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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 June 30, 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 0-19585
SOUTHWEST OIL & GAS 1990-91 INCOME PROGRAM
Southwest Oil & Gas Income Fund X-B, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2332176
(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 24.
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 and
six month periods ended June 30, 2004 are not necessarily indicative of the
results that may be expected for the full year.
Southwest Oil & Gas Income Fund X-B, L.P.
Balance Sheets
June 30, December
31,
2004 2003
----- -----
(unaudit
ed)
Assets
- ---------
Current assets:
Cash and cash equivalents $ 26,124 20,125
Receivable from Managing 83,573 119,445
General Partner
-------- --------
---- ----
Total current assets 109,697 139,570
-------- --------
---- ----
Oil and gas properties -
using the full-
cost method of accounting 4,144,97 4,137,21
6 7
Less accumulated
depreciation,
depletion and 3,760,94 3,744,94
amortization 8 8
-------- --------
---- ----
Net oil and gas 384,028 392,269
properties
-------- --------
---- ----
$ 493,725 531,839
======= =======
Liabilities and Partners'
Equity
- ----------------------------
- ------------
Current liability - $ 572 584
distribution payable
-------- --------
---- ----
Asset retirement obligation 141,945 136,486
-------- --------
---- ----
Partners' equity:
General partner 17,658 13,864
Limited partners 333,550 380,905
-------- --------
---- ----
Total partners' equity 351,208 394,769
-------- --------
---- ----
$ 493,725 531,839
======= =======
Southwest Oil & Gas Income Fund X-B, L.P.
Statements of Operations
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
----- ----- ----- -----
Revenues
- ------------
Oil and gas $ 184,419 150,257 343,800 315,817
Interest 74 25 174 64
Other 250 - 500 120
-------- -------- -------- --------
-- -- -- --
184,743 150,282 344,474 316,001
-------- -------- -------- --------
-- -- -- --
Expenses
- ------------
Production 77,598 138,458 163,213 220,106
General and administrative 23,823 26,995 45,539 46,435
Depreciation, depletion and 8,000 9,000 16,000 16,000
Accretion of asset retirement 2,730 15,034 5,459 30,068
obligation
-------- -------- -------- --------
-- -- -- --
112,151 189,487 230,211 312,609
-------- -------- -------- --------
-- -- -- --
Net income (loss) from 72,592 (39,205) 114,263 3,392
continued operations
Results from discontinued
operations -
Sale of oil and gas leases - 963 (3,518) (27,318) (10,751)
See Note 4
-------- -------- -------- --------
-- -- -- --
Net income (loss) before
cumulative effects
of accounting change 73,555 (42,723) 86,945 (7,359)
Cumulative effect of change in
accounting
principle - SFAS No. 143 - - - - (577,292
See Note 3 )
-------- -------- -------- --------
-- -- -- --
Net income (loss) $ 73,555 (42,723) 86,945 (584,651
)
====== ====== ====== ======
Net income (loss) allocated
to:
Managing General Partner $ 7,340 (2,495) 9,265 (50,189)
====== ====== ====== ======
General Partner $ 815 (277) 1,029 (5,576)
====== ====== ====== ======
Limited partners $ 65,400 (39,951) 76,651 (528,886
)
====== ====== ====== ======
Per limited partner unit $
before discontinued
operations and cumulative 5.93 (3.32) 9.30 .13
effect
Discontinued operations per .08 (.35) (.99)
limited partner unit (2.26)
Cumulative effect per - - -
limited partner unit (47.71)
-------- -------- -------- --------
-- -- -- --
Per limited partner unit $ 6.01 (3.67) 7.04 (48.57)
====== ====== ====== ======
Southwest Oil & Gas Income Fund X-B, L.P.
