<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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: 0-25950
SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
(Exact name of registrant as specified in its charter)
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<S> <C>
Texas 76-0441892
(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 PENSION PARTNERS 1994-B, LTD.
INDEX
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<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C>
ITEM 1. Financial Statements
Balance Sheets
- September 30, 1998 and December 31, 1997 3
Statements of Operations
- Three month and nine month periods ended September 30, 1998 and 1997 4
Statements of Cash Flows
- Nine month periods ended September 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
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SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
BALANCE SHEETS
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<CAPTION>
September 30, December 31,
1998 1997
--------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,851 $ 1,794
Nonoperating interests income receivable 54,272 119,381
--------------- ----------------
Total Current Assets 56,123 121,175
--------------- ----------------
Nonoperating interests in oil and gas
properties, using full cost accounting 4,034,421 3,776,939
Less-Accumulated amortization (2,687,332) (1,657,287)
--------------- ----------------
1,347,089 2,119,652
--------------- ----------------
$ 1,403,212 $ 2,240,827
=============== ================
LIABILITIES AND PARTNERS' CAPITAL:
Current Liabilities:
Accounts Payable $ 439,598 $ 171,748
--------------- ----------------
Interest Holders' Capital (3,535,809 Interest Holders' SDIs;
$1.00 per SDI) 935,941 2,032,562
General Partners' Capital 27,673 36,517
--------------- ----------------
Total Partners' Capital 963,614 2,069,079
--------------- ----------------
$ 1,403,212 $ 2,240,827
=============== ================
</TABLE>
See accompanying notes to financial statements.
3
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SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
STATEMENTS OF OPERATIONS
(Unaudited)
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<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Income from nonoperating interests $ 33,011 $ 121,683 $ 154,227 $ 319,305
Interest income 24 23 56 52
--------------- --------------- --------------- ---------------
33,035 121,706 154,283 319,357
--------------- --------------- --------------- ---------------
COSTS AND EXPENSES:
Amortization 464,498 72,027 1,030,045 189,281
General and administrative 10,377 13,191 39,403 48,342
--------------- --------------- --------------- ---------------
474,875 85,218 1,069,448 237,623
--------------- --------------- --------------- ---------------
NET INCOME (LOSS) $ (441,840) $ 36,488 $ (915,165) $ 81,734
=============== =============== =============== ===============
Limited Partners' net income (loss)
per unit $ (.12) $ .01 $ (.26) $ .02
=============== =============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
4
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SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
STATEMENTS OF CASH FLOWS
(Unaudited)
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<CAPTION>
Nine Months Ended
September 30,
----------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income (Loss) $ (915,165) $ 81,734
Adjustments to reconcile income (loss) to
net cash provided by operations:
Amortization 1,030,045 189,281
Change in assets and liabilities:
(Increase) decrease in nonoperating interests income receivable 65,109 (91,139)
Increase (decrease) in accounts payable 267,850 167,778
--------------- ---------------
Net cash provided by (used in) operating activities 447,839 347,654
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to nonoperaring interests in oil and gas properties (257,623) (42,380)
Proceeds from sale of nonoperating interests in oil and gas properties 141 --
--------------- ---------------
Net cash provided by (used in) investing activities (257,482) (42,380)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (190,300) (305,223)
--------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 57 51
--------------- ---------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,794 1,704
--------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,851 $ 1,755
=============== ===============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 14,899 $ 4,698
=============== ===============
</TABLE>
See accompanying notes to financial statements.
5
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SWIFT ENERGY PENSION PARTNERS 1994-B, 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 Pension Partners 1994-B, Ltd., a Texas limited
partnership ("the Partnership"), was formed on June 30, 1994, for the
purpose of purchasing net profits interest, overriding royalty interests
and royalty interests (collectively, "nonoperating interests") in
producing oil and gas properties within the continental United States
and Canada. Swift Energy Company ("Swift"), a Texas corporation, and VJM
Corporation ("VJM"), a California corporation, serve as Managing General
Partner and Special General Partner of the Partnership, respectively.
