Item 1. Business
General Southwest Royalties, Inc. Income Fund V (the "Partnership" or "Registrant") was organized as a Tennessee limited partnership on May 1, 1986. The offering of limited partnership interests began January 22, 1986, reached minimum capital requirements on May 1, 1986 and concluded July 22, 1986. The Partnership has no subsidiaries.
The Partnership has expended its capital and acquired interests in producing oil and gas properties. After such acquisitions, the Partnership has produced and marketed the crude oil and natural gas produced from such properties. In most cases, the Partnership purchased royalty or overriding royalty interests and working interests in oil and gas properties that were converted into net profits interests or other non-operating interests. The Partnership purchased either all or part of the rights and obligations under various oil and gas leases.
The principal executive offices of the Partnership are located at 407 N. Big Spring, Suite 300, Midland, Texas, 79701. The Managing General Partner of the Partnership, Southwest Royalties, Inc. (the "Managing General Partner") and its staff of 130 individuals, together with certain independent consultants used on an "as-needed" basis, perform various services on behalf of the Partnership, including the selection of oil and gas properties and the marketing of production from such properties. H. H. Wommack, III, a stockholder, director, President and Treasurer of the Managing General Partner, is also a general partner. The Partnership has no employees.
Principal Products, Marketing and Distribution The Partnership has acquired and holds royalty interests and net profit interests in oil and gas properties located in Texas, Oklahoma, New Mexico and North Dakota. All activities of the Partnership are confined to the continental United States. All oil and gas produced from these properties is sold to unrelated third parties in the oil and gas business.
The revenues generated from the Partnership's oil and gas activities are dependent upon the current market for oil and gas. The prices received by the Partnership for its oil and gas production depend upon numerous factors beyond the Partnership's control, including competition, economic, political and regulatory developments and competitive energy sources, and make it particularly difficult to estimate future prices of oil and natural gas.
1997 was another volatile year in the oil market. Prices ranged from a high of approximately $26 in the first quarter to a low near $18 per barrel. Two contributing factors that influence the oil industry are the strength of the economy and activity in the Middle East. Both influenced the supply and demand of oil, and both played roles in price swings this year. Economic expansion throughout the world enabled consumption to surpass 70 million barrels of oil per day. However, early in the year, producing countries failed to make up the difference in supply, placing upward pressure on prices. U.S. production fell slightly in 1997 to average roughly 6.4 million barrels of oil per day. Over the Thanksgiving weekend, OPEC agreed to increase their crude oil production ceiling by approximately 10%, but experts have said that many OPEC countries were already producing beyond their quotas, therefore, capacity is not expected to expand severely. Then on December 4th, the UN Security Council approved a renewal of the Iraqi oil-for-food program. The OPEC agreement and the UN's decision on the oil-for-food program will certainly increase the world supply of oil and most likely depress prices in the near term. However, world demand is expected to continue with strong growth in 1998.
The December 31, 1997 NYMEX oil price of $17.64 dropped to $14.32 as of March 18, 1998. The price decline in the first quarter of 1998 could cause a material write down in oil and gas properties and a possible reduction in future distributions to investors.
Overall the 1997 average price of natural gas increased nationwide from the 1996 rates. In some areas the increase was as high as 15%. The 1996 and 1997 average prices are by far the highest realized by the industry since 1985. The 1998 average price is expected to remain above the $2.00 per MMBTU level, however some early signs indicate that the prices will be softer in 1998 than they were in 1997. Forecasts for a mild winter and the lack of gas storage withdrawals are fueling speculation that the U.S. has an excess supply of gas thus driving the prices down to the early 1996 levels.
Following is a table of the ratios of revenues received from oil and gas production for the last three years:
Oil Gas
1997 63% 37% 1996 62% 38% 1995 59% 41%
As the table indicates, the majority of the Partnership's revenue is from its oil production, and Partnership revenues will be highly dependent upon the future prices and demands for oil.
Seasonality of Business Although the demand for natural gas is highly seasonal, with higher demand in the colder winter months and in very hot summer months, the Partnership has been able to sell all of its natural gas, either through contracts in place or on the spot market at the then prevailing spot market price. As a result, the volumes sold by the Partnership have not fluctuated materially with the change of season.
