Page 6 of 16
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 0-18398
Southwest Royalties Institutional Income Fund IX-B, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2274633
(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 note 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
nine month periods ended September 30, 2000 are not necessarily indicative
of the results that may be expected for the full year.
<PAGE>
Southwest Royalties Institutional Income Fund IX-B, L.P.
Balance Sheets
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
Assets
Current assets
Cash and cash equivalents $ 104,058 143,818
Receivable from Managing General Partner 157,213 92,832
Distribution receivable - 46
--------- ---------
Total current assets 261,271 236,696
--------- ---------
Oil and gas properties - using the
full cost method of accounting 2,956,364 2,956,364
Less accumulated depreciation,
depletion and amortization 2,623,000 2,608,000
--------- ---------
Net oil and gas properties 333,364 348,364
--------- ---------
$ 594,635 585,060
========= =========
Liabilities and Partners' Equity
Partners' equity
General partners $ (49,660) (62,738)
Limited partners 644,295 647,798
--------- ---------
Total partners' equity 594,635 585,060
--------- ---------
$ 594,635 585,060
========= =========
<PAGE>
Southwest Royalties Institutional Income Fund IX-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenues
Income from net profits
interests $ 175,942 98,053 481,301 188,361
Interest 1,863 600 5,071 1,556
Miscellaneous - - - 1,396
------- ------ ------- -------
177,805 98,653 486,372 191,313
------- ------ ------- -------
Expenses
General and administrative 18,433 17,557 55,590 56,334
Depreciation, depletion and
amortization 5,000 4,000 15,000 24,000
------- ------ ------- -------
23,433 21,557 70,590 80,334
------- ------ ------- -------
Net income $ 154,372 77,096 415,782 110,979
======= ====== ======= =======
Net income allocated to:
Managing General Partner $ 14,343 7,299 38,770 12,148
======= ====== ======= =======
General Partner $ 1,594 811 4,308 1,350
======= ====== ======= =======
Limited Partners $ 138,435 68,986 372,704 97,481
======= ====== ======= =======
Per limited partner unit $ 14.15 7.05 38.10 9.97
======= ====== ======= =======
<PAGE>
Southwest Royalties Institutional Income Fund IX-B, L.P.
Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
2000 1999
---- ----
Cash flows from operating activities
Cash received from income from net
profits interests $ 409,837 132,837
Cash paid to suppliers (48,507) (44,602)
Interest received 5,071 1,556
------- -------
Net cash provided by operating activities 366,401 89,791
------- -------
Cash flows from investing activities
Additions to oil and gas properties - (224)
Cash received from sale of oil and gas
properties - 53,522
------- -------
Net cash provided by investing activities - 53,298
------- -------
Cash flows used in financing activities
Distributions to partners (406,161) (124,602)
------- -------
Net (decrease) increase in cash and cash equivalents (39,760)
18,487
Beginning of period 143,818 13,462
------- -------
End of period $ 104,058 31,949
======= =======
(continued)
<PAGE>
Southwest Royalties Institutional Income Fund IX-B, L.P.
Statements of Cash Flows, continued
(unaudited)
Nine Months Ended
September 30,
2000 1999
---- ----
Reconciliation of net income to net cash
provided by operating activities
Net income $ 415,782 110,979
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, depletion and amortization 15,000 24,000
Increase in receivables (71,464) (56,920)
Increase in payables 7,083 11,732
------- -------
Net cash provided by operating activities $ 366,401 89,791
======= =======
<PAGE>
Southwest Royalties Institutional Income Fund IX-B, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
1. Organization
Southwest Royalties Institutional Income Fund IX-B, L.P. was organized
under the laws of the state of Delaware on March 9, 1989, 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
-------- --------
Oil and gas sales 90% 10%
Interest income on capital contributions 100% -
All other revenues 90% 10%
Organization and offering costs (1) 100% -
Syndication costs 100% -
Amortization of organization 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 September 30, 2000, and for
the three and nine months ended September 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 Royalties Institutional Income Fund IX-B, L.P. was organized as a
Delaware limited partnership on March 9, 1989. The offering of such limited
partnership interests began on May 11, 1989, minimum capital requirements
were met on September 26, 1989, and the offering concluded on March 31,
1990, with total limited partner contributions of $4,891,000.
