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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 March 31, 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 33-19721-01
SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1988-1, LTD.
(Exact name of registrant as specified in its charter)
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<S> <C>
Texas 76-0261809
(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 MANAGED PENSION ASSETS PARTNERSHIP 1988-1, LTD.
INDEX
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<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
ITEM 1. Financial Statements
Balance Sheets
- March 31, 1999 and December 31, 1998 3
Statements of Operations
- Three month periods ended March 31, 1999 and 1998 4
Statements of Cash Flows
- Three month periods ended March 31, 1999 and 1998 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION 12
SIGNATURES 13
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SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1988-1, LTD.
BALANCE SHEETS
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<CAPTION>
March 31, December 31,
1999 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 59,347 $ 57,769
Nonoperating interests income receivable 8,754 4,163
--------------- ---------------
Total Current Assets 68,101 61,932
--------------- ---------------
Nonoperating interests in oil and gas
properties, using full cost accounting 1,551,818 1,562,298
Less-Accumulated amortization (1,451,262) (1,448,996)
--------------- ---------------
100,556 113,302
--------------- ---------------
$ 168,657 $ 175,234
=============== ===============
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Accounts Payable $ 1,652 $ 880
--------------- ---------------
Limited Partners' Capital (18,748.76 Limited Partnership Units;
$100 per unit) 164,226 171,042
General Partners' Capital 2,779 3,312
--------------- ---------------
Total Partners' Capital 167,005 174,354
--------------- ---------------
$ 168,657 $ 175,234
=============== ===============
</TABLE>
See accompanying notes to financial statements.
3
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SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1988-1, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
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<CAPTION>
Three Months Ended
March 31,
---------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
REVENUES:
Income from nonoperating interests $ 2,936 $ 4,792
Interest income 697 1,022
--------------- ---------------
3,633 5,814
--------------- ---------------
COSTS AND EXPENSES:
Amortization 2,266 3,792
General and administrative 3,562 5,046
--------------- ---------------
5,828 8,838
--------------- ---------------
NET INCOME (LOSS) $ (2,195) $ (3,024)
=============== ===============
</TABLE>
Limited Partners' net income (loss)
per unit
March 31, 1999 $ (.11)
============
March 31, 1998 $ (.16)
============
See accompanying note to financial statements.
4
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SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1988-1, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
Three Months Ended
March 31,
---------------------------------------
1999 1998
---------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) $ (2,195) $ (3,024)
Adjustments to reconcile income (loss) to
net cash provided by operations:
Amortization 2,266 3,792
Change in assets and liabilities:
(Increase) decrease in nonoperating interests income receivable (4,591) 4,088
Increase (decrease) in accounts payable 772 1,328
-------------- --------------
Net cash provided by (used in) operating activities (3,748) 6,184
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to nonoperating interests in oil and gas properties 284 (728)
Proceeds from sale of nonoperating interests in oil and gas properties 10,196 --
-------------- --------------
Net cash provided by (used in) investing activities 10,480 (728)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (5,154) (12,471)
-------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,578 (7,015)
-------------- --------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 57,769 81,738
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 59,347 $ 74,723
============== ==============
</TABLE>
See accompanying notes to financial statements.
5
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SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1988-1, 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. 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) Organization and Terms of Partnership Agreement -
Swift Energy Managed Pension Assets Partnership 1988-1, Ltd.,
a Texas limited partnership ("the Partnership"), was formed on September
14, 1988, for the purpose of purchasing net profits interests,
overriding royalty interests and royalty interests (collectively,
"nonoperating interests") in producing oil and gas properties within the
continental United States. Swift Energy Company ("Swift"), a Texas
corporation, and VJM Partners, Ltd. ("VJM"), a Texas limited
partnership, serve as Managing General Partner and Special General
Partner of the Partnership, respectively. The Managing General Partner
is required to contribute up to 1/99th of limited partner net
contributions. The 190 limited partners made total capital contributions
of $1,874,876.
Nonoperating interests acquisition costs and the management
fee are borne 99 percent by the limited partners and one percent by the
general partners. Organization and syndication costs were borne solely
by the limited partners.