Customer Dependence No material portion of the Partnership's business is dependent on a single purchaser, or a very few purchasers, where the loss of one would have a material adverse impact on the Partnership. Three purchasers accounted for 76% of the Partnership's total oil and gas production during 1997: Scurlock Permian Corporation 34%, Phillips 66 Company 26% and Vintage Petroleum Inc. 16%. Four purchasers accounted for 83% of the Partnership's total oil and gas production during 1996: Scurlock Permian Corporation 35%, Phillips 66 Company 23%, Vintage Petroleum, Inc. 15% and Aquila Southwest Pipeline Corporation 10%. Three purchasers accounted for 79% of the Partnership's total oil and gas production during 1995: Scurlock Permian Corporation 40%, Phillips 66 Company 26% and Aquila Southwest Pipeline 13%. All purchasers of the Partnership's oil and gas production are unrelated third parties. In the event any of these purchasers were to discontinue purchasing the Partnership's production, the Managing General Partner believes that a substitute purchaser or purchasers could be located without undue delay. No other purchaser accounted for an amount equal to or greater than 10% of the Partnership's sales of oil and gas production.
Competition Because the Partnership has utilized all of its funds available for the acquisition of net profits or royalty interests in producing oil and gas properties, it is not subject to competition from other oil and gas property purchasers. See Item 2, Properties.
Factors that may adversely affect the Partnership include delays in completing arrangements for the sale of production, availability of a market for production, rising operating costs of producing oil and gas and complying with applicable water and air pollution control statutes, increasing costs and difficulties of transportation, and marketing of competitive fuels. Moreover, domestic oil and gas must compete with imported oil and gas and with coal, atomic energy, hydroelectric power and other forms of energy.
Regulation
Oil and Gas Production - The production and sale of oil and gas is subject to federal and state governmental regulation in several respects, such as existing price controls on natural gas and possible price controls on crude oil, regulation of oil and gas production by state and local governmental agencies, pollution and environmental controls and various other direct and indirect regulation. Many jurisdictions have periodically imposed limitations on oil and gas production by restricting the rate of flow for oil and gas wells below their actual capacity to produce and by imposing acreage limitations for the drilling of wells. The federal government has the power to permit increases in the amount of oil imported from other countries and to impose pollution control measures.
Various aspects of the Partnership's oil and gas activities are regulated by administrative agencies under statutory provisions of the states where such activities are conducted and by certain agencies of the federal government for operations on Federal leases. Moreover, certain prices at which the Partnership may sell its natural gas production are controlled by the Natural Gas Policy Act of 1978, the Natural Gas Wellhead Decontrol Act of 1989 and the regulations promulgated by the Federal Energy Regulatory Commission.
Environmental - The Partnership's oil and gas activities are subject to extensive federal, state and local laws and regulations governing the generation, storage, handling, emission, transportation and discharge of materials into the environment. Governmental authorities have the power to enforce compliance with their regulations, and violations carry substantial penalties. This regulatory burden on the oil and gas industry increases its cost of doing business and consequently affects its profitability. The Managing General Partner is unable to predict what, if any, effect compliance will have on the Partnership.
Industry Regulations and Guidelines - Certain industry regulations and guidelines apply to the registration, qualification and operation of oil and gas programs in the form of limited partnerships. The Partnership is subject to these guidelines which regulate and restrict transactions between the Managing General Partner and the Partnership. The Partnership complies with these guidelines and the Managing General Partner does not anticipate that continued compliance will have a material adverse effect on Partnership operations.
Partnership Employees The Partnership has no employees; however, the Managing General Partner has a staff of geologists, engineers, accountants, landmen and clerical staff who engage in Partnership activities and operations and perform additional services for the Partnership as needed. In addition to the Managing General Partner's staff, the Partnership engages independent consultants such as petroleum engineers and geologists as needed. As of December 31, 1997, there were 130 individuals directly employed by the Managing General Partner in various capacities.
Item 2.
Item 2. Properties
In determining whether an interest in a particular producing property was to be acquired, the Managing General Partner considered such criteria as estimated oil and gas reserves, estimated cash flow from the sale of production, present and future prices of oil and gas, the extent of undeveloped and unproved reserves, the potential for secondary, tertiary and other enhanced recovery projects and the availability of markets.
As of December 31, 1997, the Partnership possessed an interest in oil and gas properties located in Lea County, New Mexico, McKenzie County, North Dakota; Pottawatomie County, Oklahoma; and Crane, Dawson, Midland, Pecos, Taylor, Ward, Winkler and Upton Counties of Texas. These properties consist of various interests in approximately 71 wells and units.
