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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 September 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 0-18997
SOUTHWEST ROYALTIES INSTITUTIONAL 1990-91 INCOME PROGRAM
Southwest Royalties Institutional Income Fund X-A, L.P.
(Exact name of registrant as specified
in its limited partnership agreement)
Delaware 75-2310852
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization)
Identification No.)
6 Desta Drive, Suite 6500
Midland, Texas 79705
(Address of principal executive offices)
432-682-6324
(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 23.
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.
Net Profits Interest. An agreement whereby the owner receives a
specified percentage of the defined net profits from a producing property
in exchange for consideration paid. The net profits interest owner will
not otherwise participate in additional costs and expenses of the property.
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
nine-month periods ended September 30, 2004 are not necessarily indicative
of the results that may be expected for the full year.
Southwest Royalties Institutional Income Fund X-A, L.P.
Balance Sheets
Septembe December
r 30, 31,
2004 2003
----- -----
(unaudit
ed)
Assets
- ----------
Current assets:
Cash and cash equivalents $ 56,593 71,018
Receivable from Managing 64,895 42,765
General Partner
-------- --------
---- ----
Total current assets 121,488 113,783
-------- --------
---- ----
Oil and gas properties -
using the full-
cost method of accounting 4,286,23 4,289,66
6 5
Less accumulated
depreciation,
depletion and 4,007,02 3,997,56
amortization 0 6
-------- --------
---- ----
Net oil and gas 279,216 292,099
properties
-------- --------
---- ----
$ 400,704 405,882
======= =======
Liabilities and Partners'
Equity
- ----------------------------
- ------------
Current liability - $ 74 115
distribution payable
-------- --------
---- ----
Asset retirement obligation 154,549 149,098
-------- --------
---- ----
Partners' equity:
General Partner (4,635) (4,522)
Limited partners 250,716 261,191
-------- --------
---- ----
Total partners' equity 246,081 256,669
-------- --------
---- ----
$ 400,704 405,882
======= =======
Southwest Royalties Institutional Income Fund X-A, L.P.
Statements of Operations
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
----- ----- ----- -----
Revenues
- ------------
Income from net profits $ 69,977 55,728 189,412 173,833
interests
Other - - 250 74
-------- -------- -------- --------
-- -- -- --
69,977 55,728 189,662 173,907
-------- -------- -------- --------
-- -- -- --
Expenses
- ------------
General and administrative 26,929 26,913 81,916 83,939
Depreciation, depletion and 3,454 4,000 9,454 12,000
amortization
Accretion of asset retirement 2,916 2,817 8,880 8,796
obligation
-------- -------- -------- --------
-- -- -- --
33,299 33,730 100,250 104,735
-------- -------- -------- --------
-- -- -- --
Net income before cumulative 36,678 21,998 89,412 69,172
effects
Cumulative effect of change in
accounting
principle - SFAS No. 143 - - - - 17,635
See Note 3
-------- -------- -------- --------
-- -- -- --
Net income $ 36,678 21,998 89,412 86,807
====== ====== ====== ======
Net income allocated to:
Managing General Partner $ 3,612 2,340 8,898 8,893
====== ====== ====== ======
General Partner $ 401 260 989 988
====== ====== ====== ======
Limited Partners $ 32,665 19,399 79,525 76,926
====== ====== ====== ======
Per limited partner unit $ 2.89
before cumulative effect 1.71 7.03 5.40
Cumulative effects per - - - 1.40
limited partner unit
-------- -------- -------- --------
-- -- -- --
Per limited partner unit $ 2.89
1.71 7.03 6.80
====== ====== ====== ======
Southwest Royalties Institutional Income Fund X-A, L.P.