Statements of Cash Flows
(unaudited)
Six Months Ended
June 30,
2004 2003
----- -----
Cash flows from operating
activities:
Cash from oil and gas sales $ 332,143 288,169
Cash paid to suppliers (160,723 (220,787
) )
Cash received from discontinued (27,318) 249
operations
Interest received 174 64
-------- --------
-- --
Net cash provided by operating 144,276 67,695
activities
-------- --------
-- --
Cash flows used in investing
activities:
Additions to oil and gas (7,759) (31,190)
properties
-------- --------
-- --
Cash flows used in financing
activities:
Distributions to partners (130,518 (35,099)
)
-------- --------
-- --
Net increase in cash and cash 5,999 1,406
equivalents
Beginning of period 20,125 15,247
-------- --------
-- --
End of period $ 26,124 16,653
====== ======
Reconciliation of net income
(loss) to net
cash provided by operating
activities:
Net income (loss) $ 86,945 (584,651
)
Adjustments to reconcile net
income (loss) to
net cash provided by operating
activities:
Depreciation, depletion and 16,000 16,000
amortization
Accretion of asset retirement 5,459 30,068
obligation
Cumulative effect of change in
accounting
principle - SFAS No. 143 - 577,292
Increase in receivables (12,157) (27,768)
Increase in payables 48,029 56,754
-------- --------
-- --
Net cash provided by operating $ 144,276 67,695
activities
====== ======
Noncash investing and financing
activities:
Increase in oil and gas
properties - Adoption
of SFAS No. 143 $ - 174,419
====== ======
Southwest Oil & Gas Income Fund X-B, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
1. Organization
Southwest Oil & Gas Income Fund X-B, L.P. was organized under the laws
of the state of Delaware on November 27, 1990 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. a wholly-owned subsidiary of Clayton Williams Energy, Inc.,
serves as the Managing General Partner and H. H. Wommack, III, as the
individual general partner. Effective April 1, 2004, Mr. Wommack sold
his general partner interest to the Managing General Partner.
Revenues, costs and expenses are allocated as follows:
Limited General
Partners Partners
-------- --------
Interest income on 100% -
capital contributions
Oil and gas sales 90% 10%
All other revenues 90% 10%
Organization and 100% -
offering costs (1)
Amortization or 100% -
organization costs
Property acquisition 100% -
costs
Gain/loss on property 90% 10%
disposition
Operating and 90% 10%
administrative costs
(2)
Depreciation,
depletion, and
amortization
of oil and gas 100% -
properties
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 June 30, 2004, and for the
three and six months ended June 30, 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.
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 $174,419, a long term liability of
approximately $751,711 and a loss of approximately $577,292 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 June 30,
2004, the asset retirement obligation was $141,945, and the increase
in the balance from January 1, 2004 is due to accretion expense of
$5,459.
Southwest Oil & Gas Income Fund X-B, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
4. Discontinued Operations - Sale of oil leases
During 2003, the Partnership sold its interest in certain oil wells
for $239,402 sales proceeds and retired $605,481 of asset retirement
obligation associated with the properties. The Partnership recognized
a gain of $784,359 on the sale during the fourth quarter of 2003.
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. Operating
expenses for 2004 represent plugging and abandonment costs that the
Partnership was contractually committed to perform subsequent to the
sale of the property. Plugging and abandonment services were
performed during the quarter ended March 31, 2004. The following
table summarizes certain operating information related to the
discontinued operations:
Three months ended Six months ended
June 30, June 30,
2004 2003 2004 2003
Revenues $ - 102,772 - 199,157
Income (loss) from
discontinued 963 (3,518) (27,318) (10,751)
operations
5. Change in Control of Managing General Partner
On May 21, 2004, Clayton Williams Energy, Inc. acquired all the
outstanding common stock of Southwest Royalties Inc. through a merger.
Clayton Williams Energy, Inc. paid $57.1 million to holders of
Southwest Royalties, Inc. common stock and common stock warrants
($45.01 per share) and assumed and refinanced approximately
$113.9 million of assumed bank debt at closing.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Oil & Gas Income Fund X-B, L.P. was organized as a Delaware
limited partnership on November 27, 1990. The offering of such limited
partnership interests began on December 1, 1990 as part of a shelf offering
registered under the name Southwest Oil & Gas 1990-91 Income Program.
Minimum capital requirements for the Partnership were met on March 1, 1991,
with the offering of limited partnership interests concluding on September
30, 1991, with total limited partner contributions of $5,444,500.
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 will not be 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, lease
operating expenses, enhanced recovery projects, offset drilling activities
pursuant to farm-out arrangements, sales of properties, and the depletion
of wells. Since wells deplete over time, production can generally be
expected to decline from year to year.
