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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 0-17707
Southwest Oil & Gas Income Fund VIII-A, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2220097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
407 N. Big Spring, Suite 300
Midland, Texas 79701
(Address of principal executive offices)
(432) 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 ___
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes No X
The registrant's outstanding securities consist of Units of limited
partnership interests for which there exists no established public market
from which to base a calculation of aggregate market value.
The total number of pages contained in this report is 22.
Glossary of Oil and Gas Terms
The following are abbreviations and definitions of terms commonly used in
the oil and gas industry that are used in this filing. All volumes of
natural gas referred to herein are stated at the legal pressure base to the
state or area where the reserves exit and at 60 degrees Fahrenheit and in
most instances are rounded to the nearest major multiple.
Bbl. One stock tank barrel, or 42 United States gallons liquid volume.
Developmental well. A well drilled within the proved area of an oil or
natural gas reservoir to the depth of a stratigraphic horizon known to be
productive.
Exploratory well. A well drilled to find and produce oil or gas in an
unproved area to find a new reservoir in a field previously found to be
productive of oil or natural gas in another reservoir or to extend a known
reservoir.
Farm-out arrangement. An agreement whereby the owner of the leasehold
or working interest agrees to assign his interest in certain specific
acreage to the assignee, retaining some interest, such as an overriding
royalty interest, subject to the drilling of one (1) or more wells or other
performance by the assignee.
Field. An area consisting of a single reservoir or multiple reservoirs
all grouped on or related to the same individual geological structural
feature and/or stratigraphic condition.
Mcf. One thousand cubic feet.
Oil. Crude oil, condensate and natural gas liquids.
Overriding royalty interest. Interests that are carved out of a
working interest, and their duration is limited by the term of the lease
under which they are created.
Present value and PV-10 Value. When used with respect to oil and
natural gas reserves, the estimated future net revenue to be generated from
the production of proved reserves, determined in all material respects in
accordance with the rules and regulations of the SEC (generally using
prices and costs in effect as of the date indicated) without giving effect
to non-property related expenses such as general and administrative
expenses, debt service and future income tax expenses or to depreciation,
depletion and amortization, discounted using an annual discount rate of
10%.
Production costs. Costs incurred to operate and maintain wells and
related equipment and facilities, including depreciation and applicable
operating costs of support equipment and facilities and other costs of
operating and maintaining those wells and related equipment and facilities.
Proved Area. The part of a property to which proved reserves have been
specifically attributed.
Proved developed oil and gas reserves. Proved developed oil and gas
reserves are reserves that can be expected to be recovered from existing
wells with existing equipment and operating methods.
Proved properties. Properties with proved reserves.
Proved reserves. The estimated quantities of crude oil, natural gas,
and natural gas liquids that geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known
reservoirs under existing economic and operating conditions.
Proved undeveloped reserves. Proved undeveloped oil and gas reserves
are reserves that are expected to be recovered from new wells on undrilled
acreage, or from existing wells where a relatively major expenditure is
required for recompletion.
Reservoir. A porous and permeable underground formation containing a
natural accumulation of producible oil or gas that is confined by
impermeable rock or water barriers and is individual and separate from
other reservoirs.
Royalty interest. An interest in an oil and natural gas property
entitling the owner to a share of oil or natural gas production free of
costs of production.
Working interest. The operating interest that gives the owner the
right to drill, produce and conduct operating activities on the property
and a share of production.
Workover. Operations on a producing well to restore or increase
production.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited condensed financial statements included herein have been
prepared by the Registrant (herein also referred to as the "Partnership")
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments necessary for a fair presentation have been included and are of
a normal recurring nature. The financial statements should be read in
conjunction with the audited financial statements and the notes thereto for
the year ended December 31, 2003, which are found in the Registrant's Form
10-K Report for 2003 filed with the Securities and Exchange Commission.
The December 31, 2003 balance sheet included herein has been taken from the
Registrant's 2003 Form 10-K Report. Operating results for the three month
period ended March 31, 2004 are not necessarily indicative of the results
that may be expected for the full year.
Southwest Oil & Gas Income Fund VIII-A, L.P.
