<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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 0-17023
SWIFT ENERGY INCOME PARTNERS 1986-D, LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Texas 76-0208087
(State or other jurisdiction of organization) (I.R.S. Employer Identification No.)
</TABLE>
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(Address of principal executive offices)
(Zip Code)
(281)874-2700
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the 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
----
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SWIFT ENERGY INCOME PARTNERS 1986-D, LTD.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
ITEM 1. Financial Statements
Balance Sheets
- September 30, 1999 and December 31, 1998 3
Statements of Operations
- Three month and nine month periods ended September 30, 1999 and 1998 4
Statements of Cash Flows
- Nine month periods ended September 30, 1999 and 1998 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION 10
SIGNATURES 11
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SWIFT ENERGY INCOME PARTNERS 1986-D, LTD.
BALANCE SHEETS
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<CAPTION>
September 30, December 31,
1999 1998
--------------- ---------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,715 $ 1,669
Oil and gas sales receivable 142,233 163,057
Other 14,423 10,882
--------------- ---------------
Total Current Assets 158,371 175,608
--------------- ---------------
Gas Imbalance Receivable 346 346
--------------- ---------------
Oil and Gas Properties, using full cost
accounting 12,819,062 12,812,427
Less-Accumulated depreciation, depletion
and amortization (11,392,847) (11,298,612)
--------------- ---------------
1,426,215 1,513,815
=============== ===============
$ 1,584,932 $ 1,689,769
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Accounts Payable $ 32,960 $ 30,979
--------------- ---------------
Deferred Revenues 92,110 104,574
Limited Partners' Capital (14,121.10 Limited Partnership
Units; $1,000 per unit) 1,380,688 1,475,276
General Partners' Capital 79,174 78,940
--------------- ---------------
Total Partners' Capital 1,459,862 1,554,216
=============== ===============
$ 1,584,932 $ 1,689,769
=============== ===============
</TABLE>
See accompanying notes to financial statements.
3
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SWIFT ENERGY INCOME PARTNERS 1986-D, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
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<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1999 1998 1999 1998
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Oil and gas sales $ 88,509 $ 65,705 $ 184,906 $ 199,083
Interest income 1,259 1,051 3,587 5,186
Other -- 306 -- 849
-------------- -------------- -------------- --------------
89,768 67,062 188,493 205,118
-------------- -------------- -------------- --------------
COSTS AND EXPENSES:
Lease operating 17,596 15,056 51,052 92,253
Production taxes 4,475 2,792 9,909 9,396
Depreciation, depletion
and amortization -
Normal 39,549 39,062 94,235 108,051
Additional -- 466,967 -- 466,967
General and administrative 6,149 4,344 58,660 67,917
-------------- -------------- -------------- --------------
67,769 528,221 213,856 744,584
============== ============== ============== ==============
NET INCOME (LOSS) $ 21,999 $ (461,159) $ (25,363) $ (539,466)
============== ============== ============== ==============
Limited Partners' net income (loss)
per unit $ 1.16 $ (32.66) $ (2.19) $ (38.20)
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
4
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SWIFT ENERGY INCOME PARTNERS 1986-D, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
Nine Months Ended
September 30,
-------------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) $ (25,363) $ (539,466)
Adjustments to reconcile income (loss) to
net cash provided by operations:
Depreciation, depletion and amortization 94,235 575,018
Change in gas imbalance receivable
and deferred revenues (12,464) (20,434)
Change in assets and liabilities:
(Increase) decrease in oil and gas sales receivable 20,824 271,393
(Increase) decrease in other current assets (3,541) (2,973)
Increase (decrease) in accounts payable 1,981 (50,165)
--------------- ---------------
Net cash provided by (used in) operating activities 75,672 233,373
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to oil and gas properties (6,635) (57,273)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash Distributions to partners (68,991) (175,640)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 46 460
--------------- ---------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,669 1,173
=============== ===============
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,715 $ 1,633
=============== ===============
</TABLE>
See accompanying notes to financial statements.