Well operating costs and general and administrative costs usually decrease
with production declines; however, these costs may not decrease
proportionately. Net income available for distribution to the partners is
therefore expected to fluctuate in later years based on these factors.
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.
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 June 30, 2004, the net capitalized costs did not
exceed the estimated present value of oil and gas reserves.
Critical Accounting Policies
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.
Results of Operations
A. General Comparison of the Quarters Ended June 30, 2004 and 2003
The following table provides certain information regarding performance
factors for the quarters ended June 30, 2004 and 2003:
Three Months
Ended Percenta
ge
June 30, Increase
2004 2003 (Decreas
e)
---- ---- --------
--
Average price per $ 38.34 33%
barrel of oil 28.87
Average price per mcf $ 5.52 11%
of gas 4.99
Oil production in 3,060 3,426 (11%)
barrels
Gas production in mcf 12,150 10,300 18%
Oil and gas revenue $ 184,419 150,257 23%
Production expense $ 77,598 138,458 (44%)
Partnership $ 65,000 - 100%
distributions
Limited partner $ 58,500 - 100%
distributions
Per unit distribution
to limited
partners $ 5.37 - 100%
Number of limited 10,889 10,889
partner units
Revenues
The Partnership's oil and gas revenues increased to $184,419 from $150,257
for the quarters ended June 30, 2004 and 2003, respectively, an increase of
23%. The principal factors affecting the comparison of the quarters ended
June 30, 2004 and 2003 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the quarter ended June 30, 2004 as compared to the
quarter ended June 30, 2003 by 33%, or $9.47 per barrel, resulting in
an increase of approximately $29,000 in revenues. Oil sales
represented 64% of total oil and gas sales during the quarter ended
June 30, 2004 as compared to 66% during the quarter ended June 30,
2003.
The average price for an mcf of gas received by the Partnership
increased during the same period by 11%, or $.54 per mcf, resulting in
an increase of approximately $6,500 in revenues.
The total increase in revenues due to the change in prices received
from oil and gas production is approximately $35,500. 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 366 barrels or 11% during the
quarter ended June 30, 2004 as compared to the quarter ended June 30,
2003, resulting in a decrease of approximately $10,600 in revenues.
Gas production increased approximately 1,850 mcf or 18% during the same
period, resulting in an increase of approximately $9,200 in revenues.
The net total decrease in revenues due to the change in production is
approximately $1,400. The decrease in oil volumes is due to the sharp
decline on one producing property. The increase in gas volumes is due
to the reactivation of a gas well.
Costs and Expenses
Total costs and expenses decreased to $112,151 from $189,487 for the
quarters ended June 30, 2004 and 2003, respectively, a decrease of 41%.
The decrease is a result of lower accretion expense, general and
administrative expense, depletion expense and lease operating costs.
1. Lease operating costs and production taxes were 44% lower, or
approximately $60,900 less during the quarter ended June 30, 2004 as
compared to the quarter ended June 30, 2003. Lease operating costs in
2003 included well workover costs on two wells.
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 decreased
12% or approximately $3,200 during the quarter ended June 30, 2004 as
compared to the quarter ended June 30, 2003. The higher general and
administrative expense in 2003 is due to legal fees associated with the
amendments to the Partnership's December 31, 2002 Annual Report on Form
10-K and March 31, 2003 Quarterly Report on Form 10-Q.
3. Depletion expense decreased to $8,000 for the quarter ended June 30,
2004 from $9,000 for the same period in 2003. This represents a
decrease of 11%. The contributing factor to the decrease in depletion
expense is in relation to the BOE depletion rate for the quarter ended
June 30, 2004, which was $1.57 applied to 5,085 BOE as compared to
$1.63 applied to 5,586 BOE for the same period in 2003.
4. Accretion expense decreased to $2,730 for the quarter ended June 30,
2004 from $15,034 for the same period in 2003. This represents a
decrease of 82%. The reduction in accretion is due to the sale of one
producing property in 2003.