Balance Sheets
March December
31, 31,
2004 2003
----- -----
(unaudit
ed)
Assets
- ---------
Current assets:
Cash and cash equivalents $ 108,534 111,117
Receivable from Managing 201,546 125,868
General Partner
-------- --------
---- ----
Total current assets 310,080 236,985
-------- --------
---- ----
Oil and gas properties -
using the full-
cost method of accounting 5,342,76 5,342,41
1 3
Less accumulated
depreciation,
depletion and 5,058,21 5,055,21
amortization 8 8
-------- --------
---- ----
Net oil and gas 284,543 287,195
properties
-------- --------
---- ----
$ 594,623 524,180
======= =======
Liabilities and Partners'
Equity
- ----------------------------
- ------------
Current liability - $ - 104
distribution payable
-------- --------
---- ----
Asset retirement obligation 258,920 253,843
-------- --------
---- ----
Partners' equity -
General partner 6,242 (605)
Limited partners 329,461 270,838
-------- --------
---- ----
Total partners' equity 335,703 270,233
-------- --------
---- ----
$ 594,623 524,180
======= =======
Southwest Oil & Gas Income Fund VIII-A, L.P.
Statements of Operations
(unaudited)
Three Months Ended
March 31,
2004 2003
----- -----
Revenues
- -------------
Oil and gas $ 409,155 428,568
Interest 236 157
Other 250 -
-------- --------
-- --
409,641 428,725
-------- --------
-- --
Expenses
- ------------
Production 132,630 169,566
General and administrative 28,465 26,117
Depreciation, depletion and 3,000 8,600
amortization
Accretion of asset retirement 5,076 7,004
obligation
-------- --------
-- --
169,171 211,287
-------- --------
-- --
Net income from continued 240,470 217,438
operations
Results from discontinued
operations -
sale of oil and gas leases - - 7,791
See Note 4
-------- --------
-- --
Net income before cumulative
effect
of accounting change 240,470 225,229
Cumulative effect of change in
accounting
principle - SFAS No. 143 - - (158,919
See Note 3 )
-------- --------
-- --
Net income $ 240,470 66,310
====== ======
Net income allocated to:
Managing General Partner $ 24,347 7,491
====== ======
Limited partners $ 216,123 58,819
====== ======
Per limited partner unit
before discontinued
operations and cumulative $ 15.90
effect 14.87
Discontinued operations per - .51
limited partner unit
Cumulative effect per -
limited partner unit (10.52)
-------- --------
-- --
Per limited partner unit $ 15.90
4.86
====== ======
Southwest Oil & Gas Income Fund VIII-A, L.P.
Statements of Cash Flows
(unaudited)
Three Months Ended
March 31,
2004 2003
----- -----
Cash flows from operating
activities:
Cash received from oil and gas $ 353,242 340,077
sales
Cash paid to suppliers (180,859 (190,262
) )
Cash received from discontinued - 7,791
operations
Interest received 236 157
Other 250 -
-------- --------
---- ----
Net cash provided by operating 172,869 157,763
activities
-------- --------
---- ----
Cash flows from investing
activities:
Sale of oil and gas properties - 2,590
Additions to oil and gas (348) -
properties
-------- --------
---- ----
Net cash (used in) provided by (348) 2,590
investing activities
-------- --------
---- ----
Cash flows used in financing
activities:
Distributions to partners (175,104 (95,105)
)
-------- --------
---- ----
Net (decrease) increase in cash (2,583) 65,248
and cash equivalents
Beginning of period 111,117 56,709
-------- --------
---- ----
End of period $ 108,534 121,957
======= =======
Reconciliation of net income to
net cash
provided by operating activities:
Net income $ 240,470 66,310
Adjustments to reconcile net
income to net
cash provided by operating
activities:
Depreciation, depletion and 3,000 8,600
amortization
Accretion of asset retirement 5,076 7,004
obligation
Cumulative effect of change in
accounting
principle - SFAS No. 143 - 158,919
Increase in receivables (55,913) (88,491)
(Decrease) increase in payables (19,764) 5,421
-------- --------
---- ----
Net cash provided by operating $ 172,869 157,763
activities
======= =======
Noncash investing and financing
activities:
Increase in oil and gas
properties - Adoption
of SFAS No.143 $ - 191,308
======= =======
Southwest Oil & Gas Income Fund VIII-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
1. Organization
Southwest Oil & Gas Income
Fund VIII-A, L.P. was
organized under the laws of
the state of Delaware on
November 30, 1987, for the
purpose of acquiring
producing oil and gas
properties and to produce
and market crude oil and
natural gas produced from
such properties for a term
of 50 years, unless
terminated at an earlier
date as provided for in the
Partnership Agreement. The
Partnership sells its oil
and gas production to a
variety of purchasers with
the prices it receives being
dependent upon the oil and
gas economy. Southwest
Royalties, Inc. serves as
the Managing General
Partner. Revenues, costs and
expenses are allocated as
follows:
Limited General
Partners Partners
-------- --------
Interest income on capital 100% -
contributions
Oil and gas sales 90% 10%
All other revenues 90% 10%
Organization and offering 100% -
costs (1)
Amortization of organization 100% -
costs
Syndication costs 100% -
Property acquisition costs 100% -
Gain/loss on property 90% 10%
disposition
Operating and administrative 90% 10%
costs (2)
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 March 31,
2004, and for the three
months ended March 31, 2004,
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 Partnership's Annual
Report on Form 10-K for the
year ended December 31,
2003.