Statements of Cash Flows
(unaudited)
Nine Months Ended
September 30,
2004 2003
---- ----
Cash flows from operating activities
Cash received from income from net
profits interests $ 160,434 164,357
Cash paid to suppliers (75,068 (67,892
) )
Other 250 74
------- -------
--- ---
Net cash provided by operating 85,616 96,539
activities
------- -------
--- ---
Cash flows used in financing activities
Distributions to partners (100,04 (50,592
1) )
------- -------
--- ---
Net (decrease) increase in cash and (14,425 45,942
cash equivalents )
Beginning of period 71,018 16,807
------- -------
--- ---
End of period $ 56,593 62,749
====== ======
Reconciliation of net income to net
cash
provided by operating activities
Net income $ 89,412 86,807
Adjustments to reconcile net income to
net
cash provided by operating activities
Depreciation, depletion and 9,454 12,000
amortization
Accretion of asset retirement 8,880 8,796
obligation
Cumulative effect of change in
accounting
principle - SFAS No. 143 - (17,635
)
Increase in receivables (28,978 (9,476)
)
Increase in payables 6,848 16,047
------- -------
--- ---
Net cash provided by operating $ 85,616 96,539
activities
====== ======
Noncash investing and financing
activities:
Increase in oil and gas properties -
Adoption
of SFAS No. 143 $ - 167,102
====== ======
Increase in oil and gas properties -
SFAS No. 143
Addition of wells $ 36 -
====== ======
Decrease in oil and gas properties -
SFAS No. 143
Sale of properties $ - 8,938
====== ======
Decrease in oil and gas properties -
SFAS No. 143
Plug and abandon wells $ 3,465 -
====== ======
Southwest Royalties Institutional Income Fund X-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
1. Organization
Southwest Royalties Institutional Income Fund X-A, L.P. was organized
under the laws of the state of Delaware on January 29, 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 Blue Heel Company, a wholly
owned subsidiary of Southwest Royalties, Inc., acquired the general
partner interest from H.H. Wommack, III. 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 of 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 September 30, 2004, and for
the three and nine months ended September 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 $167,102, a long term liability of
approximately $149,466 and a gain of approximately $17,635 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 September
30, 2004, the asset retirement obligation was $154,549. The increase
in the balance from January 1, 2004 is due to accretion expense of
$8,880 and addition of new wells for $36, partially offset by
reduction for plug and abandoned wells of $3,465.
Southwest Royalties Institutional Income Fund X-A, L.P.
(a Delaware limited partnership)
Notes to Financial Statements
4. 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. 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.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Southwest Royalties Institutional Income Fund X-A, L.P. was organized as a
Delaware limited partnership on January 29, 1990. The offering of such
limited partnership interests began May 11, 1990 as part of a shelf
offering registered under the name Southwest Royalties Institutional 1990-
91 Income Program. Minimum capital requirements for the Partnership were
met on July 30, 1990, with the offering of limited partnership interests
concluding on November 30, 1990, with total limited partner contributions
of $5,658,000.
The Partnership was formed to acquire royalty and net profits interests in
producing oil and gas properties, to produce and market crude oil and
natural gas produced from such properties, and to distribute the net
proceeds from operations to the limited and general partners. Net revenues
from producing oil and gas properties 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 farmout 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 September 30, 2004, the net capitalized costs did
not exceed the estimated present value of oil and gas reserves.
The Partnership's interest in oil and gas properties consists of net
profits interests in proved properties located within the continental
United States. A net profits interest is created when the owner of a
working interest in a property enters into an arrangement providing that
the net profits interest owner will receive a stated percentage of the net
profit from the property. The net profits interest owner will not
otherwise participate in additional costs and expenses of the property.
The Partnership recognizes income from its net profits interest in oil and
gas property on an accrual basis, while the quarterly cash distributions of
the net profits interest are based on a calculation of actual cash received
from oil and gas sales, net of expenses incurred during that quarterly
period. If the net profits interest calculation results in expenses
incurred exceeding the oil and gas income received during a quarter, no
cash distribution is due to the Partnership's net profits interest until
the deficit is recovered from future net profits. The Partnership accrues
a quarterly loss on its net profits interest provided there is a cumulative
net amount due for accrued revenue as of the balance sheet date. As of
September 30, 2004, there were no timing differences, which resulted in a
deficit net profit interest.
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 September 30, 2004 and 2003
The following table provides certain information regarding performance
factors for the quarters ended September 30, 2004 and 2003:
Three Months
Ended Percenta
ge
September 30, Increase
2004 2003 (Decreas
e)
---- ---- --------
--
Average price per $ 40.27 42%
barrel of oil 28.28
Average price per mcf $ 5.50 15%
of gas 4.79
Oil production in 2,907 2,900 -
barrels
Gas production in mcf 8,227 7,200 14%
Income from net profits $ 69,977 55,728 26%
interests
Partnership $ 30,000 - 100%
distributions
Limited partner $ 27,000 - 100%
distributions
Per unit distribution
to limited
partners $ 2.39 - 100%
Number of limited 11,316 11,316
partner units
Revenues
The Partnership's income from net profits interests increased to $69,977
from $55,728 for the quarters ended September 30, 2004 and 2003,
respectively, an increase of 26%. The principal factors affecting the
comparison of the quarters ended September 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 September 30, 2004 as compared to
the quarter ended September 30, 2003 by 42%, or $11.99 per barrel,
resulting in an increase of approximately $34,900 in income from net
profits interests. Oil sales represented 72% of total oil and gas
sales during the quarter ended September 30, 2004 as compared to 70%
during the quarter ended September 30, 2003.