B. General Comparison of the Six Month Periods Ended June 30, 2004 and 2003
The following table provides certain information regarding performance
factors for the six month periods ended June 30, 2004 and 2003:
Six Months
Ended Percenta
ge
June 30, Increase
2004 2003 (Decreas
e)
---- ---- --------
--
Average price per $ 35.54 11%
barrel of oil 31.90
Average price per mcf $ 5.32 1%
of gas 5.24
Oil production in 6,330 6,498 (3%)
barrels
Gas production in mcf 22,350 20,700 8%
Oil and gas revenue $ 343,800 315,817 9%
Production expense $ 163,213 220,106 (26%)
Partnership $ 130,506 35,000 273%
distributions
Limited partner $ 124,006 31,500 294%
distributions
Per unit distribution
to limited
partners $ 11.39 294%
2.89
Number of limited 10,889 10,889
partner units
Revenues
The Partnership's oil and gas revenues increased to $343,800 from $315,817
for the six months ended June 30, 2004 and 2003, respectively, an increase
of 9%. The principal factors affecting the comparison of the six months
ended June 30, 2004 and 2003 are as follows:
1. The average price for a barrel of oil received by the Partnership
increased during the six months ended June 30, 2004 as compared to the
six months ended June 30, 2003 by 11%, or $3.64 per barrel, resulting
in an increase of approximately $23,000 in revenues. Oil sales
represented 65% of total oil and gas sales during the six months ended
June 30, 2004 as compared to 66% during the six months ended June 30,
2003.
The average price for an mcf of gas received by the Partnership
increased during the same period by 1%, or $.07 per mcf, resulting in
an increase of approximately $1,700 in revenues.
The total increase in revenues due to the change in prices received
from oil and gas production is approximately $24,700. 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 168 barrels or 3% during the six
months ended June 30, 2004 as compared to the six months ended June 30,
2003, resulting in a decrease of approximately $5,400 in revenues.
Gas production increased approximately 1,650 mcf or 8% during the same
period, resulting in an increase of approximately $8,700 in revenues.
The net total increase in revenues due to the change in production is
approximately $3,300.
Costs and Expenses
Total costs and expenses decreased to $230,211 from $312,609 for the six
months ended June 30, 2004 and 2003, respectively, a decrease of 26%. The
decrease is a result of lower accretion expense, general and administrative
expense and lease operating costs.
1. Lease operating costs and production taxes were 26% lower, or
approximately $56,900 less during the six months ended June 30, 2004 as
compared to the six months ended June 30, 2003. Lease operating costs
in 2003 included well workover costs on two wells.
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 decreased 2%
or approximately $900 during the six months ended June 30, 2004 as
compared to the six months ended June 30, 2003. The higher general and
administrative expense in 2003 is due to legal fees associated with the
amendments to the Partnership's December 31, 2002 Annual Report on Form
10-K and March 31, 2003 Quarterly Report on Form 10-Q.
3. Depletion expense remained unchanged for the six months ended June 30,
2004 for the same period in 2003. The BOE depletion rate for the six
months ended June 30, 2004 was $1.59 applied to 10,055 BOE as compared
to $1.56 applied to 9,948 BOE for the same period in 2003.
4. Accretion expense decreased to $5,459 for the six months ended June 30,
2004 from $30,068 for the same period in 2003. This represents a
decrease of 82%. The reduction in accretion is due to the sale of one
producing property in 2003.
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 $144,300 in
the six months ended June 30, 2004 as compared to approximately $67,700 in
the six months ended June 30, 2003.
Cash flows used in investing activities were approximately $7,800 in the
six months ended June 30, 2004 as compared to approximately $31,200 in the
six months ended June 30, 2003. The principle use of the 2004 cash flow
from investing activities was the addition of oil and gas properties.
Cash flows used in financing activities were approximately $130,500 in the
six months ended June 30, 2004 as compared to approximately $35,100 in the
six months ended June 30, 2003. The only use in financing activities was
the distributions to partners.
Total distributions during the six months ended June 30, 2004 were $130,506
of which $124,006 was distributed to the limited partners and $6,500 to the
general partners. The per unit distribution to limited partners during the
six months ended June 30, 2004 was $11.39. Total distributions during the
six months ended June 30, 2003 were $35,000 of which $31,500 was
distributed to the limited partners and $3,500 to the general partners.