Southwest Oil & Gas Income Fund VIII-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
3. Cumulative effect of change
in accounting principle - SFAS
No. 143
On January 1, 2003, the
Partnership adopted
Statement of Financial
Accounting Standards No.
143, Accounting for Asset
Retirement Obligations
("SFAS No. 143"). Adoption
of SFAS No. 143 is required
for all companies with
fiscal years beginning after
June 15, 2002. The new
standard requires the
Partnership to recognize a
liability for the present
value of all legal
obligations associated with
the retirement of tangible
long-lived assets and to
capitalize an equal amount
as a cost of the asset and
depreciate the additional
cost over the estimated
useful life of the asset.
On January 1, 2003, the
Partnership recorded
additional costs, net of
accumulated depreciation, of
approximately $191,308, a
long term liability of
approximately $350,227 and a
loss of approximately
$158,919 for the cumulative
effect on depreciation of
the additional costs and
accretion expense on the
liability related to
expected abandonment costs
of its oil and natural gas
producing properties. At
March 31, 2004, the asset
retirement obligation was
$258,920. The increase in
the balance from January 1,
2004 is due to accretion
expense of $5,076.
4. Discontinued Operations -
Sale of oil and gas leases
During the three months
ended June 30, 2003, the
Partnership sold its
interest in certain oil, gas
and salt water disposal
wells for $110,169 sales
proceeds and retired
$117,656 of asset retirement
obligation associated with
the properties. Since the
Partnership is under the
full cost pool method of
accounting, the sales
proceeds and asset
retirement obligation
liability were taken against
the oil and gas properties
asset account and therefore,
no gain or loss was recorded
and shown on the statement
of operations as part of the
discontinued operations.
Pursuant to the requirements
of SFAS No. 144, the
historical operating results
from these properties have
been reported as
discontinued operations in
the accompanying statements
of operations. The
following table summarizes
certain historical operating
information related to the
discontinued operations for
the three months ended March
31, 2003:
596:
2003
598:
$14,740
7,791
5. Subsequent Event
Subsequent to December 31,
2003, the Managing General
Partner announced that its
Board of Directors had
decided to explore a merger
or sale of the stock of the
Company. The Board formed a
Special Committee of
independent directors to
oversee the sale process.
The Special Committee
retained independent
financial and legal advisors
to work closely with
management to implement the
sale process.
On May 3, 2004, the Managing
General Partner entered into
a cash merger agreement to
sell all of its stock to
Clayton Williams Energy,
Inc. The cash merger price
is being negotiated, but is
expected to be approximately
$45 per share. The
transaction, which is
subject to approval by the
Managing General Partner's
shareholders, is expected to
close no later than May 21,
2004.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
General
Southwest Oil & Gas Income Fund
VIII-A, L.P. was organized as a
Delaware limited partnership on
November 30, 1987. The offering
of such limited partnership
interests began on March 31,
1988, minimum capital
requirements were met on July 6,
1988, and the offering concluded
on March 31, 1989, with total
limited partner contributions of
$6,798,000.
The Partnership was formed to
acquire interests in producing
oil and gas properties, to
produce and market crude oil and
natural gas produced from such
properties, and to distribute the
net proceeds from operations to
the limited and general partners.
Net revenues from producing oil
and gas properties are not
reinvested in other revenue
producing assets except to the
extent that production facilities
and wells are improved or
reworked or where methods are
employed to improve or enable
more efficient recovery of oil
and gas reserves. The economic
life of the Partnership thus
depends on the period over which
the Partnership's oil and gas
reserves are economically
recoverable.
Increases or decreases in
Partnership revenues and,
therefore, distributions to
partners will depend primarily on
changes in the prices received
for production, changes in
volumes of production sold,
increases and decreases in lease
operating expenses, enhanced
recovery projects, offset
drilling activities pursuant to
farm-out arrangements, sales of
properties, and the depletion of
wells. Since wells deplete over
time, production can generally be
expected to decline from year to
year.
Well operating costs and general
and administrative costs usually
decrease with production
declines; however, these costs
may not decrease proportionately.
Net income available for
distribution to the partners is
therefore expected to decline in
later years based on these
factors.
Based on current conditions,
management does not anticipate
performing development drilling
projects and workovers during the
year 2004 to enhance production.
The partnership will most likely
continue to experience the
historical production decline,
which has approximated 8% per
year. Accordingly, if commodity
prices remain unchanged, the
Partnership expects future
earnings to decline due to
anticipated production declines.