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 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, 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 anticipates the possibility of
performing workovers during the next twelve months. The Partnership could
possibly experience a normal decline of 8% to 10% 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. As of September 30, 2000, the net capitalized costs did
not exceed the estimated present value of oil and gas reserves.
<PAGE>
Results of Operations
A. General Comparison of the Quarters Ended September 30, 2000 and 1999
The following table provides certain information regarding performance
factors for the quarters ended September 30, 2000 and 1999:
Three Months
Ended Percentage
September 30, Increase
2000 1999 (Decrease)
---- ---- ---------
Average price per barrel of oil $ 30.78 20.86 48%
Average price per mcf of gas $ 4.27 2.20 94%
Oil production in barrels 5,000 5,120 (2%)
Gas production in mcf 34,200 35,090 (3%)
Income from net profits interests $ 175,942 98,053 79%
Partnership distributions $ 175,000 50,000 250%
Limited partner distributions $ 157,500 45,000 250%
Per unit distribution to limited partners $ 16.10 4.60 250%
Number of limited partner units 9,782 9,782
Revenues
The Partnership's income from net profits interests increased to $175,942
from $98,053 for the quarters ended September 30, 2000 and 1999,
respectively, an increase of 79%. The principal factors affecting the
comparison of the quarters ended September 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 September 30, 2000 as compared to
the quarter ended September 30, 1999 by 48%, or $9.92 per barrel,
resulting in an increase of approximately $50,800 in income from net
profits interests. Oil sales represented 51% of total oil and gas
sales during the quarter ended September 30, 2000 as compared to 58%
during the quarter ended September 30, 1999.
The average price for an mcf of gas received by the Partnership
increased during the same period by 94%, or $2.07 per mcf, resulting
in an increase of approximately $72,600 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
$123,400. 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.
<PAGE>
2. Oil production decreased approximately 120 bbl or 2% during the same
period, resulting in a decrease of approximately $3,700 in income from
net profits interest.
Gas production decreased approximately 890 mcf or 3% during the same
period, resulting in a decrease of approximately $3,800 in income from
net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $7,500.
3. Lease operating costs and production taxes were 22% higher, or
approximately $18,500 more during the quarter ended September 30, 2000
as compared to the quarter ended September 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.
Costs and Expenses
Total costs and expenses increased to $23,433 from $21,557 for the quarters
ended September 30, 2000 and 1999, respectively, an increase of 9%. The
increase is the result of higher general and administrative expense and
depletion expense.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs increased 5%
or approximately $900 during the quarter ended September 30, 2000 as
compared to the quarter ended September 30, 1999.
2. Depletion expense increased to $5,000 for the quarter ended September
30, 2000 from $4,000 for the same period in 1999. This represents an
increase of 25%. 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 increase in
depletion expense between the comparative periods were the increase in the
price of oil and gas used to determine the Partnership's reserves. The
increase in depletion expense is due to an accrual adjustment, which was
made during the quarter ended September 30, 1999 to adjust for the over
accrual of depletion in the first two quarters of 1999. The rapid rise in
prices during the first three quarters of 1999 from $14/bbl to $23/bbl and
from $1.71/mcf to $2.38/mcf caused an adjustment to be necessary during the
third quarter of 1999.
<PAGE>
B. General Comparison of the Nine Month Periods Ended September 30, 2000
and 1999
The following table provides certain information regarding performance
factors for the nine month periods ended September 30, 2000 and 1999:
Nine Months
Ended Percentage
September 30, Increase
2000 1999 (Decrease)
---- ---- ---------
Average price per barrel of oil $ 28.41 15.17 87%
Average price per mcf of gas $ 3.30 1.77 86%
Oil production in barrels 15,100 16,720 (10%)
Gas production in mcf 98,700 101,550 (3%)
Income from net profits interests $ 481,301 188,361 156%
Partnership distributions $ 406,207 124,382 227%
Limited partner distributions $ 376,207 116,382 223%
Per unit distribution to limited partners $ 38.46 11.90 223%
Number of limited partner units 9,782 9,782
Revenues
The Partnership's income from net profits interests increased to $481,301
from $188,361 for the nine months ended September 30, 2000 and 1999,
respectively, an increase of 156%. The principal factors affecting the
comparison of the nine months ended September 30, 2000 and 1999 are as
follows:
1. The average price for a barrel of oil received by the Partnership
increased during the nine months ended September 30, 2000 as compared
to the nine months ended September 30, 1999 by 87%, or $13.24 per
barrel, resulting in an increase of approximately $221,400 in income
from net profits interests. Oil sales represented 57% of total oil and
gas sales during the quarter ended September 30, 2000 as compared to
59% during the quarter ended September 30, 1999.
