210,457 152,311
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 70,000 81,000
Decrease in receivables 25,657 15,379
Increase in payables 721 -
------- -------
Net cash provided by operating activities $ 306,835 248,690
======= =======
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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.
Based on current conditions, management anticipates performing workovers
during the next two years to enhance production. The Partnership may undergo
a minimal increase later in 1997 and possibly a larger increase in 1998. The
Partnership has the potential of remaining steady for the next few years
before possibly experiencing 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 $ 19.24 20.93 (8%)
Average price per mcf of gas $ 2.37 2.18 9%
Oil production in barrels 9,500 8,900 7%
Gas production in mcf 25,000 24,000 4%
Income from net profits interests $ 155,518 147,861 5%
Partnership distributions $ 135,000 129,000 5%
Limited partner distributions $ 121,500 116,100 5%
Per unit distribution to limited
partners $ 8.10 7.74 5%
Number of limited partner units 15,000 15,000
Revenues
The Partnership's income from net profits interests increased to $155,518
from $147,861 for the quarters ended June 30, 1997 and 1996, respectively, an
increase of 5%. 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 8%, or $1.69 per barrel, resulting in a
decrease of approximately $15,000 in income from net profits interests.
Oil sales represented 76% of total oil and gas sales during the quarter
ended June 30, 1997 as compared to 78% 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 9%, or $.19 per mcf, resulting in an increase
of approximately $4,600 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
$10,400. 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 increased approximately 600 barrels or 7% during the
quarter ended June 30, 1997 as compared to the quarter ended June 30,
1996, resulting in an increase of approximately $11,500 in income from
net profits interests.
Gas production increased approximately 1,000 mcf or 4% during the same
period, resulting in an increase of approximately $2,400 in income from
net profits interests.
The total increase in income from net profits interests due to the change
in production is approximately $13,900.
3. Lease operating costs and production taxes were 5% lower, or
approximately $4,700 less during the quarter ended June 30, 1997 as
compared to the quarter ended June 30, 1996.
Costs and Expenses
Total costs and expenses decreased to $62,129 from $67,454 for the quarters
ended June 30, 1997 and 1996, respectively, a decrease of 8%. 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 $700 during the quarter ended June 30, 1997 as compared
to the quarter ended June 30, 1996.
2. Depletion expense decreased to $34,000 for the quarter ended June 30,
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. A contributing factor
to the decline in depletion expense between the comparative periods was
the increase in the price of oil used to determine the Partnership's
reserves for January 1, 1997 as compared to 1996.
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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 $ 20.69 19.52 6%
Average price per mcf of gas $ 2.49 2.09 19%
Oil production in barrels 18,600 19,000 (2%)
Gas production in mcf 48,300 51,000 (5%)
Income from net profits interests $ 344,077 296,606 16%
Partnership distributions $ 300,000 257,000 17%
Limited partner distributions $ 270,000 231,300 17%
Per unit distribution to limited
partners $ 18.00 15.42 17%
Number of limited partner units 15,000 15,000
Revenues
The Partnership's income from net profits interests increased to $344,077
from $296,606 for the six months ended June 30, 1997 and 1996, respectively,
an increase of 16%. 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 6%, or $1.17 per barrel, resulting in
an increase of approximately $22,200 in income from net profits
interests. Oil sales represented 76% of total oil and gas sales during
the six months ended June 30, 1997 as compared to 78% 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 19%, or $.40 per mcf, resulting in an increase
of approximately $20,400 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 $42,600.
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 400 barrels or 2% during the six
months ended June 30, 1997 as compared to the six months ended June 30,
1996, resulting in a decrease of approximately $8,300 in income from net
profits interests.
Gas production decreased approximately 2,700 mcf or 5% during the same
period, resulting in a decrease of approximately $6,700 in income from
net profits interests.
The total decrease in income from net profits interests due to the change
in production is approximately $15,000.
3. Lease operating costs and production taxes were 11% lower, or
approximately $20,100 less during the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996.
Costs and Expenses
Total costs and expenses decreased to $134,368 from $145,033 for the six
months ended June 30, 1997 and 1996, respectively, a decrease of 7%. 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 $300 during the six months ended June 30, 1997 as
compared to the six months ended June 30, 1996.
2. Depletion expense decreased to $70,000 for the six months ended June 30,
1997 from $81,000 for the same period in 1996. This represents a
decrease of 14%. 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. A contributing factor
to the decline in depletion expense between the comparative periods was
the increase in the price of oil 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, nor does it anticipate any such change.
Cash flows provided by operating activities were approximately $306,800 in
the six months ended June 30, 1997 as compared to approximately $248,700 in
the six months ended June 30, 1996. The primary source of the 1997 cash flow
from operating activities was profitable operations.
Cash flows used in financing activities were approximately $299,700 in the
six months ended June 30, 1997 as compared to approximately $256,600 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 $300,000
of which $270,000 was distributed to the limited partners and $30,000 to the
general partners. The per unit distribution to limited partners during the
six months ended June 30, 1997 was $18.00. Total distributions during the
six months ended June 30, 1996 were $257,000 of which $231,300 was
distributed to the limited partners and $25,700 to the general partners. The
per unit distribution to limited partners during the six months ended June
30, 1996 was $15.42.
The source for the 1997 distributions of $300,000 was oil and gas operations
of approximately $306,800, resulting in excess cash for contingencies or
subsequent distributions. The source for the 1996 distributions of $257,000
was oil and gas operations of approximately $248,700, with the balance from
available cash on hand at the beginning of the period.
Since inception of the Partnership, cumulative monthly cash distributions of
$8,554,644 have been made to the partners. As of June 30, 1997, $7,707,216
or $513.81 per limited partner unit has been distributed to the limited
partners, representing a 103% return of the capital contributed.
As of June 30, 1997, the Partnership had approximately $116,800 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 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: 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> 17,543
<SECURITIES> 0
<RECEIVABLES> 100,944
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 118,487
<PP&E> 4,353,685
<DEPRECIATION> 2,908,370
<TOTAL-ASSETS> 1,563,802
<CURRENT-LIABILITIES> 1,671
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,562,131
<TOTAL-LIABILITY-AND-EQUITY> 1,563,802
<SALES> 344,077
<TOTAL-REVENUES> 344,825
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 134,368
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 210,457
<INCOME-TAX> 0
<INCOME-CONTINUING> 210,457
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 210,457
<EPS-PRIMARY> 12.63
<EPS-DILUTED> 12.63
</TABLE>