Generally, all continuing costs (including development costs,
operating costs, general and administrative reimbursements and direct
expenses) and revenues are allocated 90 percent to the limited partners
and ten percent to the general partners. If prior to partnership payout,
however, the cash distribution rate for a certain period equals or
exceeds 17.5 percent, then for the following calendar year, these
continuing costs and revenues will be allocated 85 percent to the
limited partners and 15 percent to the general partners. After
partnership payout, continuing costs and revenues will be shared 85
percent by the limited partners, and 15 percent by the general partners,
even if the cash distribution rate is less than 17.5 percent.
(3) Significant Accounting Policies -
Use of Estimates -
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from estimates.
6
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SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1988-1, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
Nonoperating Interests in Oil and Gas Properties --
The Partnership accounts for its ownership interest in oil and
gas properties using the proportionate consolidation method, whereby the
Partnership's share of assets, liabilities, revenues and expenses is
included in the appropriate classification in the financial statements.
For financial reporting purposes the Partnership follows the
"full-cost" method of accounting for nonoperating interests in oil and
gas property costs. Under this method of accounting, all costs incurred
in the acquisition of nonoperating interests in oil and gas properties
are capitalized. The unamortized cost of nonoperating interests in oil
and gas properties is limited to the "ceiling limitation" (calculated
separately for the Partnership, limited partners and general partners).
The "ceiling limitation" is calculated on a quarterly basis and
represents the estimated future net revenues from nonoperating interests
in proved properties using current prices, discounted at ten percent.
Proceeds from the sale or disposition of nonoperating interests in oil
and gas properties are treated as a reduction of the cost of the
nonoperating interests with no gains or losses recognized except in
significant transactions.
The Partnership computes the provision for amortization of oil
and gas properties on the units-of-production method. Under this method,
the provision is calculated by multiplying the total unamortized cost of
oil and gas properties by an overall rate determined by dividing the
physical units of oil and gas produced during the period by the total
estimated proved oil and gas reserves at the beginning of the period.
The calculation of the "ceiling limitation" and the provision
for depreciation, depletion and amortization is based on estimates of
proved reserves. There are numerous uncertainties inherent in estimating
quantities of proved reserves and in projecting the future rates of
production, timing and plan of development. The accuracy of any reserve
estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Results of
drilling, testing and production subsequent to the date of the estimate
may justify revision of such estimate. Accordingly, reserve estimates
are often different from the quantities of oil and gas that are
ultimately recovered.
(4) Related-Party Transactions -
Affiliates of the Special General Partner, as Dealer Manager,
received $46,872 for managing and overseeing the offering of the limited
partnership units. A one-time management fee of $46,872 was paid to
Swift for services performed for the Partnership.
Effective September 14, 1988, the Partnership entered into a
Net Profits and Overriding Royalty Interests Agreement ("NP/OR
Agreement") with Swift Energy Income Partners 1988-1, Ltd. ("Operating
Partnership"), managed by Swift, for the purpose of acquiring
nonoperating interests in producing oil and gas properties. Under terms
of the NP/OR Agreement, the Partnership has been conveyed a nonoperating
interest in the aggregate net profits (i.e., oil and gas sales net of
related operating costs) of the properties acquired equal to its
proportionate share of the property acquisition costs.
7
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SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1988-1, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(5) 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.
(6) 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.
(7) 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 is currently
implementing the steps necessary to make its operations and the related
operations of the Partnership capable of addressing the Year 2000. These
steps include 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. By mid-1999,
the Managing General Partner expects the mission critical systems to be
either replaced or updated and testing to be virtually completed.
8
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SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1988-1, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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 can be made by upgrading this
software. The Managing General Partner is currently in the process of
either upgrading the off-the-shelf software or receiving certification
as to Year 2000 compliance from vendors or third party consultants. A
testing phase is being conducted as the software is updated or certified
and is expected to be completed by mid-1999.
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 will be 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 will be able to resolve 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
is contacting 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 during the testing phase, contingency plans or
back-up systems would be determined and addressed.