Due to the Partnership's objective of maintaining current operations without engaging in the drilling of any developmental or exploratory wells, or additional acquisitions of producing properties, there has not been any significant changes in properties during 1997, 1996 and 1995.
Significant Properties The following table reflects the significant properties in which the Partnership has an interest:
Date Purchased No. of Proved Reserves* Name and Location and Interest Wells Oil (bbls) Gas (mcf) - ----------------- ------------ ------ ---------- --------- Mewbourne 1/87 at 50% 8 38,031 291,235 Crane County, to 100% net Texas profits interests
Damson-Rhoda 12/86 at 44% 18 74,940 224,333 Walker to 100% net Ward County, profits Texas interests
Union Texas 12/86 at 3% 7 74,712 682,296 Upton County, to 50% net Texas profits interests
*The reserve estimates were prepared as of January 1, 1998, by Donald R. Creamer, P.E., an independent registered petroleum engineer. The reserve estimates were made in accordance with guidelines established by the Securities and Exchange Commission pursuant to Rule 4-10(a) of Regulation S- X. Such guidelines require oil and gas reserve reports be prepared under existing economic and operating conditions with no provisions for price and cost escalation except by contractual arrangements.
The New York Mercantile Exchange price at December 31, 1997 of $17.64 was used as the beginning basis for the oil price. Oil price adjustments from $17.64 per barrel were made in the individual evaluations to reflect oil quality, gathering and transportation costs. The results are an average price received at the lease of $17.12 per barrel in the preparation of the reserve report as of January 1, 1998.
In the determination of the gas price, the New York Mercantile Exchange price at December 31, 1997 of $2.26 was used as the beginning basis. Gas price adjustments from $2.26 per Mcf were made in the individual evaluations to reflect BTU content, gathering and transportation costs and gas processing and shrinkage. The results are an average price received at the lease of $2.39 per Mcf in the preparation of the reserve report as of January 1, 1998.
As also discussed in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, oil and gas prices were subject to frequent changes in 1997.
The evaluation of oil and gas properties is not an exact science and inevitably involves a significant degree of uncertainty, particularly with respect to the quantity of oil or gas that any given property is capable of producing. Estimates of oil and gas reserves are based on available geological and engineering data, the extent and quality of which may vary in each case and, in certain instances, may prove to be inaccurate. Consequently, properties may be depleted more rapidly than the geological and engineering data have indicated.
Unanticipated depletion, if it occurs, will result in lower reserves than previously estimated; thus an ultimately lower return for the Partnership. Basic changes in past reserve estimates occur annually. As new data is gathered during the subsequent year, the engineer must revise his earlier estimates. A year of new information, which is pertinent to the estimation of future recoverable volumes, is available during the subsequent year evaluation. In applying industry standards and procedures, the new data may cause the previous estimates to be revised. This revision may increase or decrease the earlier estimated volumes. Pertinent information gathered during the year may include actual production and decline rates, production from offset wells drilled to the same geologic formation, increased or decreased water production, workovers, and changes in lifting costs, among others. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered.
The Partnership has reserves which are classified as proved developed producing and proved undeveloped. All of the proved reserves are included in the engineering reports which evaluate the Partnership's present reserves.
Because the Partnership does not engage in drilling activities, the development of proved undeveloped reserves is conducted pursuant to farm- out arrangements with the Managing General Partner or unrelated third parties. Generally, the Partnership retains a carried interest such as an overriding royalty interest under the terms of a farm-out or receives cash.
The Partnership or the owners of properties in which the Partnership owns an interest can engage in workover projects or supplementary recovery projects, for example, to extract behind the pipe reserves which qualify as proved developed non-producing reserves. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Partnership is a party.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth quarter of 1997 through the solicitation of proxies or otherwise.
Part II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
Market Information Limited partnership interests, or units, in the Partnership were initially offered and sold for a price of $1,000. Limited partner units are not traded on any exchange and there is no public or organized trading market for them. The Managing General Partner has become aware of certain limited and sporadic transfers of units between limited partners and third parties, but has no verifiable information regarding the prices at which such units have been transferred. Further, a transferee may not become a substitute limited partner without the consent of the Managing General Partner.
