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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, 2000
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 0-17707
Southwest Oil & Gas Income Fund VIII-A, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2220097
(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 16.
<PAGE>
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, 1999 which are found in the Registrant's Form
10-K Report for 1999 filed with the Securities and Exchange Commission.
The December 31, 1999 balance sheet included herein has been taken from the
Registrant's 1999 Form 10-K Report. Operating results for the three and
six month periods ended June 30, 2000 are not necessarily indicative of the
results that may be expected for the full year.
<PAGE>
Southwest Oil & Gas Income Fund VIII-A, L.P.
Balance Sheets
June 30, December 31,
2000 1999
--------- ------------
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 111,119 43,291
Receivable from Managing General Partner 190,109 132,897
--------- ---------
Total current assets 301,228 176,188
--------- ---------
Oil and gas properties - using the
full cost method of accounting 5,354,246 5,345,915
Less accumulated depreciation,
depletion and amortization 5,018,466 5,007,466
--------- ---------
Net oil and gas properties 335,780 338,449
--------- ---------
$ 637,008 514,637
========= =========
Liabilities and Partners' Equity
Current liability - Distributions payable $ 95 250
--------- ---------
Partners' equity:
General partners 22,092 8,740
Limited partners 614,821 505,647
--------- ---------
Total partners' equity 636,913 514,387
--------- ---------
$ 637,008 514,637
========= =========
<PAGE>
Southwest Oil & Gas Income Fund VIII-A, L.P.
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenues
Oil and gas $ 363,572 210,510 722,447 365,460
Interest 1,547 223 2,353 376
------- ------- ------- -------
365,119 210,733 724,800 365,836
------- ------- ------- -------
Expenses
Production 162,539 113,873 315,638 254,206
General and administrative 29,549 27,341 55,636 54,469
Depreciation, depletion and
amortization 3,000 6,000 11,000 16,000
------- ------- ------- -------
195,088 147,214 382,274 324,675
------- ------- ------- -------
Net income $ 170,031 63,519 342,526 41,161
======= ======= ======= =======
Net income allocated to:
Managing General Partner $ 15,573 6,257 31,817 5,144
======= ======= ======= =======
General Partner $ 1,730 695 3,535 572
======= ======= ======= =======
Limited partners $ 152,728 56,567 307,174 35,445
======= ======= ======= =======
Per limited partner unit $ 11.23 4.16 22.59 2.61
======= ======= ======= =======
<PAGE>
Southwest Oil & Gas Income Fund VIII-A, L.P.
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
2000 1999
Cash flows from operating activities:
Cash received from oil and gas sales $ 664,523 324,051
Cash paid to suppliers (370,562) (318,890)
Interest received 2,353 376
-------- --------
Net cash provided by operating activities 296,314 5,537
-------- --------
Cash flows from investing activities:
Cash received from sale of oil and gas properties - 27,748
Additions to oil and gas properties (8,331) (182)
-------- --------
Net cash (used in) provided by investing activities (8,331) 27,566
-------- --------
Cash flows used in financing activities:
Distributions to partners (220,155) (37,582)
-------- --------
Net increase (decrease) in cash and cash
equivalents 67,828 (4,479)
Beginning of period 43,291 21,234
-------- --------
End of period $ 111,119 16,755
======== ========
(continued)
<PAGE>
Southwest Oil & Gas Income Fund VIII-A, L.P.
Statements of Cash Flows, continued
(unaudited)
Six Months Ended
June 30,
2000 1999
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 342,526 41,161
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 11,000 16,000
Increase in receivables (57,924) (41,409)
Increase (decrease) in payables 712 (10,215)
------- -------
Net cash provided by operating activities $ 296,314 5,537
======= =======
<PAGE>
Southwest Oil & Gas Income Fund VIII-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
1. Organization
Southwest Oil & Gas Income Fund VIII-A, L.P. was organized under the
laws of the state of Delaware on November 30, 1987, for the purpose of
acquiring producing oil and gas properties and to produce and market
crude oil and natural gas produced from such properties for a term of
50 years, unless terminated at an earlier date as provided for in the
Partnership Agreement. The Partnership sells its oil and gas
production to a variety of purchasers with the prices it receives
being dependent upon the oil and gas economy. Southwest Royalties,
Inc. serves as the Managing General Partner and H. H. Wommack, III,
as the individual general partner. Revenues, costs and expenses are
allocated as follows:
Limited General
Partners Partners
-------- --------
Interest income on capital contributions 100% -
Oil and gas sales 90% 10%
All other revenues 90% 10%
Organization and offering costs (1) 100% -
Amortization of organization costs 100% -
Syndication costs 100% -
Property acquisition costs 100% -
Gain/loss on property disposition 90% 10%
Operating and administrative costs (2) 90% 10%
Depreciation, depletion and amortization
of oil and gas properties 100% -
All other costs 90% 10%
(1)All organization costs in excess of 3% of initial capital
contributions will be paid by the Managing General Partner and
will be treated as a capital contribution. The Partnership paid
the Managing General Partner an amount equal to 3% of initial
capital contributions for such organization costs.