The sole limited partner of the Partnership is Swift Depositary Company,
which has assigned all of its beneficial (but not of record) rights and
interest as limited partner to the investors in the Partnership
("Interest Holders"), in the form of Swift Depositary Interests
("SDIs").
The Managing General Partner has paid or will pay out of its
own corporate funds (as a capital contribution to the Partnership) all
selling commissions, offering expenses, printing, legal and accounting
fees and other formation costs incurred in connection with the offering
of SDIs and the formation of the Partnership, for which the Managing
General Partner will receive an interest in continuing costs and
revenues of the Partnership. The 323 Interest Holders made total capital
contributions of $3,535,809.
Generally, all continuing costs (including general and
administrative reimbursements and direct expenses) and revenues are
allocated 85 percent to the Interest Holders and 15 percent to the
general partners. After partnership payout, as defined in the
Partnership Agreement, continuing costs and revenues will be shared 75
percent by the Interest Holders, and 25 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 PENSION PARTNERS 1994-B, 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
nonoperating interests in oil and gas properties on the
units-of-production method. Under this method, the provision is
calculated by multiplying the total unamortized cost of nonoperating
interests in 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 attributable to the
Partnership's nonoperating interests 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 -
The Partnership entered into a Net Profits and Overriding
Royalty Interest Agreement ("NP/OR Agreement") with Swift Energy
Operating Partners 1994-B, Ltd. ("Operating Partnership"), an affiliated
partnership managed by Swift for the purpose of acquiring working
interests in producing oil and gas properties. Under the terms of the
NP/OR Agreement, the Operating Partnership 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 the Partnership's 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.
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.
7
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SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
(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 year 1900 and 2000. The Managing General Partner is currently
implementing the steps necessary to make its operations and the related
operations of the Partnership Year 2000 compliant. These steps include
upgrading, testing and certifying 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 the year to address the Year 2000 issue to ensure that all
of its business systems are Year 2000 compliant by mid-1999 with mission
critical systems projected to be compliant by the end of 1998.
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 will be conducted as the software is updated or certified
and is expected to be complete 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, 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 in the next nine months. 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 a 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. The
Managing General Partner is uncertain, however, as to the impact that
the Year 2000 issue will have on field operations or as to how the
Managing General Partner or the Partnership will be indirectly affected
by the impact that the Year 2000 issue will have on companies with which
it conducts business. For example, 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 plans to contact its major purchasers,
customers, suppliers, financial institutions and others with whom it
conducts business to determine whether they will be Year 2000 compliant
and whether they will be able to resolve in a timely manner any Year
2000 problems. Based upon these responses and any problems that arise
during the testing phase, contingency plans or back-up systems would be
determined and addressed.
8
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SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Partnership was formed for the purpose of investing in nonoperating
interests in producing oil and gas properties located within the continental
United States and Canada. 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 was formed, it commenced 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 Interest Holder 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 Interest Holders 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 $447,839 and $347,654 for the nine
months ended September 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 $190,300 and $305,223 for the nine months ended September 30, 1998 and
1997, respectively.
The Partnership does not allow for additional assessments from the
partners or Interest Holders to fund capital requirements. However, funds are
available from partnership revenues or proceeds from the sale of partnership
property. The Managing General Partner believes that the funds currently
available to the Partnership will be adequate to meet any anticipated capital
requirements.
RESULTS OF OPERATIONS
The following analysis explains changes in the revenue and expense
categories for the quarter ended September 30, 1998 (current quarter) when
compared to the quarter ended September 30, 1997 (corresponding quarter), and
for the nine months ended September 30, 1998 (current period), when compared to
the nine months ended September 30, 1997 (corresponding period).