5
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SWIFT ENERGY INCOME PARTNERS 1986-D, LTD.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) General Information -
The financial statements included herein have been prepared by
the Partnership and are unaudited except for the balance sheet at
December 31, 1998 which has been taken from the audited financial
statements at that date. The financial statements reflect adjustments,
all of which were of a normal recurring nature, which are, in the
opinion of the managing general partner necessary for a fair
presentation. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted pursuant to the rules
and regulations of the Securities and Exchange Commission ("SEC"). The
Partnership believes adequate disclosure is provided by the information
presented. The financial statements should be read in conjunction with
the audited financial statements and the notes included in the latest
Form 10-K.
(2) Gas Imbalances -
The Partnership recognizes its ownership interest in natural
gas production as revenue. Actual production quantities sold may be
different than the Partnership's ownership share in a given period. If
the Partnership's sales exceed its ownership share of production, the
differences are recorded as deferred revenue. Gas balancing receivables
are recorded when the Partnership's ownership share of production
exceeds sales.
(3) Vulnerability Due to Certain Concentrations -
The Partnership's revenues are primarily the result of sales
of its oil and natural gas production. Market prices of oil and natural
gas may fluctuate and adversely affect operating results.
In the normal course of business, the Partnership extends
credit, primarily in the form of monthly oil and gas sales receivables,
to various companies in the oil and gas industry which results in a
concentration of credit risk. This concentration of credit risk may be
affected by changes in economic or other conditions and may accordingly
impact the Partnership's overall credit risk. However, the Managing
General Partner believes that the risk is mitigated by the size,
reputation, and nature of the companies to which the Partnership extends
credit. In addition, the Partnership generally does not require
collateral or other security to support customer receivables.
(4) Fair Value of Financial Instruments -
The Partnership's financial instruments consist of cash and
cash equivalents and short-term receivables and payables. The carrying
amounts approximate fair value due to the highly liquid nature of the
short-term instruments.
(5) Year 2000 -
The Year 2000 issue results from computer programs and
embedded computer chips with date fields that cannot distinguish between
the years 1900 and 2000. The Managing General Partner has implemented
the steps necessary to make its operations and the related operations of
the Partnership capable of addressing the Year 2000. These steps
included upgrading, testing and certifying its computer systems and
field operation services and obtaining Year 2000 compliance
certification from all important business suppliers. The Managing
General Partner formed a task force during 1998 to address the Year 2000
issue and prepare its business systems for the Year 2000. The Managing
General Partner has either replaced or updated mission critical systems
and has substantially completed testing and will continue remedial
actions as needed.
The Managing General Partner's business systems are almost
entirely comprised of off-the-shelf software. Most of the necessary
changes in computer instructional code were made by upgrading this
software. In addition, the Managing General Partner has received
certification as to Year 2000 compliance from vendors or third party
consultants.
6
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SWIFT ENERGY INCOME PARTNERS 1986-D, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The Managing General Partner does not believe that costs
incurred to address the Year 2000 issue with respect to its business
systems will have a material effect on the Partnership's results of
operations, or its liquidity and financial condition. The estimated
total cost to the Managing General Partner to address Year 2000 issues
is projected to be less than $150,000, most of which was spent during
the testing phase. The Partnership's share of this cost is expected to
be insignificant.
The failure to correct a material Year 2000 problem could
result in an interruption, or failure of certain normal business
activities or operations. Based on activities to date, the Managing
General Partner believes that it has resolved any Year 2000 problems
concerning its financial and administrative systems. It is
undeterminable how all the aspects of the Year 2000 will impact the
Partnership. The most reasonably likely worst case scenario would
involve a prolonged disruption of external power sources upon which core
equipment relies, resulting in a substantial decrease in the
Partnership's oil and gas production activities. In addition, the
pipeline operators to whom the Managing General Partner sells the
Partnership's natural gas, as well as other customers and suppliers,
could be prone to Year 2000 problems that could not be assessed or
detected by the Managing General Partner. The Managing General Partner
has contacted its major purchasers, customers, suppliers, financial
institutions and others with whom it conducts business to determine
whether they will be able to resolve in a timely manner any Year 2000
problems directly affecting the Managing General Partner or Partnership
and to inform them of the Managing General Partner's internal assessment
of its Year 2000 review. There can be no assurance that such third
parties will not fail to appropriately address their Year 2000 issues or
will not themselves suffer a Year 2000 disruption that could have a
material adverse effect on the Partnership's activities, financial
condition or operating results. Based upon these responses and any
problems that arise, contingency plans or back-up systems would be
determined and addressed.