(2)Administrative costs in any year which exceed 2% of capital
contributions shall be paid by the Managing General Partner and
will be treated as a capital contribution.
2. Summary of Significant Accounting Policies
The interim financial information as of June 30, 2000, and for the
three and six months ended June 30, 2000, is unaudited. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q pursuant
to the rules and regulations of the Securities and Exchange
Commission. However, in the opinion of management, these interim
financial statements include all the necessary adjustments to fairly
present the results of the interim periods and all such adjustments
are of a normal recurring nature. The interim consolidated financial
statements should be read in conjunction with the audited financial
statements for the year ended December 31, 1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Oil & Gas Income Fund VIII-A, L.P. was organized as a Delaware
limited partnership on November 30, 1987. The offering of such limited
partnership interests began on March 31, 1988, minimum capital requirements
were met on July 6, 1988, and the offering concluded on March 31, 1989,
with total limited partner contributions of $6,798,000.
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.
Based on current conditions, management does not anticipate performing
workovers during the year. The Partnership could possibly experience a
normal decline of 10% to 12% per year.
Oil and Gas Properties
Oil and gas properties are accounted for at cost under the full-cost
method. Under this method, all productive and nonproductive costs incurred
in connection with the acquisition, exploration and development of oil and
gas reserves are capitalized. Gain or loss on the sale of oil and gas
properties is not recognized unless significant oil and gas reserves are
involved.
The Partnership's policy for depreciation, depletion and amortization of
oil and gas properties is computed under the units of revenue method.
Under the units of revenue method, depreciation, depletion and amortization
is computed on the basis of current gross revenues from production in
relation to future gross revenues, based on current prices, from estimated
production of proved oil and gas reserves.
Should the net capitalized costs exceed the estimated present value of oil
and gas reserves, discounted at 10%, such excess costs would be charged to
current expense. The Partnership's net capitalized costs did not exceed
the estimated present value of reserves as of June 30, 2000.
<PAGE>
Results of Operations
A. General Comparison of the Quarters Ended June 30, 2000 and 1999
The following table provides certain information regarding performance
factors for the quarters ended June 30, 2000 and 1999:
Three Months
Ended Percentage
June 30, Increase
2000 1999 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 27.29 15.95 71%
Average price per mcf of gas $ 4.29 2.33 84%
Oil production in barrels 10,900 10,700 2%
Gas production in mcf 15,400 17,100 (10%)
Gross oil and gas revenue $ 363,572 210,510 73%
Net oil and gas revenue $ 201,033 96,637 108%
Partnership distributions $ 120,000 38,000 216%
Limited partner distributions $ 108,000 34,200 216%
Per unit distribution to limited
partners $ 7.94 2.52 216%
Number of limited partner units 13,596 13,596
Revenues
The Partnership's oil and gas revenues increased to $363,572 from $210,510
for the quarters ended June 30, 2000 and 1999, respectively, an increase of
73%. The principal factors affecting the comparison of the quarters ended
June 30, 2000 and 1999 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended June 30, 2000 as compared to the
quarter ended June 30, 1999 by 71%, or $11.34 per barrel, resulting in
an increase of approximately $121,300 in revenues. Oil sales
represented 82% of total oil and gas sales during the quarter ended
June 30, 2000 as compared to 81% during the quarter ended June 30,
1999.