9
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SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1988-1, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Partnership is formed for the purpose of investing in nonoperating
interests 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 the
acquisition of nonoperating interests. Therefore, the interest earned on these
pre-acquisition investments becomes the primary cash flow source for initial
partner distributions. As the Partnership acquires nonoperating interests in
producing properties, net cash from ownership of nonoperating interests becomes
available for distribution, along with the investment income. After all
partnership funds have been expended on nonoperating interests in producing oil
and gas properties, the Partnership enters its "operations" phase. During this
phase, income from nonoperating interests in oil and gas sales generates
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 nonoperating interests in acquired oil and gas
properties, when the sale of such interests is economically appropriate or
preferable to continued operations.
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. Net cash
provided by (used in) operating activities totaled $(3,748) and $6,184 for the
three months ended March 31, 1999 and 1998, respectively. 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 provided by
proceeds from the sale of nonoperating interests in properties totaled $10,196
for the three months ended March 31, 1999. 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. Cash
distributions totaled $5,154 and $12,471 for the three months ended March 31,
1999 and 1998, respectively.
Under the NP/OR Agreement, the Managing General Partner acquires interests
in oil and gas properties from outside parties and sells these interests to an
affiliated operating partnership, who in turn creates and sells to the
Partnership nonoperating interests in these same oil and gas properties.
RESULTS OF OPERATIONS
Income from nonoperating interests decreased 39 percent in the first
quarter of 1999 when compared to the same quarter in 1998. Oil and gas sales
declined $3,000 or 38 percent in the first quarter of 1999 when compared to the
corresponding quarter in 1998, primarily due to decreased gas and oil production
from the partnership's mature wells. Current quarter gas and oil production
declined 32 percent and 35 percent, respectively, when compared to first quarter
1998 production volumes. Gas prices held steady at an average $1.50/MCF,
however, oil prices declined 21 percent or $3.11 to an average $12.06/BBL for
the quarter contributing to the decreased revenues.
Corresponding production costs per equivalent MCF decreased 7 percent in
the first quarter of 1999 compared to the first quarter of 1998 as total
production costs decreased 37 percent.
Total amortization expense decreased 40 percent or $1,526 in 1999 compared
to first quarter 1998, also related to the decline in production volumes.
10
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SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
The Partnership records an additional provision in depreciation, depletion
and amortization 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, is below the fair market value originally
paid for oil and gas properties. Using prices in effect at March 31, 1999, the
Partnership would have recorded an additional provision at March 31, 1999 in the
amount of $6,843. However, these temporarily low quarter-end prices rebounded
and by using prices in effect at the filing date, the Partnership's unamortized
cost of oil and gas properties were not limited by this calculation.
During 1999, partnership revenues and costs will be shared between the
limited partners and general partners in a 90:10 ratio.
11
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SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1988-1, LTD.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-NONE-
12
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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 MANAGED PENSION
ASSETS PARTNERSHIP 1988-1, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
Managing General Partner
Date: May 5, 1999 By: /s/ John R. Alden
----------- --------------------------------
John R. Alden
Senior Vice President, Secretary
and Principal Financial Officer
Date: May 5, 1999 By: /s/ Alton D. Heckaman, Jr.
----------- --------------------------------
Alton D. Heckaman, Jr.
Vice President, Controller
and Principal Accounting Officer
13
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Swift Energy
Managed Pension Assets Partnership 1988-1, Ltd.'s balance sheet and statement of
operations contained in its Form 10-Q for the quarter ended March 31, 1999 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 59,347
<SECURITIES> 0
<RECEIVABLES> 8,754
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 68,101
<PP&E> 1,551,818
<DEPRECIATION> (1,451,262)
<TOTAL-ASSETS> 168,657
<CURRENT-LIABILITIES> 1,652
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 167,005
<TOTAL-LIABILITY-AND-EQUITY> 168,657
<SALES> 2,936
<TOTAL-REVENUES> 3,633
<CGS> 0
<TOTAL-COSTS> 2,266<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,195)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,195)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,195)
<EPS-PRIMARY> 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>
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