7
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SWIFT ENERGY INCOME PARTNERS 1986-D, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Partnership was formed for the purpose of investing in producing oil
and gas properties located within the continental United States. In order to
accomplish this, the Partnership goes through two distinct yet overlapping
phases with respect to its liquidity and results of operations. When the
Partnership is formed, it commences its "acquisition" phase, with all funds
placed in short-term investments until required for such property acquisitions.
The interest earned on these pre-acquisition investments becomes the primary
cash flow source for initial partner distributions. As the Partnership acquires
producing properties, net cash from operations becomes available for
distribution, along with the investment income. After partnership funds have
been expended on producing oil and gas properties, the Partnership enters its
"operations" phase. During this phase, oil and gas sales generate substantially
all revenues, and distributions to partners reflect those revenues less all
associated partnership expenses. The Partnership may also derive proceeds from
the sale of acquired oil and gas properties, when the sale of such properties is
economically appropriate or preferable to continued operation.
LIQUIDITY AND CAPITAL RESOURCES
Oil and gas reserves are depleting assets and therefore often experience
significant production declines each year from the date of acquisition through
the end of the life of the property. The primary source of liquidity to the
Partnership comes almost entirely from the income generated from the sale of oil
and gas produced from ownership interests in oil and gas properties. This source
of liquidity and the related results of operations, and in turn cash
distributions, will decline in future periods as the oil and gas produced from
these properties also declines while production and general and administrative
costs remain relatively stable making it unlikely that the Partnership will hold
the properties until they are fully depleted, but will likely liquidate when a
substantial majority of the reserves have been produced. Cash distributions to
partners are determined quarterly, based upon net proceeds from sale of oil and
gas production after payment of lease operating expense, taxes and development
costs, less general and administrative expenses. In addition, future partnership
cash requirements are taken into account to determine necessary cash reserves.
Net cash provided by operating activities totaled $75,672 and $233,373 for
the nine months ended September 30, 1999 and 1998, respectively. In 1999, cash
provided by operating activities and cash distributions were effected by
production declines from the Partnership's depleting property interests. Cash
distributions totaled $68,991 and $175,640 for the nine months ended September
30, 1999 and 1998, respectively. Cash distributions in 1999 were effected by low
oil and gas prices received during the first part of this year.
The Partnership has expended all of the partners' net commitments
available for property acquisitions and development by acquiring producing oil
and gas properties. The partnership invests primarily in proved producing
properties with nominal levels of future costs of development for proven but
undeveloped reserves. Significant purchases of additional reserves or extensive
drilling activity are not anticipated. The Partnership does not allow for
additional assessments from the partners to fund capital requirements. However,
funds in addition to the remaining unexpended net capital commitments of the
partners are available from partnership revenues, borrowings or proceeds from
the sale of partnership property. The Managing General Partner believes that the
funds currently available to the Partnership will be adequate to meet any
anticipated capital requirements.
RESULTS OF OPERATIONS
The following analysis explains changes in the revenue and expense
categories for the quarter ended September 30, 1999 (current quarter) when
compared to the quarter ended September 30, 1998 (corresponding quarter), and
for the nine months ended September 30, 1999 (current period), when compared to
the nine months ended September 30, 1998 (corresponding period).
Three Months Ended September 30, 1999 and 1998
Oil and gas sales increased $22,804 or 35 percent in the third quarter of
1999 when compared to the corresponding quarter in 1998, primarily due to
increased oil and gas prices. Oil prices increased 65 percent or $7.23/BBL to an
average of $18.39/BBL and gas prices increased 31 percent or $.57/MCF to an
average of $2.40/MCF for the quarter. Increased oil prices helped offset the
effect of decreased oil production. Current quarter production volumes remained
flat as oil production declined 36 percent and gas production increased 8
percent when compared to third quarter 1998 production volumes.
