<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 June 30, 1998
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 0-18361
SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1989-1, LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Texas 76-0282459
(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 1989-1, LTD.
INDEX
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<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
ITEM 1. Financial Statements
Balance Sheets
- June 30, 1998 and December 31, 1997 3
Statements of Operations
- Three month and six month periods ended June 30, 1998 and 1997 4
Statements of Cash Flows
- Six month periods ended June 30, 1998 and 1997 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION 11
SIGNATURES 12
</TABLE>
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SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1989-1, LTD.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,471 $ 102,151
Nonoperating interests income receivable 52,046 119,346
--------------- ----------------
Total Current Assets 53,517 221,497
--------------- ----------------
Nonoperating interests in oil and gas
properties, using full cost accounting 3,209,020 3,155,311
Less-Accumulated amortization (2,087,257) (2,007,684)
--------------- ----------------
1,121,763 1,147,627
--------------- ----------------
$ 1,175,280 $ 1,369,124
=============== ================
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Accounts Payable $ 5,098 $ 4,309
--------------- ----------------
Limited Partners' Capital (32,678 Limited Partnership Units;
$100 per unit) 1,157,610 1,348,066
General Partners' Capital 12,572 16,749
--------------- ----------------
Total Partners' Capital 1,170,182 1,364,815
--------------- ----------------
$ 1,175,280 $ 1,369,124
=============== ================
</TABLE>
See accompanying notes to financial statements.
3
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SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1989-1, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
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<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Income from nonoperating interests $ 60,402 $ 67,240 $ 127,023 $ 213,488
Interest income 192 2,137 704 3,686
--------------- --------------- --------------- ---------------
60,594 69,377 127,727 217,174
--------------- --------------- --------------- ---------------
COSTS AND EXPENSES:
Amortization 38,846 38,981 79,573 87,007
General and administrative 15,293 17,680 28,524 37,169
--------------- --------------- --------------- ---------------
54,139 56,661 108,097 124,176
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ 6,455 $ 12,716 $ 19,630 $ 92,998
=============== =============== =============== ===============
Limited Partners' net income (loss)
per unit $ .20 $ .39 $ .60 $ 2.85
=============== =============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
4
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SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1989-1, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
Six Months Ended
June 30,
----------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (loss) $ 19,630 $ 92,998
Adjustments to reconcile income (loss) to
net cash provided by operations:
Amortization 79,573 87,007
Change in assets and liabilities:
(Increase) decrease in nonoperating interests income receivable 67,300 37,541
(Increase) decrease in other current assets -- 48,850
Increase (decrease) in accounts payable 789 (1,030)
--------------- ---------------
Net cash provided by (used in) operating activities 167,292 265,366
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to nonoperating interests in oil and gas properties (53,709) (19,953)
Proceeds from sales of nonoperating interests in oil and gas properties -- 1,764
--------------- ---------------
Net cash provided by (used in) investing activities (53,709) (18,189)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (214,263) (229,414)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (100,680) 17,763
--------------- ---------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 102,151 154,086
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,471 $ 171,849
=============== ===============
</TABLE>
See accompanying notes to financial statements.
5
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SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1989-1, 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, 1997 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) Organization and Terms of Partnership Agreement -
Swift Energy Managed Pension Assets Partnership 1989-1, Ltd.,
a Texas limited partnership ("the Partnership"), was formed on May 31,
1989, 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 343 limited partners
made total capital contributions of $3,267,837.
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. During
1992 and 1991, the cash distribution rate (as defined in the Partnership
Agreement) exceeded 17.5 percent and thus, in 1993 and 1992, the
continuing costs and revenues were shared 85 percent by the limited
partners and 15 percent by the general partners. During 1997, 1996,
1995, 1994 and 1993, the cash distribution rate fell below 17.5 percent
and thus, in 1997, 1996, 1995 and 1994, the continuing costs and
revenues were shared 90 percent by the limited partners and 10 percent
by the general partners. Payout occurred in January 1998; therefore, for
1998 and each year remaining in the life of the partnership, the
continuing costs and revenues will be shared 85 percent by the limited
partners and 15 percent by the general partners.
(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. Certain reclassifications have been
made to prior year amounts to conform to the current year presentation.