The average price for an mcf of gas received by the Partnership
increased during the same period by 86%, or $1.53 per mcf, resulting in
an increase of approximately $155,400 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
$376,800. 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 decreased approximately 1,620 barrels or 10% during the
nine months ended September 30, 2000 as compared to the nine months
ended September 30, 1999, resulting in a decrease of approximately
$46,000 in income from net profits interests.
Gas production decreased approximately 2,850 mcf or 3% during the same
period, resulting in a decrease of approximately $9,400 in income from
net profits interests.
The total decrease in income from net profits interests due to the
change in production is approximately $55,400.
3. Lease operating costs and production taxes were 12% higher, or
approximately $28,500 more during the nine months ended September 30,
2000 as compared to the nine months ended September 30, 1999.
Costs and Expenses
Total costs and expenses decreased to $70,590 from $80,334 for the nine
months ended September 30, 2000 and 1999, respectively, a decrease of 12%.
The decrease is the result of lower general and administrative expense and
depletion expense.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs decreased 1%
or approximately $700 during the nine months ended September 30, 2000
as compared to the nine months ended September 30, 1999.
2. Depletion expense decreased to $15,000 for the nine months ended
September 30, 2000 from $24,000 for the same period in 1999. This
represents a decrease of 38%. 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 decrease in depletion expense between the
comparative periods were the increase in the price of oil used to
determine the Partnership's reserves and the increase in gross oil and
gas revenues. The decrease in price has also dropped the basis of the
reserves because of the negative economics on some wells.
<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 $366,400 in
the nine months ended September 30, 2000 as compared to approximately
$89,800 in the nine months ended September 30, 1999. The primary source of
the 2000 cash flow from operating activities was profitable operations.
There were no cash flows provided by investing activities for the nine
months ended September 30, 2000 as compared to approximately $53,300 in the
nine months ended September 30, 1999.
Cash flows used in financing activities were approximately $406,200 in the
nine months ended September 30, 2000 as compared to approximately $124,600
in the nine months ended September 30, 1999. The only use in financing
activities was the distributions to partners.
Total distributions during the nine months ended September 30, 2000 were
$406,207 of which $376,207 was distributed to the limited partners and
$30,000 to the general partners. The per unit distribution to limited
partners during the nine months ended September 30, 2000 was $38.46. Total
distributions during the nine months ended September 30, 1999 were $124,382
of which $116,382 was distributed to the limited partners and $8,000 to the
general partners. The per unit distribution to limited partners during the
nine months ended September 30, 1999 was $11.90.
The sources for the 2000 distributions of $406,207 were oil and gas
operations of approximately $366,400, with the balance from available cash
on hand at the beginning of the period. The source for the 1999
distributions of $124,382 was oil and gas operations of approximately
$89,800 and the change of oil and gas properties of approximately $53,300,
resulting in excess cash for contingencies or subsequent distributions.
Since inception of the Partnership, cumulative monthly cash distributions
of $6,271,128 have been made to the partners. As of September 30, 2000,
$5,698,934 or $582.59 per limited partner unit has been distributed to the
limited partners, representing a 116% return of the capital contributed.
As of September 30, 2000, the Partnership had approximately $261,300 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
approximately, $33.8 million of cash interest and $5.9 million of principal
due within the next twelve months. The Managing General Partner is
currently in the process of renegotiating the terms of its various
obligations with its note holders 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 continuing
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) No reports on Form 8-K were filed during the quarter for
which this report is filed.
<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 Royalties Institutional
Income Fund IX-B, L.P.
a Delaware limited partnership
By: Southwest Royalties, Inc.
Managing General Partner
By: /s/ Bill E. Coggin
------------------------------
Bill E. Coggin, Vice President
and Chief Financial Officer
Date: November 15, 2000
<PAGE>