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 sold.
In 2002, the Partnership changed
methods of accounting for
depletion of capitalized costs
from the units-of-revenue method
to the units-of-production
method. The newly adopted
accounting principle is
preferable in the circumstances
because the units-of-production
method results in a better
matching of the costs of oil and
gas production against the
related revenue received in
periods of volatile prices for
production as have been
experienced in recent periods.
Additionally, the units-of-
production method is the
predominant method used by full
cost companies in the oil and gas
industry, accordingly, the change
improves the comparability of the
Partnership's financial
statements with its peer group.
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 March 31, 2004,
the net capitalized costs did not
exceed the estimated present
value of oil and gas reserves.
Critical Accounting Policies
Full cost ceiling calculations
The Partnership follows the full
cost method of accounting for its
oil and gas properties. The full
cost method subjects companies to
quarterly calculations of a
"ceiling", or limitation on the
amount of properties that can be
capitalized on the balance sheet.
If the Partnership's capitalized
costs are in excess of the
calculated ceiling, the excess
must be written off as an
expense.
The Partnership's discounted
present value of its proved oil
and natural gas reserves is a
major component of the ceiling
calculation, and represents the
component that requires the most
subjective judgments. Estimates
of reserves are forecasts based
on engineering data, projected
future rates of production and
the timing of future
expenditures. The process of
estimating oil and natural gas
reserves requires substantial
judgment, resulting in imprecise
determinations, particularly for
new discoveries. Different
reserve engineers may make
different estimates of reserve
quantities based on the same
data. The Partnership's reserve
estimates are prepared by outside
consultants. Quarterly reserve
estimates are prepared by the
Managing General Partner's
internal staff of engineers.
The passage of time provides more
qualitative information regarding
estimates of reserves, and
revisions are made to prior
estimates to reflect updated
information. However, there can
be no assurance that more
significant revisions will not be
necessary in the future. If
future significant revisions are
necessary that reduce previously
estimated reserve quantities, it
could result in a full cost
property writedown. In addition
to the impact of these estimates
of proved reserves on calculation
of the ceiling, estimates of
proved reserves are also a
significant component of the
calculation of DD&A.
While the quantities of proved
reserves require substantial
judgment, the associated prices
of oil and natural gas reserves
that are included in the
discounted present value of the
reserves do not require judgment.
The ceiling calculation dictates
that prices and costs in effect
as of the last day of the period
are generally held constant
indefinitely. Because the ceiling
calculation dictates that prices
in effect as of the last day of
the applicable quarter are held
constant indefinitely, the
resulting value is not indicative
of the true fair value of the
reserves. Oil and natural gas
prices have historically been
cyclical and, on any particular
day at the end of a quarter, can
be either substantially higher or
lower than the Partnership's long-
term price forecast that is a
barometer for true fair value.
In 2002, the Partnership changed
methods of accounting for
depletion of capitalized costs
from the units-of-revenue method
to the units-of-production
method. The newly adopted
accounting principle is
preferable in the circumstances
because the units-of-production
method results in a better
matching of the costs of oil and
gas production against the
related revenue received in
periods of volatile prices for
production as have been
experienced in recent periods.
Additionally, the units-of-
production method is the
predominant method used by full
cost companies in the oil and gas
industry, accordingly, the change
improves the comparability of the
Partnership's financial
statements with its peer group.
Results of Operations
A. General Comparison of the
Quarters Ended March 31, 2004
and 2003
The following table provides
certain information regarding
performance factors for the
quarters ended March 31, 2004 and
2003:
Three Months
Ended Percenta
ge
March 31, Increase
2004 2003 (Decreas
e)
----- ----- --------
----
Average price per barrel of $ 35.37 13%
oil 31.77
Average price per mcf of gas $ 5.51 (8%)
6.20
Oil production in barrels 9,720 11,170 (11%)
Gas production in mcf 11,870 11,880 (1%)
Oil and gas revenue $ 409,155 428,568 (1%)
Production costs $ 132,630 169,566 (21%)
Partnership distributions $ 175,000 95,000 84%
Limited partner $ 157,500 85,500 84%
distributions
Per unit distribution to $ 11.58 84%
limited partners 6.29
Number of limited partner 13,596 13,596
units
Revenues
The Partnership's oil and gas
revenues decreased to $409,155
from $428,568 for the quarters
ended March 31, 2004 and 2003,
respectively, a decrease of 5%.
The principal factors affecting
the comparison of the quarters
ended March 31, 2004 and 2003 are
as follows:
1. The average price for a
barrel of oil received by the
Partnership increased during
the quarter ended March 31,
2004 as compared to the
quarter ended March 31, 2003
by 11%, or $3.60 per barrel,
resulting in an increase of
approximately $35,000 in
revenues. Oil sales
represented 84% of total oil
and gas sales during the
quarter ended March 31, 2004
as compared to 83% during the
quarter ended March 31, 2003.