The average price for an mcf of gas received by the Partnership
increased during the same period by 84% or $1.96 per mcf, resulting in
an increase of approximately $33,500 in revenues.
The total increase in revenues due to the change in prices received
from oil and gas production is approximately $154,800. 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.
<PAGE>
2. Oil production increased approximately 200 barrels or 2% during the
quarter ended June 30, 2000 as compared to the quarter ended June 30,
1999, resulting in an increase of approximately $5,500 in revenues.
Gas production decreased approximately 1,700 mcf or 10% during the same
period, resulting in a decrease of approximately $7,300 in revenues.
The net total decrease in revenues due to the change in production is
approximately $1,800.
Costs and Expenses
Total costs and expenses increased to $195,088 from $147,214 for the
quarters ended June 30, 2000 and 1999, respectively, an increase of 33%.
The increase is the result of higher lease operating costs and general and
administrative expense, partially offset by a decrease in depletion
expense.
1. Lease operating costs and production taxes were 43% higher, or
approximately $49,000 more during the quarter ended June 30, 2000 as
compared to the quarter ended June 30, 1999. The increase in lease
operating costs and production taxes is primarily a result of the
higher oil and gas prices received by the Partnership. Higher prices
have made it possible for the Partnership to perform needed major
repairs and maintenance. Since production taxes are based on gross
revenues, the increase in oil and gas prices have directly increased
production taxes.
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 increased 8%
or approximately $2,200 during the quarter ended June 30, 2000 as
compared to the quarter ended June 30, 1999.
3. Depletion expense decreased to $3,000 for the quarter ended June 30,
2000 from $6,000 for the same period in 1999. This represents a
decrease of 50%. 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 the comparative
periods were the increase in the price of oil and gas used to determine
the Partnership's reserves for July 1, 2000 as compared to 1999.
<PAGE>
B. General Comparison of the Six Month Periods Ended June 30, 2000 and
1999
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 2000 and 1999:
Six Months
Ended Percentage
June 30, Increase
2000 1999 (Decrease)
---- ---- ----------
Average price per barrel of oil $ 27.06 12.97 109%
Average price per mcf of gas $ 3.76 2.08 81%
Oil production in barrels 22,300 22,700 (2%)
Gas production in mcf 31,700 34,100 (7%)
Gross oil and gas revenue $ 722,447 365,460 98%
Net oil and gas revenue $ 406,809 111,254 266%
Partnership distributions $ 220,000 38,000 479%
Limited partner distributions $ 198,000 34,200 479%
Per unit distribution to limited
partners $ 14.56 2.52 479%
Number of limited partner units 13,596 13,596
Revenues
The Partnership's oil and gas revenues increased to $722,447 from $365,460
for the six months ended June 30, 2000 and 1999, respectively, an increase
of 98%. The principal factors affecting the comparison of the six months
ended June 30, 2000 and 1999 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the six months ended June 30, 2000 as compared to the
six months ended June 30, 1999 by 109%, or $14.09 per barrel, resulting
in an increase of approximately $319,800 in revenues. Oil sales
represented 84% of total oil and gas sales during the six months ended
June 30, 2000 as compared to 81% during the six months ended June 30,
1999.
The average price for an mcf of gas received by the Partnership
increased during the same period by 81%, or $1.68 per mcf, resulting in
an increase of approximately $57,300 in revenues.
The total increase in revenues due to the change in prices received
from oil and gas production is approximately $377,100. 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.
<PAGE>
2. Oil production decreased approximately 400 barrels or 2% during the six
months ended June 30, 2000 as compared to the six months ended June 30,
1999, resulting in a decrease of approximately $10,800 in revenues.
Gas production decreased approximately 2,400 mcf or 7% during the same
period, resulting in a decrease of approximately $9,000 in revenues.
The total decrease in revenues due to the change in production is
approximately $19,800.
Costs and Expenses
Total costs and expenses increased to $382,274 from $324,675 for the six
months ended June 30, 2000 and 1999, respectively, an increase of 18%. The
increase is the result of higher lease operating costs and general and
administrative expense, partially offset by a decrease depletion expense.