The average price for an mcf of gas received by the Partnership
increased during the same period by 15%, or $.71 per mcf, resulting in
an increase of approximately $5,800 in income from net profits
interests.
The total increase in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$40,700. 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 increased approximately 7 barrels or less than 1% during
the quarter ended September 30, 2004 as compared to the quarter ended
September 30, 2003, resulting in an increase of approximately $200 in
income from net profits interests.
Gas production increased approximately 1,027 mcf or 14% during the same
period, resulting in an increase of approximately $4,900 in income from
net profits interests.
The total increase in income from net profits interests due to the
change in production is approximately $5,100. The increase in gas
volumes is due to the reactivation of a gas well.
3. Lease operating costs and production taxes were 52% higher, or
approximately $31,500 more during the quarter ended September 30, 2004
as compared to the quarter ended September 30, 2003. The increase in
lease operating costs are due to surface repairs and salt water
disposal costs on a producing property.
Costs and Expenses
Total costs and expenses decreased to $33,299 from $33,730 for the quarters
ended September 30, 2004 and 2003, respectively, a decrease of 1%. The
decrease is the result of lower depletion expense, partially offset by an
increase in accretion expense and general and administrative expense.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs increased
less than 1% or approximately $16 during the quarter ended September
30, 2004 as compared to the quarter ended September 30, 2003.
2. Depletion expense decreased to $3,454 for the nine months ended
September 30, 2004 from $4,000 for the same period in 2003. This
represents a decrease of 13%. The contributing factor to the decrease
in depletion expense is in relation to the BOE depletion rate for the
quarter ended September 30, 2004, which was $.81 applied to 4,278 BOE
as compared to $.98 applied to 4,100 BOE for the same period in 2003.
The lower depreciation rate in 2004 is due to the upward revision in
reserve estimates resulting from higher oil and gas prices.
3. Accretion expense increased to $2,916 for the quarter ended September
30, 2004 from $2,817 for the same period in 2003. This represents an
increase of 4%.
B. General Comparison of the Nine-Month Periods Ended September 30, 2004
and 2003
The following table provides certain information regarding performance
factors for the nine-month periods ended September 30, 2004 and 2003:
Nine Months
Ended Percenta
ge
September 30, Increase
2004 2003 (Decreas
e)
---- ---- --------
--
Average price per $ 36.03 26%
barrel of oil 28.55
Average price per mcf $ 5.81 11%
of gas 5.24
Oil production in 7,907 9,000 (12%)
barrels
Gas production in mcf 21,437 21,100 2%
Income from net profits $ 189,412 173,833 9%
interests
Partnership $ 100,000 50,000 100%
distributions
Limited partner $ 90,000 45,000 100%
distributions
Per unit distribution
to limited
partners $ 7.95 100%
3.98
Number of limited 11,316 11,316
partner units
Revenues
The Partnership's income from net profits interests increased to $189,412
from $173,833 for the nine months ended September 30, 2004 and 2003,
respectively, an increase of 9%. The principal factors affecting the
comparison of the nine months ended September 30, 2004 and 2003 are as
follows:
1. The average price for a barrel of oil received by the Partnership
increased during the nine months ended September 30, 2004 as compared
to the nine months ended September 30, 2003 by 26%, or $7.48 per
barrel, resulting in an increase of approximately $59,100 in income
from net profits interests. Oil sales represented 70% of total oil and
gas sales during the nine months ended September 30, 2004 as compared
to 70% during the nine months ended September 30, 2003.
The average price for an mcf of gas received by the Partnership
increased during the same period by 11%, or $.57 per mcf, resulting in
an increase of approximately $12,200 in income from net profits
interests.
The total increase in income from net profits interests due to the
change in prices received from oil and gas production is approximately
$71,300. 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 1,093 barrels or 12% during the
nine months ended September 30, 2004 as compared to the nine months
ended September 30, 2003, resulting in a decrease of approximately
$31,200 in income from net profits interests.
Gas production increased approximately 337 mcf or 2% during the same
period, resulting in an increase of approximately $1,800 in income from
net profits interests.
The net total decrease in income from net profits interests due to the
change in production is approximately $29,400. The decrease in oil
volumes is due to a well that did not return to previous production
levels after the repair of a casing leak. The sale of two properties
also contributed to the decline in oil volumes.