6
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SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1989-1, 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 statement.
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 $80,133 for managing and overseeing the offering of the limited
partnership units. A one-time management fee of $81,696 was paid to
Swift for services performed for the Partnership.
The Partnership entered into a Net Profits and Overriding
Royalty Interests Agreement ("NP/OR Agreement") with Swift Energy Income
Partners 1989-2, Ltd. and Swift Energy Income Partners 1989-1, Ltd.
("Operating Partnerships"), managed by Swift, for the purpose of
acquiring nonoperating interests in producing oil and gas properties.
Under terms of the NP/OR Agreement, the Operating Partnerships will
convey to the Partnership nonoperating interests 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.
(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.
7
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SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1989-1, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
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.
8
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SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1989-1, 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 operating activities totaled $167,292 and $265,366 for the six
months ended June 30, 1998 and 1997, 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. 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 $214,263 and $229,414 for the six months ended June 30, 1998 and 1997,
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. The
Managing General Partner expects funds available from net profits interests to
be distributed to the partners.
RESULTS OF OPERATIONS
The following analysis explains changes in the revenue and expense
categories for the quarter ended June 30, 1998 (current quarter) when compared
to the quarter ended June 30, 1997 (corresponding quarter), and for the six
months ended June 30, 1998 (current period), when compared to the six months
ended June 30, 1997 (corresponding period).
Three Months Ended June 30, 1998 and 1997
Income from nonoperating interests decreased 10 percent in the second
quarter of 1998 when compared to the same quarter in 1997. Oil and gas sales
declined $22,310 or 19 percent in the second quarter of 1998 when compared to
the corresponding quarter in 1997, primarily due to decreased oil prices and
production. Oil prices decreased 29 percent or $5.12/BBL and oil production
declined 30 percent. Declines in revenues were partially offset by an increase
in gas production of 21 percent and gas prices of 9 percent or $.18/MCF when
compared to second quarter 1997 production and prices.
9
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SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1989-1, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Associated amortization expense remained unchanged in 1998 compared to
second quarter 1997.
Six Months Ended June 30, 1998 and 1997
Income from nonoperating interests decreased 40 percent in the first six
months of 1998 when compared to the same period in 1997. Oil and gas sales
declined $111,739 or 36 percent in the first six months of 1998 when compared to
the corresponding period in 1997, primarily due to decreased oil and gas prices.
A decline in oil prices of 34 percent or $6.62/BBL and in gas prices of 21
percent or $.57/MCF, had a significant impact on partnership performance. Also,
current period oil and gas production declined 19 percent and 7 percent,
respectively, when compared to the same period in 1997, further contributing to
decreased revenues.
Associated amortization expense decreased 9 percent or $7,434 in 1998
compared to the first six months of 1997, also related to the decline in
production volumes.
During 1998, partnership revenues and costs will be shared between the
limited partners and general partners in a 85:15 ratio.
10
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SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1989-1, LTD.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
-NONE-
11
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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 1989-1, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
Managing General Partner
Date: August 4, 1998 By: /s/ John R. Alden
-------------- ----------------------------------
John R. Alden
Senior Vice President, Secretary
and Principal Financial Officer
Date: August 4, 1998 By: /s/ Alton D. Heckaman, Jr.
-------------- ----------------------------------
Alton D. Heckaman, Jr.
Vice President, Controller
and Principal Accounting Officer
12
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Swift Energy
Managed Pension Assets Partnership 1989-1, Ltd.'s balance sheet and statement of
operations con- tained in its Form 10-Q for the quarter ended June 30, 1998 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,471
<SECURITIES> 0
<RECEIVABLES> 52,046
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,517
<PP&E> 3,209,020
<DEPRECIATION> (2,087,257)
<TOTAL-ASSETS> 1,175,280
<CURRENT-LIABILITIES> 5,098
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,170,182
<TOTAL-LIABILITY-AND-EQUITY> 1,175,280
<SALES> 127,023
<TOTAL-REVENUES> 127,727
<CGS> 0
<TOTAL-COSTS> 79,573<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,630
<INCOME-TAX> 0
<INCOME-CONTINUING> 19,630
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,630
<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>
</TABLE>