The average price for an mcf
of gas received by the
Partnership decreased during
the same period by 11%, or
$.69 per mcf, resulting in a
decrease of approximately
$8,200 in revenues.
The net total increase in
revenues due to the change in
prices received from oil and
gas production is
approximately $26,800. 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.
2. Oil production decreased
approximately 1,450 barrels
or 13% during the quarter
ended March 31, 2004 as
compared to the quarter ended
March 31, 2003, resulting in
a decrease of approximately
$46,100 in revenues.
Gas production decreased
approximately 10 mcf or less
than 1% during the same
period, resulting in a
decrease of approximately
$100 in revenues.
The total decrease in
revenues due to the change in
production is approximately
$46,200. The decline in oil
volumes is the result of a
rapid decline on one
property.
Costs and Expenses
Total costs and expenses
decreased to $169,171 from
$211,287 for the quarters ended
March 31, 2004 and 2003,
respectively, a decrease of 20%.
The decrease is a direct result
of the decrease in accretion
expense associated with our long-
term liability related to
expected abandonment costs of our
oil and gas properties, lease
operating cost and depletion
expense, partially offset by an
increase in general and
administrative expense.
1. Lease operating costs and
production taxes were 22%
lower, or approximately
$36,900 less during the
quarter ended March 31, 2004
as compared to the quarter
ended March 31, 2003. The
higher lease operating costs
in 2003 relate to repairs on
a salt water disposal well
and higher outside salt water
disposal costs on another
property.
2. General and administrative
costs consist of independent
accounting and engineering
fees, computer services,
postage, and Managing General
Partner personnel costs.
General and administrative
costs increased 9% or
approximately $2,300 during
the quarter ended March 31,
2004 as compared to the
quarter ended March 31, 2003.
The increase in general and
administrative costs is due
primarily to an increase of
approximately $1,660 in
quarterly accounting review
fees.
3. Depletion expense decreased
to $3,000 for the quarter
ended March 31, 2004 from
$8,600 for the same period in
2003. This represents a
decrease of 65%. The
contributing factor to the
decrease in depletion expense
is in relation to the BOE
depletion rate for the
quarter ended March 31, 2004,
which was $.26 applied to
11,698 BOE as compared to
$.65 applied to 13,150 BOE
for the same period in 2003.
Cumulative effect of change in
accounting principle
On January 1, 2003, the
Partnership adopted Statement of
Financial Accounting Standards
No. 143, Accounting for Asset
Retirement Obligations ("SFAS No.
143"). Adoption of SFAS No. 143
is required for all companies
with fiscal years beginning after
June 15, 2002. The new standard
requires the Partnership to
recognize a liability for the
present value of all legal
obligations associated with the
retirement of tangible long-lived
assets and to capitalize an equal
amount as a cost of the asset and
depreciate the additional cost
over the estimated useful life of
the asset. On January 1, 2003,
the Partnership recorded
additional costs, net of
accumulated depreciation, of
approximately $191,308, a long
term liability of approximately
$350,227 and a loss of
approximately $158,919 for the
cumulative effect on depreciation
of the additional costs and
accretion expense on the
liability related to expected
abandonment costs of its oil and
natural gas producing properties.
At March 31, 2004, the asset
retirement obligation was
$258,920. The increase in the
balance from January 1, 2004 is
due to accretion expense of
$5,076.
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
$172,900 in the quarter ended
March 31, 2004 as compared to
approximately $157,800 in the
quarter ended March 31, 2003.
Cash flows (used in) provided by
investing activities were $(300)
in the quarter ended March 31,
2004 as compared to $2,600 in the
quarter ended March 31, 2003.
The principle use of the 2004
cash flow from investing
activities was the additions of
oil and gas properties.
Cash flows used in financing
activities were approximately
$175,100 in the quarter ended
March 31, 2004 as compared to
approximately $95,100 in the
quarter ended March 31, 2003.
The only use in financing
activities was the distributions
to partners.
Total distributions during the
quarter ended March 31, 2004 were
$175,000 of which $157,500 was
distributed to the limited
partners and $17,500 to the
general partners. The per unit
distribution to limited partners
during the quarter ended March
31, 2004 was $11.58. Total
distributions during the quarter
ended March 31, 2003 were $95,000
of which $85,500 was distributed
to the limited partners and
$9,500 to the general partner.
The per unit distribution to
limited partners during the
quarter ended March 31, 2003 was
$6.29.