3. Lease operating costs and production taxes were 14% higher, or
approximately $26,400 more during the nine months ended September 30,
2004 as compared to the nine months ended September 30, 2003. The
increase in lease operating costs are due to surface repairs and salt
water disposal costs on a producing property.
Costs and Expenses
Total costs and expenses decreased to $100,250 from $104,735 for the nine
months ended September 30, 2004 and 2003, respectively, a decrease of 4%.
The decrease is the result of lower depletion expense and general and
administrative expense, partially offset by an increase in accretion
expense.
1. General and administrative costs consists of independent accounting and
engineering fees, computer services, postage, and Managing General
Partner personnel costs. General and administrative costs decreased 2%
or approximately $2,000 during the nine months ended September 30, 2004
as compared to the nine months ended September 30, 2003.
2. Depletion expense decreased to $9,454 for the nine months ended
September 30, 2004 from $12,000 for the same period in 2003. This
represents a decrease of 21%. The contributing factor to the decrease
in depletion expense is in relation to the BOE depletion rate for the
nine months ended September 30, 2004, which was $.82 applied to 11,480
BOE as compared to $.96 applied to 12,517 BOE for the same period in
2003. The lower depreciation rate in 2004 is due to the upward
revision in reserve estimates resulting from higher oil and gas prices.
3. Accretion expense increased to $8,880 for the nine months ended
September 30, 2004 from $8,796 for the same period in 2003. This
represents an increase of 1%.
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 $85,600 in
the nine months ended September 30, 2004 as compared to approximately
$96,500 in the nine months ended September 30, 2003.
Cash flows used in financing activities were approximately $100,000 in the
nine months ended September 30, 2004 as compared to approximately $50,600
in the nine months ended September 30, 2003. The only use in financing
activities was the distributions to partners.
Total distributions during the nine months ended September 30, 2004 were
$100,000 of which $90,000 was distributed to the limited partners and
$10,000 to the general partners. The per unit distribution to limited
partners during the nine months ended September 30, 2004 was $7.95. Total
distributions during the nine months ended September 30, 2003 were $50,000
of which $45,0000 was distributed to the limited partners and $5,000 to the
general partners. The per unit distribution to limited partners during the
nine months ended September 30, 2003 was $3.98.
The source for the 2004 distributions of $100,000 was oil and gas
operations of approximately $85,600, with the balance from available cash
on hand at the beginning of the period. The source for the 2003
distributions of $50,000 was oil and gas operations of approximately
$96,500, resulting in excess cash for contingencies or subsequent
distributions.
Cumulative cash distributions of $3,538,943 have been made to the partners.
As of September 30, 2004, $3,242,850 or $286.57 per limited partner unit
has been distributed to the limited partners, representing a 57% return of
the capital contributed.
As of September 30, 2004, the Partnership had approximately $121,400 in
working capital. The Managing General Partner knows of no unusual
contractual commitments. The partnership held many long-lived properties
at inception, however due to the restrictions on property development
imposed by the partnership agreement, the Partnership cannot develop its
non-producing properties. 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.
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 nine months ended September 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 nine months ended September
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) 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 ROYALTIES INSTITUTIONAL
INCOME FUND X-A, 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: November 15, 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
Royalties Institutional Income Fund X-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 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: November 15, 2004 /s/ L. Paul Latham
L. Paul Latham
President and Chief Executive Officer
of Southwest Royalties, Inc., the
Managing General Partner of
Southwest Royalties Institutional Income
Fund X-A, 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
Royalties Institutional Income Fund X-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 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: November 15, 2004 /s/ Mel G. Riggs
Mel G. Riggs
Vice President and Chief Financial
Officer of
Southwest Royalties, Inc., the
Managing General Partner of
Southwest Royalties Institutional Income
Fund X-A, 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 Royalties
Institutional Income Fund X-A, L. P. (the "Company") on Form 10-Q for the
period ending September 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: November 15, 2004
/s/ L. Paul Latham
L. Paul Latham
President and Chief Executive Officer
of Southwest Royalties, Inc., the
Managing General Partner of
Southwest Royalties Institutional Income Fund X-A, 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 Royalties
Institutional Income Fund X-A, L. P. (the "Company") on Form 10-Q for the
period ending September 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: November 15, 2004
/s/ Mel G. Riggs
Mel G. Riggs
Vice President and Chief Financial Officer of
Southwest Royalties, Inc., the
Managing General Partner of
Southwest Royalties Institutional Income Fund X-A, L.P.