The per unit distribution to limited partners during the six months ended
June 30, 2003 was $2.89
The sources for the 2004 distributions of $130,506 were oil and gas
operations of approximately $144,300 and the change in oil and gas
properties of approximately $(7,800), resulting in excess cash for
contingencies or subsequent distributions. The sources for the 2003
distributions of $35,000 were oil and gas operations of approximately
$67,700 and the change in oil and gas properties of approximately
$(31,200), resulting in excess cash for contingencies or subsequent
distributions.
Cumulative cash distributions of $5,733,084 have been made to the partners.
As of June 30, 2004, $5,200,281 or $477.57 per limited partner unit has
been distributed to the limited partners, representing a 96% return of the
capital contributed.
As of June 30, 2003, the Partnership had approximately $109,100 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.
Managing General Partner
On May 21, 2004, Clayton Williams Energy, Inc. acquired all the outstanding
common stock of Southwest Royalties Inc. through a merger. Clayton
Williams Energy, Inc. paid $57.1 million to holders of Southwest Royalties,
Inc. common stock and common stock warrants ($45.01 per share) and assumed
and refinanced approximately $113.9 million of assumed bank debt at
closing. In connection with the transaction, Blue Heel Company, a wholly
owned subsidiary of Southwest Royalties, Inc., acquired the general partner
interest from H.H. Wommack, III.
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
staff of the FASB has issued a proposed position clarifying that SFAS No.
142 does not supersede the balance sheet classification and disclosure for
drilling and mineral rights of oil and gas producing entities within the
scope of FASB No. 19. If SFAS No. 142 is determined to apply to oil and
gas companies, the Partnership may be required to make certain
reclassifications within property and equipment on the balance sheet, and
additional disclosures may be required. 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 six months ended June 30, 2004, L. Paul Latham, President and
Chief Executive Officer of the Managing General Partner, and Mel G. Riggs,
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 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 six months ended June 30, 2004
that has materially affected, or is reasonably likely to materially affect,
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:
31.1 Rule 13a-14(a)/15d-14(a) Certification
31.2 Rule 13a-14(a)/15d-14(a) Certification
32.1 Certification 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
32.2 Certification 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:
The Partnership filed an 8-K on June 3, 2004 under
Item 1 "Changes in Control of Registrant" and Item 7
"Financial Statements, Pro forma Financial Information and
Exhibits."
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 X-B, L.P.
a Delaware limited partnership
By: Southwest Royalties, Inc.
Managing General Partner
By: /s/ Mel G. Riggs
Mel G. Riggs
Vice President and Chief Financial
Officer
Date: August 12, 2004
SECTION 302 CERTIFICATION Exhibit 31.1
I, L. Paul Latham, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Southwest Oil &
Gas Income Fund X-B, 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 15d-15(e)) 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)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
c)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 control 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
control over financial reporting.
Date: August 12, 2004 /s/ L. Paul Latham
L. Paul Latham
President and Chief Executive Officer
of Southwest Royalties, Inc., the
Managing General Partner of
Southwest Oil & Gas Income Fund X-B,
L.P.
SECTION 302 CERTIFICATION Exhibit 31.2
I, Mel G. Riggs, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Southwest Oil &
Gas Income Fund X-B, 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 15d-15(e)) 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)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
c)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 control 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
control over financial reporting.
Date: August 12, 2004 /s/ Mel G. Riggs
Mel G. Riggs
Vice President and Chief Financial
Officer of
Southwest Royalties, Inc., the
Managing General Partner of
Southwest Oil & Gas Income Fund X-B,
L.P.
CERTIFICATION 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 X-B, Limited Partnership (the "Company") on Form 10-Q for the period
ending June 30, 2004 as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), I, L. Paul Latham, 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: August 12, 2004
/s/ L. Paul Latham
L. Paul Latham
President and Chief Executive Officer
of Southwest Royalties, Inc., the
Managing General Partner of
Southwest Oil & Gas Income Fund X-B, L.P.
CERTIFICATION 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 X-B, Limited Partnership (the "Company") on Form 10-Q for the period
ending June 30, 2004 as filed with the Securities and Exchange Commission
on the date hereof (the "Report"), I, Mel G. Riggs, 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: August 12, 2004
/s/ Mel G. Riggs
Mel G. Riggs
Vice President and Chief Financial Officer of
Southwest Royalties, Inc., the
Managing General Partner of
Southwest Oil & Gas Income Fund X-B, L.P.