After completion of the Partnership's first full fiscal year of operations and each year thereafter, the Managing General Partner has offered and will continue to offer to purchase each limited partner's interest in the Partnership, at a price based on tangible assets of the Partnership, plus the present value of the future net revenues of proved oil and gas properties, minus liabilities with a risk factor discount of up to one- third which may be implemented at the sole discretion of the Managing General Partner. However, the Managing General Partner's obligation to purchase limited partner units is limited to an expenditure of an amount not in excess of 10% of the total limited partner units initially subscribed for by limited partners. In 1997, 342 limited partner units were tendered to and purchased by the Managing General Partner at an average base price of $301.18 per unit. In 1996, 230 limited partner units were tendered to and purchased by the Managing General Partner at an average base price of $152.78 per unit. In 1995, 189 limited partner units were tendered to and purchased by the Managing General Partner at an average base price of $129.42 per unit.
Number of Limited Partner Interest Holders As of December 31, 1997, there were 730 holders of limited partner units in the Partnership.
Distributions Pursuant to Article IV, Section 4.01 of the Partnership's Certificate and Agreement of Limited Partnership "Net Cash Flow" is distributed to the partners on a monthly basis. "Net Cash Flow" is defined as "the cash generated by the Partnership's investments in producing oil and gas properties, less (i) General and Administrative Costs, (ii) Operating Costs, and (iii) any reserves necessary to meet current and anticipated needs of the Partnership, as determined at the sole discretion of the Managing General Partner."
During 1997, twelve monthly distributions were made totaling $358,000, with $322,200 distributed to the limited partners and $35,800 to the general partners. For the year ended December 31, 1997, distributions of $42.97 per limited partner unit were made, based upon 7,499 limited partner units outstanding. During 1996, twelve monthly distributions were made totaling $286,113, with $258,313 distributed to the limited partners and $27,800 to the general partners. For the year ended December 31, 1996, distributions of $34.45 per limited partner unit were made, based upon 7,499 limited partner units outstanding. During 1995, twelve monthly distributions were made totaling $186,941, with $168,841 distributed to the limited partners and $18,100 to the general partners. For the year ended December 31, 1995, distributions of $22.52 per limited partner unit were made, based upon 7,499 limited partner units outstanding.
Item 6.
Item 6. Selected Financial Data
The following selected financial data for the years ended December 31, 1997, 1996, 1995, 1994 and 1993 should be read in conjunction with the financial statements included in Item 8:
Years ended December 31, -------------------------------------------------- - ------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Revenues $ 397,117 464,939 321,963 358,085 554,303
Net income (loss) 102,274 213,770 14,937 (5,643) 18,586
Partners' share of net income (loss):
General partners 10,228 21,377 1,494 (564) 1,859
Limited partners 92,046 192,393 13,443 (5,079) 16,727
Limited partners' net income (loss) per unit 12.27 25.66 1.79 (0.68) 2.23
Limited partners' cash distributions per unit 42.97 34.45 22.52 28.50 58.98
Total assets $1,301,730 1,557,540 1,629,799 1,802,483 2,045,655
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
General The Partnership was formed to acquire non-operating interests in producing oil and gas properties, to produce and market crude oil and natural gas produced from such properties and to distribute any net proceeds from operations to the general and limited partners. Net revenues from producing oil and gas properties are not reinvested in other revenue producing assets except to the extent that producing facilities and wells are 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 and on 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 limited partners has fluctuated over the past few years and is expected to fluctuate in later years based on these factors.
Based on current conditions, management anticipates performing workovers during 1998 to enhance production. The Partnership may have a slight increase in 1998 and 1999, but thereafter, the Partnership could possibly experience a normal decline of 8% to 10% a year.
Results of Operations
A. General Comparison of the Years Ended December 31, 1997 and 1996
The following table provides certain information regarding performance factors for the years ended December 31, 1997 and 1996:
Year Ended Percentage December 31, Increase 1997 1996 (Decrease) ---- ---- --------- Average price per barrel of oil $ 19.51 22.20 (12%) Average price per mcf of gas $ 2.41 2.61 (8%) Oil production in barrels 33,300 29,300 14% Gas production in mcf 159,600 152,700 5% Income from net profits interests $ 393,529 463,630 (15%) Partnership distributions $ 358,000 286,113 25% Limited partner distributions $ 322,200 258,313 25% Per unit distribution to limited partners $ 42.97 34.25 25% Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests decreased to $393,529 from $463,630 for the years ended December 31, 1997 and 1996, respectively, a decrease of 15%. The principal factors affecting the comparison of the years ended December 31, 1997 and 1996 are as follows:
1. The average price for a barrel of oil received by the Partnership decreased during the year ended December 31, 1997 as compared to the year ended December 31, 1996 by 12%, or $2.69 per barrel, resulting in a decrease of approximately $78,800 in income from net profits interests. Oil sales represented 63% of total oil and gas sales during the year ended December 31, 1997 as compared to 62% during the year ended December 31, 1996.