1. Lease operating costs and production taxes were 24% higher, or
approximately $61,400 more during the six months ended June 30, 2000 as
compared to the six months ended June 30, 1999. The increase in lease
operating costs and production taxes is primarily a result of the
higher oil and gas prices received by the Partnership. Higher prices
have made it possible for the Partnership to perform needed major
repairs and maintenance. Since production taxes are based on gross
revenues, the increase in oil and gas prices have directly increased
production taxes.
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 increased 2%
or approximately $1,200 during the six months ended June 30, 2000 as
compared to the six months ended June 30, 1999.
3. Depletion expense decreased to $11,000 for the six months ended June
30, 2000 from $16,000 for the same period in 1999. This represents a
decrease of 31%. 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 the comparative
periods were the increase in the price of oil and gas used to determine
the Partnership's reserves for July 1, 2000 as compared to 1999.
<PAGE>
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 $296,300 in
the six months ended June 30, 2000 as compared to approximately $5,500 in
the six months ended June 30, 1999. The primary source of the 2000 cash
flow from operating activities was profitable operations.
Cash flows (used in) provided by investing activities were approximately
$(8,300) in the six months ended June 30, 2000 as compared to approximately
$27,600 in the six months ended June 30, 1999. The principle use of the
2000 cash flow from investing activities was the addition of oil and gas
properties.
Cash flows used in financing activities were approximately $220,200 in the
six months ended June 30, 2000 as compared to approximately $37,600 in the
six months ended June 30, 1999. The only use in financing activities was
the distributions to partners.
Total distributions during the six months ended June 30, 2000 were $220,000
of which $198,000 was distributed to the limited partners and $22,000 to
the general partners. The per unit distribution to limited partners during
the six months ended June 30, 2000 was $14.56. Total distributions during
the six months ended June 30, 1999 were $38,000 of which $34,200 was
distributed to the limited partners and $3,800 to the general partners.
The per unit distribution to limited partners during the six months ended
June 30, 1999 was $2.52.
The sources for the 2000 distributions of $220,000 were oil and gas
operations of approximately $296,300 and the change in oil and gas
properties of approximately $(8,300), resulting in excess cash for
contingencies or subsequent distributions. The sources for the 1999
distributions of $38,000 were oil and gas operations of approximately
$5,500 and the net change in oil and gas properties of approximately
$27,600, with the balance from available cash on hand at the beginning of
the period.
Since inception of the Partnership, cumulative monthly cash distributions
of $7,403,421 have been made to the partners. As of June 30, 2000,
$6,707,950 or $493.38 per limited partner unit has been distributed to the
limited partners, representing an 99% return of the capital contributed.
As of June 30, 2000, the Partnership had approximately $301,100 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.
<PAGE>
Liquidity - Managing General Partner
The Managing General Partner has a highly leveraged capital structure with
over $50.1 million principal due by December 31, 2000 and $15.3 million
interest payments due within the next twelve months on its debt
obligations. The Managing General Partner is currently in the process of
renegotiating the terms of its various obligations with its creditors
and/or attempting to seek new lenders or equity investors. Additionally,
the Managing General Partner would consider disposing of certain assets in
order to meet its obligations.
There can be no assurance that the Managing General Partner's debt
restructuring efforts will be successful or that the lenders will agree to
a course of action consistent with the Managing General Partners
requirements in restructuring the obligations. Even if such agreement is
reached, it may require approval of additional lenders, which is not
assured. Furthermore, there can be no assurance that the sales of assets
can be successfully accomplished on terms acceptable to the Managing
General Partner. Under current circumstances, the Managing General
Partner's ability to continue as a going concern depends upon its ability
to (1) successfully restructure its obligations or obtain additional
financing as may be required, (2) maintain compliance with all debt
covenants, (3) generate sufficient cash flow to meet its obligations on a
timely basis, and (4) achieve satisfactory levels of future earnings. If
the Managing General Partner is unsuccessful in its efforts, it may be
unable to meet its obligations making it necessary to undertake such other
actions as may be appropriate to preserve asset values.
<PAGE>
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 ended June 30, 2000.
<PAGE>
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 VIII-A, L.P.
a Delaware limited partnership
By: Southwest Royalties, Inc.
Managing General Partner
By: /s/ J Steven Person
------------------------------
J Steven Person, Vice-President of
Marketing and Chief Financial Officer
of Southwest Royalties, Inc.
the Managing General Partner
Date: August 15, 2000
<PAGE>