8
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SWIFT ENERGY INCOME PARTNERS 1986-D, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Corresponding production costs per equivalent MCF increased 22 percent in
the third quarter of 1999 compared to the third quarter of 1998 and total
production costs increased 24 percent.
Total depreciation expense for the third quarter of 1999 decreased 92
percent or $466,480 when compared to the third quarter of 1998. In 1998, two
components, the normal provision, calculated on the units of production method,
and the additional provision, relating to the ceiling limitation, make up total
depreciation expense. Normal depreciation expense remained flat in the third
quarter of 1999 compared to the third quarter of 1998.
The Partnership recorded an additional provision in depreciation,
depletion and amortization in the third quarter of 1998 for $466,967, when the
present value, discounted at ten percent, of estimated future net revenues from
oil and gas properties, using the guidelines of the Securities and Exchange
Commission, was below the fair market value originally paid for oil and gas
properties.
Nine Months Ended September 30, 1999 and 1998
Oil and gas sales declined $14,177 or 7 percent in the first nine months
of 1999 when compared to the corresponding period in 1998, primarily due to
decreased oil and gas production. Current period production volumes decreased 21
percent as oil and gas production declined 27 percent and 21 percent,
respectively, when compared to the same period in 1998. Production declines are
a result of the accelerated depletion of the Partnership's mature wells. Oil
prices increased 31 percent or $3.53/BBL to an average of $14.93/BBL and gas
prices increased 17 percent or $.30/MCF to an average of $2.12/MCF for the
current period. Increased oil and gas prices helped offset the effect of
decreased production.
Corresponding production costs per equivalent MCF decreased 23 percent in
the first nine months of 1999 compared to the corresponding period in 1998 and
total production costs decreased 40 percent.
Total depreciation expense for the first nine months of 1999 decreased 84
percent or $480,783 when compared to the first nine months of 1998. In 1998, two
components, the normal provision, calculated on the units of production method,
and the additional provision, relating to the ceiling limitation, make up total
depreciation expense. Normal depreciation expense decreased 13 percent or
$13,816 in the first nine months of 1999 compared to the first nine months of
1998.
The Partnership recorded an additional provision in depreciation,
depletion and amortization in the first nine months of 1998 for $466,967, when
the present value, discounted at ten percent, of estimated future net revenues
from oil and gas properties, using the guidelines of the Securities and Exchange
Commission, was below the fair market value originally paid for oil and gas
properties.
During 1999, partnership revenues and costs will be shared between the
limited partners and general partners in a 90:10 ratio.
9
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SWIFT ENERGY INCOME PARTNERS 1986-D, LTD.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-NONE-
10
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
SWIFT ENERGY INCOME
PARTNERS 1986-D, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
Managing General Partner
Date: November 4, 1999 By: /s/ John R. Alden
---------------- --------------------------------
John R. Alden
Senior Vice President, Secretary
and Principal Financial Officer
Date: November 4, 1999 By: /s/ Alton D. Heckaman, Jr.
---------------- --------------------------------
Alton D. Heckaman, Jr.
Vice President, Controller
and Principal Accounting Officer
11
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Swift Energy
Income Partners 1986-D Ltd.'s balance sheet and statement of operations
contained in its Form 10-Q for the quarter ended September 30, 1999 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,715
<SECURITIES> 0
<RECEIVABLES> 142,233
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 158,371
<PP&E> 12,819,062
<DEPRECIATION> (11,392,847)
<TOTAL-ASSETS> 1,584,932
<CURRENT-LIABILITIES> 32,960
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,459,862
<TOTAL-LIABILITY-AND-EQUITY> 1,584,932
<SALES> 184,906
<TOTAL-REVENUES> 188,493
<CGS> 0
<TOTAL-COSTS> 155,196<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (25,363)
<INCOME-TAX> 0
<INCOME-CONTINUING> (25,363)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,363)
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Includes lease operating expenses, production taxes and depreciation,
depletion and amortization expense. Excludes general and administrative and
interest expense.
</FN>
</TABLE>