The sources for the 2004
distributions of $175,000 were
oil and gas operations of
approximately $172,900 and the
change in oil and gas properties
of approximately $(300), with the
balance from available cash on
hand at the beginning of the
period. The sources for the 2003
distributions of $95,000 were oil
and gas operations of
approximately $157,800 and the
change in oil and gas properties
of approximately $2,600,
resulting in excess cash for
contingencies or subsequent
distributions.
Cumulative cash distributions of
$9,414,627 have been made to the
general and limited partners. As
of March 31, 2004, $8,521,406 or
$626.76 per limited partner unit
has been distributed to the
limited partners, representing a
100% return of the capital and
25% return on capital
contributed.
As of March 31, 2004, the
Partnership had approximately
$310,080 in working capital. The
Managing General Partner knows of
no unusual contractual
commitments. Although the
partnership held many long-lived
properties at inception, because
of the restrictions on property
development imposed by the
partnership agreement, the
Partnership cannot develop its
non-producing properties, if any.
Without continued development,
the producing reserves continue
to deplete. Accordingly, as the
Partnership's properties have
matured and depleted, the net
cash flows from operations for
the partnership has steadily
declined, except in periods of
substantially increased commodity
pricing. Maintenance of
properties and administrative
expenses for the Partnership are
increasing relative to
production. As the properties
continue to deplete, maintenance
of properties and administrative
costs as a percentage of
production are expected to
continue to increase.
Liquidity - Managing General
Partner
As of December 31, 2003, the
Managing General Partner is in
violation of several covenants
pertaining to their Amended and
Restated Revolving Credit
Agreement due June 1, 2006 and
their Senior Second Lien Secured
Credit Agreement due October 15,
2008. Due to the covenant
violations, the Managing General
Partner is in default under their
Amended and Restated Revolving
Credit Agreement and the Senior
Second Lien Secured Credit
Agreement, and all amounts due
under these agreements have been
classified as a current liability
on the Managing General Partner's
balance sheet at December 31,
2003. The significant working
capital deficit and debt being in
default at December 31, 2003,
raise substantial doubt about the
Managing General Partner's
ability to continue as a going
concern.
Subsequent to December 31, 2003,
the Board of Directors of the
Managing General Partner
announced its decision to explore
a merger, sale of the stock or
other transaction involving the
Managing General Partner. The
Board has formed a Special
Committee of independent
directors to oversee the sales
process. The Special Committee
has retained independent
financial and legal advisors to
work closely with the management
of the Managing General Partner
to implement the sales process.
There can be no assurance that a
sale of the Managing General
Partner will be consummated or
what terms, if consummated, the
sale will be on.
On May 3, 2004, the Managing
General Partner entered into a
cash merger agreement to sell all
of its stock to Clayton Williams
Energy, Inc. The cash merger
price is being negotiated, but is
expected to be approximately $45
per share. The transaction,
which is subject to approval by
the Managing General Partner's
shareholders, is expected to
close no later than May 21, 2004.
Recent Accounting Pronouncements
The EITF is considering two
issues related to the reporting
of oil and gas mineral rights.
Issue No. 03-O, "Whether Mineral
Rights Are Tangible or Intangible
Assets," is whether or not
mineral rights are intangible
assets pursuant to SFAS No. 141,
"Business Combinations." Issue
No. 03-S, "Application of SFAS
No. 142, Goodwill and Other
Intangible Assets, to Oil and Gas
Companies," is, if oil and gas
drilling rights are intangible
assets, whether those assets are
subject to the classification and
disclosure provisions of SFAS No.
142. The Partnership classifies
the cost of oil and gas mineral
rights as properties and
equipment and believes that this
is consistent with oil and gas
accounting and industry practice.
The disclosures required by SFAS
Nos. 141 and 142 would be made in
the notes to the financial
statements. There would be no
effect on the statement of income
or cash flows as the intangible
assets related to oil and gas
mineral rights would continue to
be amortized under the full cost
method of accounting.
Item 3. Quantitative and
Qualitative Disclosures About
Market Risk
The Partnership is not a party to
any derivative or embedded
derivative instruments.
Item 4. Controls and Procedures
Disclosure Controls and
Procedures
As of the three months ended
March 31, 2004, H.H. Wommack,
III, President and Chief
Executive Officer of the Managing
General Partner, and Bill E.