Three Months Ended September 30, 1998 and 1997
Income from nonoperating interests decreased 73 percent in the third
quarter of 1998 when compared to the same quarter in 1997. Oil and gas sales
declined $76,410 or 43 percent in the third quarter of 1998 when compared to the
corresponding period in 1997, primarily due to decreased oil and gas prices. A
decline in oil prices of 33 percent or $5.25/BBL and in gas prices of 16 percent
or $.34/MCF had a significant impact on partnership performance. Also, current
quarter gas and oil production declined 37 percent and 8 percent, respectively,
when compared to same quarter 1997, further contributing to decreased revenues.
9
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SWIFT ENERGY PENSION PARTNERS 1994-B, LTD.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Total amortization expense for the third quarter of 1998 increased 544
percent or $392,471 when compared to the third quarter of 1997. Two components,
the normal provision, calculated on the units of production method, and the
additional provision, relating to the ceiling limitation, make up total
amortization expense. Normal amortization expense decreased 33 percent or
$23,815 in the third quarter of 1998 when compared to the third quarter of 1997,
relating to the decrease in production volumes.
The Partnership recorded an additional provision in amortization for the
third quarter in 1998 of $416,286 when the present value, discounted at ten
percent, of estimated future net revenues from oil and gas properties, using the
guidelines of the Securities and Exchange Commission, was below the fair market
value originally paid for oil and gas properties resulting in a full cost
ceiling impairment.
Nine Months Ended September 30, 1998 and 1997
Income from nonoperating interests decreased 52 percent in the first nine
months of 1998 when compared to the same period in 1997. Oil and gas sales
declined $188,230 or 37 percent in the first nine months of 1998 compared to the
corresponding period in 1997, primarily due to decreased oil and gas prices. A
decline in oil prices of 41 percent or $7.24/BBL and in gas prices of 14 percent
or $.32/MCF had a significant impact on partnership performance. Also, current
period gas and oil production declined 19 percent and 15 percent, respectively,
when compared to the same period in 1997, further contributing to decreased
revenues.
Total amortization expense for the first nine months of 1998 increased 444
percent or $840,764 when compared to the first nine months of 1997. Two
components, the normal provision, calculated on the units of production method,
and the additional provision, relating to the ceiling limitation, make up total
amortization expense. Normal amortization expense decreased 15 percent or
$28,181 in the first nine months of 1998 when compared to the first nine months
of 1997, relating to the decrease in production volumes.
The Partnership recorded an additional provision in amortization for the
first nine months in 1998 of $868,945 when the present value, discounted at ten
percent, of estimated future net revenues from oil and gas properties, using the
guidelines of the Securities and Exchange Commission, was below the fair market
value originally paid for oil and gas properties resulting in a full cost
ceiling impairment.
During 1998, partnership revenues and costs will be shared between the
Interest Holders and general partners in an 85:15 ratio.
10
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SWIFT ENERGY PENSION PARTNERS 1994-B, 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 PENSION
PARTNERS 1994-B, LTD.
(Registrant)
By: SWIFT ENERGY COMPANY
Managing General Partner
Date: November 4, 1998 By: /s/ John R. Alden
---------------- ---------------------------------------
John R. Alden
Senior Vice President, Secretary
and Principal Financial Officer
Date: November 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
Pension Partners 1994-B, Ltd.'s balance sheet and statement of operations
contained in its Form 10-Q for the quarter ended September 30, 1998 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,851
<SECURITIES> 0
<RECEIVABLES> 54,272
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 56,123
<PP&E> 4,034,421
<DEPRECIATION> (2,687,332)
<TOTAL-ASSETS> 1,403,212
<CURRENT-LIABILITIES> 439,598
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 963,614
<TOTAL-LIABILITY-AND-EQUITY> 1,403,212
<SALES> 154,227
<TOTAL-REVENUES> 154,283
<CGS> 0
<TOTAL-COSTS> 1,030,045<F1>
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (915,165)
<INCOME-TAX> 0
<INCOME-CONTINUING> (915,165)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (915,165)
<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>