The average price for an mcf of gas received by the Partnership decreased during the same period by 8%, or $.20 per mcf, resulting in a decrease of approximately $30,500 in income from net profits interests.
The total decrease in income from net profits interests due to the change in prices received from oil and gas production is approximately $109,300 . 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 increased approximately 4,000 barrels or 14% during the year ended December 31, 1997 as compared to the year ended December 31, 1996, resulting in an increase of approximately $78,000 in income from net profits interests.
Gas production increased approximately 6,900 mcf or 5% during the same period, resulting in an increase of approximately $16,600 in income from net profits interests.
The total increase in income from net profits interests due to the change in production is approximately $94,600. Increase in oil production is primarily attributable to success in response to a waterflood on one well and repairs made to a well which was uneconomic to repair in 1996.
3. Lease operating costs and production taxes were 9% higher, or approximately $55,500 more during the year ended December 31, 1997 as compared to the year ended December 31, 1996.
Costs and Expenses
Total costs and expenses increased to $294,843 from $251,169 for the years ended December 31, 1997 and 1996, respectively, an increase of 17%. The increase is the result of higher depletion expense partially offset by 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 decreased 1% or approximately $1,300 during the year ended December 31, 1997 as compared to the year ended December 31, 1996.
2. Depletion expense increased to $177,000 for the year ended December 31, 1997 from $132,000 for the same period in 1996. This represents an increase of 34%. Depletion is calculated using the units of revenue method of amortization based on a percentage of current period gross revenues to total future gross oil and gas revenues, as estimated by the Partnership's independent petroleum consultants.
A contributing factor to the increase in depletion expense between the comparative periods was the decrease in the price of oil and gas used to determine the Partnership's reserves for January 1, 1998 as compared to 1997. Another contributing factor was due to the impact of revisions of previous estimates on reserves. Revisions of previous estimates can be attributed to the changes in production performance, oil and gas price and production costs. The impact of the revision would have increased depletion expense approximately $17,000 as of December 31, 1996.
Results of Operations
B. General Comparison of the Years Ended December 31, 1996 and 1995
The following table provides certain information regarding performance factors for the years ended December 31, 1996 and 1995:
Year Ended Percentage December 31, Increase 1996 1995 (Decrease) ---- ---- ---------- Average price per barrel of oil $ 22.20 17.34 28% Average price per mcf of gas $ 2.61 1.92 36% Oil production in barrels 29,300 31,200 (6%) Gas production in mcf 152,700 193,700 (21%) Income from net profits interests $463,630 320,832 45% Partnership distributions $286,113 186,941 53% Limited partner distributions $258,313 168,841 53% Per unit distribution to limited partners $ 34.45 22.52 53% Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests increased to $463,630 from $320,832 for the years ended December 31, 1996 and 1995, respectively, an increase of 45%. The principal factors affecting the comparison of the years ended December 31, 1996 and 1995 are as follows:
1. The average price for a barrel of oil received by the Partnership increased during the year ended December 31, 1996 as compared to the year ended December 31, 1995 by 28%, or $4.86 per barrel, resulting in an increase of approximately $151,600 in income from net profits interests. Oil sales represented 62% of total oil and gas sales during the year ended December 31, 1996 as compared to 59% during the year ended December 31, 1995.
The average price for an mcf of gas received by the Partnership increased during the same period by 36%, or $.69 per mcf, resulting in an increase of approximately $133,700 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 $285,300. 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 1,900 barrels or 6% during the year ended December 31, 1996 as compared to the year ended December 31, 1995, resulting in a decrease of approximately $42,200 in income from net profits interests.
Gas production decreased approximately 41,000 mcf or 21% during the same period, resulting in a decrease of approximately $107,000 in income from net profits interests.
The total decrease in income from net profits interests due to the change in production is approximately $149,200. The decrease is primarily attributable to downhole problems causing the loss of one well, another well being shut-in due to mechanical failures that were uneconomical to repair and property sales.