Coggin, Executive Vice President
and Chief Financial Officer of
the Managing General Partner,
evaluated the effectiveness of
the Partnership's disclosure
controls and procedures. Based
on their evaluation, they believe
that:
The disclosure controls and
procedures of the
Partnership were effective
in ensuring that information
required to be disclosed by
the Partnership in the
reports it files or submits
under the Exchange Act was
recorded, processed,
summarized and reported
within the time periods
specified in the SEC's rules
and forms; and
The disclosure controls and
procedures of the
Partnership were effective
in ensuring that material
information required to be
disclosed by the Partnership
in the report it filed or
submitted under the Exchange
Act was accumulated and
communicated to the Managing
General Partner's
management, including its
President and Chief
Executive Officer and Chief
Financial Officer, as
appropriate to allow timely
decisions regarding required
disclosure.
Internal Control Over Financial
Reporting
There has not been any change in
the Partnership's internal
control over financial reporting
that occurred during the three
months ended March 31, 2004 that
has materially affected, or is
reasonably likely to materially
affect, it internal control over
financial reporting.
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:
31.1Rule 13a-
14(a)/15d-14(a) Certification
31.2Rule 13a-
14(a)/15d-14(a) Certification
32.1Certification
of Chief Executive Officer
Pursuant to 18 U.S.C. Section
1350, as
adopted
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2Certification
of Chief Financial Officer
Pursuant to 18 U.S.C. Section
1350, as
adopted
Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on
Form 8-K:
No reports
on Form 8-K were
filed during the
quarter for which
this report is
filed.
SIGNATURES
Pursuant to the requirements of
the Securities Exchange Act of
1934, the registrant has duly
caused this report to be signed
on its behalf by the undersigned
thereunto duly authorized.
SOUTHWEST OIL & GAS
INCOME FUND VIII-A, L.P.
a
Delaware limited partnership
By:
Southwest Royalties, Inc.
Managing General Partner
By:
/s/ Bill E. Coggin
---
---------------------------------
--
Bill E. Coggin, Vice President
and
Chief Financial Officer
Date: May 14, 2004
SECTI
ON
302
CERTI
FICAT
ION Exhibit 31.1
I, H.H. Wommack, III, certify
that:
1. I have reviewed this
quarterly report on Form 10-Q of
Southwest Oil and Gas Income Fund
VIII-A, L.P.
2. Based on my knowledge, this
report does not contain any
untrue statement of a material
fact or omit to state a material
fact necessary to make the
statements made, in light of the
circumstances under which such
statements were made, not
misleading with respect to the
period covered by this report;
3. Based on my knowledge, the
financial statements, and other
financial information included in
this report, fairly present in
all material respects the
financial condition, results of
operations and cash flows of the
registrant as of, and for, the
periods presented in this report;
4. The registrant's other
certifying officer(s) and I are
responsible for establishing and
maintaining disclosure controls
and procedures (as defined in
Exchange Act Rules 13a-15(e) and
15-15(e)) and internal control
over financial reporting (as
defined in Exchange Act Rules 13a-
15(f) and 15d-15(f) for the
registrant and have:
a) Designed such disclosure
controls and procedures, or
caused such disclosure controls
and procedures to be designed
under our supervision, to ensure
that material information
relating to the registrant,
including its consolidated
subsidiaries, is made known to us
by others within those entities,
particularly during the period in
which this report is being
prepared;
b) Designed such internal
control over financial reporting,
or caused such internal control
over financial reporting to be
designed under our supervision,
to provide reasonable assurance
regarding the reliability of
financial reporting and the
preparation of financial
statements for external purposes
in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness
of the registrant's disclosure
controls and procedures and
presented in this report our
conclusions about the
effectiveness of the disclosure
controls and procedures, as of
the end of the period covered by
this report based on such
evaluation; and
d) Disclosed in this report any
change in the registrant's
internal control over financial
reporting that occurred during
the registrant's most recent
fiscal quarter (the registrant's
fourth fiscal quarter in the case
of an annual report) that has
materially affected, or is
reasonably likely to materially
affect, the registrant's internal
control over financial reporting;
and
5. The registrant's other
certifying officer(s) and I have
disclosed, based on our most
recent evaluation of internal
control over financial reporting,
to the registrant's auditors and
the audit committee of
registrant's board of directors
(or persons performing the
equivalent functions):
a) All significant deficiencies
and material weaknesses in the
design or operation of internal
controls over financial reporting
which reasonably likely to
adversely affect the registrant's
ability to record, process,
summarize and report financial
information; and
b) Any fraud, whether or not
material, that involves
management or other employees who
have a significant role in the
registrant's internal controls
over financial reporting.
Date: May 14, 2004 /s/ H. H. Wommack,
III
H. H. Wommack, III
Chairman, President
and Chief Executive Officer
of Southwest
Royalties, Inc., the
Managing General
Partner of
Southwest Oil & Gas
Income Fund VIII-A, L.P.
SECTION 302 CERTIFICATION Exhibit 31.2
I, Bill E. Coggin, certify that:
1. I have reviewed this
quarterly report on Form 10-Q of
Southwest Oil and Gas Income Fund
VIII-A, L.P.