3. Lease operating costs and production taxes were 1% lower, or approximately $7,800 less during the year ended December 31, 1996 as compared to the year ended December 31, 1995.
Costs and Expenses
Total costs and expenses decreased to $251,169 from $307,026 for the years ended December 31, 1996 and 1995, respectively, a decrease of 18%. The decrease is the result of lower general and administrative expense and depletion 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 $2,900 during the year ended December 31, 1996 as compared to the year ended December 31, 1995.
2. Depletion expense decreased to $132,000 for the year ended December 31, 1996 from $185,000 for the same period in 1995. This represents a decrease of 29%.
Depletion is calculated using the units of revenue method based on a percentage of current period gross revenues to total future gross oil and gas revenues, as estimated by the Partnership's independent petroleum consultants.
Three factors attributed to the decline in depletion expense between the comparative periods. One contributing factor was the increase in the price of oil and gas used to determine the Partnership's reserves for January 1, 1997 as compared to 1996. Another contributing factor was the increase in property sales. The last contributing factor was due to the impact of revisions of previous estimates on reserves. Revisions of previous estimates can be attributed to the changes in production performance, oil and gas price and production costs. The impact of the revision would have decreased depletion expense approximately $30,000 as of December 31, 1995.
C. Revenue and Distribution Comparison
Partnership net income for the years ended December 31, 1997, 1996 and 1995 was $102,274, $213,770 and $14,937, respectively. Excluding the effects of depreciation, depletion and amortization, net income for the years ended December 31, 1997, 1996 and 1995 would have been $279,274, $345,770 and $199,937, respectively. Correspondingly, Partnership distributions for the years ended December 31, 1997, 1996 and 1995 were $358,000, $286,113 and $186,941, respectively. These differences are indicative of the changes in oil and gas prices, production and properties during 1997, 1996 and 1995.
The source for the 1997 distributions of $358,000 were oil and gas operations of approximately $346,200, with the balance from available cash on hand at the beginning of the period. The sources for the 1996 distributions of $286,113 were oil and gas operations of approximately $265,100 and property sales of $12,500, with the balance from available cash on hand at the beginning of the period. The sources for the 1995 distributions of $186,941 were oil and gas operations of approximately $193,300 and property sales of approximately $1,800, resulting in excess cash for contingencies or subsequent distributions.
Total distributions during the year ended December 31, 1997 were $358,000 of which $322,200 was distributed to the limited partners and $35,800 to the general partners. The per unit distribution to limited partners during the same period was $42.97. Total distributions during the year ended December 31, 1996 were $286,113 of which $258,313 was distributed to the limited partners and $27,800 to the general partners. The per unit distribution to limited partners during the same period was $34.45. Total distributions during the year ended December 31, 1995 were $186,941 of which $168,841 was distributed to the limited partners and $18,100 to the general partners.
Since inception of the Partnership, cumulative monthly cash distributions of $7,234,043 have been made to the partners. As of December 31, 1997, $6,494,270 or $866.02 per limited partner unit, has been distributed to the limited partners, representing an 87% return of the capital contributed.
Liquidity and Capital Resources
The primary source of cash is from operations, the receipt of income from net profits interests in oil and gas properties. The Partnership knows of no material change, nor does it anticipate any such change.
The December 31, 1997 NYMEX oil price of $17.64 dropped to $14.32 as of March 18, 1998. The price decline in the first quarter of 1998 could cause a material write down in oil and gas properties and a possible reduction in future distributions to investors.
Cash flows provided by operating activities were approximately $346,200 in 1997 compared to approximately $265,100 in 1996 and approximately $193,300 in 1995. The primary source of the 1997 cash flow from operating activities was profitable operations.
The Partnership had no cash flows from investing activities in 1997. Cash flow provided by investing activities were approximately $12,500 in 1996 compared to $1,800 in 1995.
Cash flows used in financing activities were approximately $358,200 in 1997 compared to $286,000 in 1996 and approximately $187,000 in 1995. The only use in financing activities was the distributions to partners.
As of December 31, 1997, the Partnership had approximately $127,800 in working capital. The Managing General Partner knows of no unusual contractual commitments and believes the revenue generated from operations are adequate to meet the needs of the Partnership.