2. Based on my knowledge, this
report does not contain any
untrue statement of a material
fact or omit to state a material
fact necessary to make the
statements made, in light of the
circumstances under which such
statements were made, not
misleading with respect to the
period covered by this report;
3. Based on my knowledge, the
financial statements, and other
financial information included in
this report, fairly present in
all material respects the
financial condition, results of
operations and cash flows of the
registrant as of, and for, the
periods presented in this report;
4. The registrant's other
certifying officer(s) and I are
responsible for establishing and
maintaining disclosure controls
and procedures (as defined in
Exchange Act Rules 13a-15(e) and
15-15(e)) and internal control
over financial reporting (as
defined in Exchange Act Rules 13a-
15(f) and 15d-15(f) for the
registrant and have:
a) Designed such disclosure
controls and procedures, or
caused such disclosure controls
and procedures to be designed
under our supervision, to ensure
that material information
relating to the registrant,
including its consolidated
subsidiaries, is made known to us
by others within those entities,
particularly during the period in
which this report is being
prepared;
b) Designed such internal
control over financial reporting,
or caused such internal control
over financial reporting to be
designed under our supervision,
to provide reasonable assurance
regarding the reliability of
financial reporting and the
preparation of financial
statements for external purposes
in accordance with generally
accepted accounting principles;
c) Evaluated the effectiveness
of the registrant's disclosure
controls and procedures and
presented in this report our
conclusions about the
effectiveness of the disclosure
controls and procedures, as of
the end of the period covered by
this report based on such
evaluation; and
d) Disclosed in this report any
change in the registrant's
internal control over financial
reporting that occurred during
the registrant's most recent
fiscal quarter (the registrant's
fourth fiscal quarter in the case
of an annual report) that has
materially affected, or is
reasonably likely to materially
affect, the registrant's internal
control over financial reporting;
and
5. The registrant's other
certifying officer(s) and I have
disclosed, based on our most
recent evaluation of internal
control over financial reporting,
to the registrant's auditors and
the audit committee of
registrant's board of directors
(or persons performing the
equivalent functions):
a) All significant deficiencies
and material weaknesses in the
design or operation of internal
controls over financial reporting
which reasonably likely to
adversely affect the registrant's
ability to record, process,
summarize and report financial
information; and
b) Any fraud, whether or not
material, that involves
management or other employees who
have a significant role in the
registrant's internal controls
over financial reporting.
Date: May 14, 2004 /s/ Bill E. Coggin
Bill E. Coggin
Executive Vice
President
and Chief Financial
Officer of
Southwest Royalties,
Inc., the
Managing General
Partner of
Southwest Oil & Gas
Income Fund VIII-A, L.P.
CERTIFIC
ATION
PURSUANT
TO
Exhibit
32.1
19 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the
Quarterly Report of Southwest Oil
& Gas Income Fund VIII-A, L.P.
(the "Company") on Form 10-Q for
the period ending March 31, 2004
as filed with the Securities and
Exchange Commission on the date
hereof (the "Report"), I, H.H.
Wommack, III, Chief Executive
Officer of the Managing General
Partner of the Company, certify,
pursuant to 18 U.S.C. 1350, as
adopted pursuant to 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies
with the requirements of section
13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in
the Report fairly presents, in
all material respects, the
financial condition and results
of operation of the Company.
Date: May 14, 2004
/s/ H.H. Wommack, III
H. H. Wommack, III
Chairman, President, Director and
Chief Executive Officer
of Southwest Royalties, Inc.,
the
Managing General Partner of
Southwest Oil & Gas Income
Fund VIII-A, L.P.
CERTIFIC
ATION
PURSUANT
TO
Exhibit
32.2
19 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
In connection with the
Quarterly Report of Southwest Oil
& Gas Income Fund VIII-A, L.P.
(the "Company") on Form 10-Q for
the period ending March 31, 2004
as filed with the Securities and
Exchange Commission on the date
hereof (the "Report"), I, Bill E.
Coggin, Chief Financial Officer
of the Managing General Partner
of the Company, certify, pursuant
to 18 U.S.C. 1350, as adopted
pursuant to 906 of the Sarbanes-
Oxley Act of 2002, that:
(1) The Report fully complies
with the requirements of section
13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in
the Report fairly presents, in
all material respects, the
financial condition and results
of operation of the Company.
Date: May 14, 2004
/s/ Bill E. Coggin
Bill E. Coggin
Executive Vice President
and Chief Financial Officer of
Southwest Royalties, Inc., the
Managing General Partner of
Southwest Oil & Gas Income
Fund VIII-A, L.P.