Information Systems for the Year 2000
The Managing General Partner provides all data processing needs of the Partnership. The Managing General Partner has reviewed and evaluated its information systems to determine if its systems accurately process data referencing the year 2000. Primarily all necessary programming modifications to correct year 2000 referencing in the Managing General Partners internal accounting and operating systems have been made to-date. However the Managing General Partner has not completed its evaluation of its vendors and suppliers systems to determine the effect, if any, the non- compliance of such systems would have on the operation of the Managing General Partnership or the operations of the Partnership.
Item 8.
Item 8. Financial Statements and Supplementary Data
Page
Independent Auditors Reports 20
Balance Sheets 22
Statements of Operations 23
Statement of Changes in Partners' Equity 24
Statements of Cash Flows 25
Notes to Financial Statements 27
INDEPENDENT AUDITORS REPORT
The Partners Southwest Royalties, Inc. Income Fund V (A Tennessee Limited Partnership):
We have audited the accompanying balance sheet of Southwest Royalties, Inc. Income Fund V (the "Partnership") as of December 31, 1997, and the related statement of operations, changes in partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Southwest Royalties, Inc. Income Fund V as of December 31, 1997 and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Midland, Texas March 18, 1998
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners Southwest Royalties, Inc. Income Fund V Midland, Texas
We have audited the accompanying balance sheet of Southwest Royalties, Inc. Income Fund V as of December 31, 1996, and the related statements of operations, changes in partners' equity and cash flows for the years ended December 31, 1996 and 1995. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Southwest Royalties, Inc. Income Fund V as of December 31, 1996, and the results of its operations and its cash flows for the years ended December 31, 1996 and 1995, in conformity with generally accepted accounting principles.
JOSEPH DECOSIMO AND COMPANY A Tennessee Registered Limited Liability Partnership
Chattanooga, Tennessee March 14, 1997
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership) Balance Sheets December 31, 1997 and 1996
1997 1996 ---- ---- Assets
Current assets: Cash and cash equivalents $ 4,418 16,380 Receivable from Managing General Partner 123,280 190,242 Distribution receivable 114 -
- --------- --------- Total current assets 127,812 206,622
- --------- --------- Oil and gas properties - using the full- cost method of accounting 6,159,438 6,159,438 Less accumulated depreciation, depletion and amortization 4,985,520 4,808,520
- --------- --------- Net oil and gas properties 1,173,918 1,350,918
- --------- --------- $ 1,301,730 1,557,540
========= ========= Liabilities and Partners' Equity
Current liability - Distribution payable $ - 84
- --------- --------- Partners' equity: General partners (546,020) (520,448) Limited partners 1,847,750 2,077,904
- --------- --------- Total partners' equity 1,301,730 1,557,456
- --------- --------- $ 1,301,730 1,557,540
========= =========
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership) Statements of Operations Years ended December 31, 1997, 1996 and 1995
1997 1996 ---- ---- - ---- Revenues
Income from net profits interests $ 393,529 463,630 320,832 Interest 3,588 1,309 1,131 ------- - ------- ------- 397,117 464,939 321,963 ------- - ------- ------- Expenses
General and administrative 117,843 119,169 122,026 Depreciation, depletion and amortization 177,000 132,000 185,000 ------- - ------- ------- 294,843 251,169 307,026 ------- - ------- ------- Net income $ 102,274 213,770 14,937 ======= ======= ======= Net income allocated to:
Managing General Partner $ 9,205 19,239 1,344 ======= ======= ======= General partner $ 1,023 2,138 150 ======= ======= ======= Limited partners $ 92,046 192,393 13,443 ======= ======= ======= Per limited partner unit $ 12.27 25.66 1.79 ======= ======= =======
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership) Statement of Changes in Partners' Equity Years ended December 31, 1997, 1996 and 1995
General Limited Partners Partners Total -------- -------- - -----
Balance at December 31, 1994 $ (497,419) 2,299,222 1,801,803
Net income 1,494 13,443 14,937
Distributions (18,100) (168,841) (186,941) -------- - --------- --------- Balance at December 31, 1995 (514,025) 2,143,824 1,629,799
Net income 21,377 192,393 213,770
Distributions (27,800) (258,313) (286,113) -------- - --------- --------- Balance at December 31, 1996 (520,448) 2,077,904 1,557,456
Net income 10,228 92,046 102,274
Distributions (35,800) (322,200) (358,000) -------- - --------- --------- Balance at December 31, 1997 $ (546,020) 1,847,750 1,301,730 ======== ========= =========
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership) Statements of Cash Flows Years ended December 31, 1997, 1996 and 1995
1997 1996 ---- ---- - ---- Cash flows from operating activities:
Cash received from net profits interests $ 460,491 382,934 314,909 Cash paid to Managing General Partner for administrative fees and general and administrative overhead (117,843) (119,169)(122,706) Interest received 3,588 1,309 1,131 -------- - -------- -------- Net cash provided by operating activities 346,236 265,074 193,334 -------- - -------- -------- Cash provided by investing activities:
Cash received from sale of oil and gas properties - 12,500 1,791 -------- - -------- -------- Cash used in financing activities:
Distributions to partners (358,198) (285,982)(186,982) -------- - -------- -------- Net increase (decrease) in cash and cash equivalents (11,962) (8,408) 8,143
Beginning of year 16,380 24,788 16,645 -------- - -------- -------- End of year $ 4,418 16,380 24,788 ======== ======== ========
(continued)
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership) Statements of Cash Flows, continued Years ended December 31, 1997, 1996 and 1995
1997 1996 ---- ---- - ---- Reconciliation of net income to net cash provided by operating activities:
Net income $ 102,274 213,770 14,937
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization 177,000 132,000 185,000 (Increase) decrease in receivables 66,962 (80,696) (5,923) Decrease in payables - - (680) ------- - ------- ------- Net cash provided by operating activities $ 346,236 265,074 193,334 ======= ======= =======
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
1. Organization Southwest Royalties, Inc. Income Fund V was organized under the laws of the state of Tennessee on May 1, 1986, for the purpose of acquiring producing oil and gas properties and to produce and market crude oil and natural gas produced from such properties for a term of 50 years, unless terminated at an earlier date as provided for in the Partnership Agreement. The Partnership sells its oil and gas production to a variety of purchasers with the prices it receives being dependent upon the oil and gas economy. Southwest Royalties, Inc. serves as the Managing General Partner and H. H. Wommack, III, as the individual general partner. Revenues, costs and expenses are allocated as follows:
Limited General Partners Partners -------- -------- Interest income on capital contributions 100% - Oil and gas sales 90% 10% All other revenues 90% 10% Organization and offering costs (1) 100% - Amortization of organization costs 100% - Property acquisition costs 100% - Gain/loss on property disposition 90% 10% Operating and administrative costs (2) 90% 10% Depreciation, depletion and amortization of oil and gas properties 90% 10% 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.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
2. Summary of Significant Accounting Policies
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 involved.
The Partnership's policy for depreciation, depletion and amortization of oil and gas properties is computed under the units of revenue method. Under the units of revenue method, depreciation, depletion and amortization is computed on the basis of current gross revenues from production in relation to future gross revenues, based on current prices, from estimated production of proved oil and gas reserves.
Under the units of revenue method, the Partnership computes the provision by multiplying the total unamortized cost of oil and gas properties by an overall rate determined by dividing (a) oil and gas revenues during the period by (b) the total future gross oil and gas revenues as estimated by the Partnership's independent petroleum consultants. It is reasonably possible that those estimates of anticipated future gross revenues, the remaining estimated economic life of the product, or both could be changed significantly in the near term due to the potential fluctuation of oil and gas prices or production. The depletion estimate would also be affected by this change.
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 December 31, 1997, 1996 and 1995 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.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
2. Summary of Significant Accounting Policies- continued
Estimates and Uncertainties The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Syndication Costs Syndication costs are accounted for as a reduction of partnership equity.
Environmental Costs The Partnership is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Partnership to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Costs which improve a property as compared with the condition of the property when originally constructed or acquired and costs which prevent future environmental contamination are capitalized. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a non-capital nature are recorded when environmental assessment and/or remediation is probable, and the costs can be reasonably estimated.
Gas Balancing The Partnership utilizes the sales method of accounting for gas- balancing arrangements. Under this method the Partnership recognizes sales revenue on all gas sold. As of December 31, 1997, 1996 and 1995, there were no significant amounts of imbalance in terms of units and value.
Income Taxes No provision for income taxes is reflected in these financial statements, since the tax effects of the Partnership's income or loss are passed through to the individual partners.
In accordance with the requirements of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", the Partnership's tax basis in its net oil and gas properties at December 31, 1997 and 1996 is $70,499 and $56,414, respectively, more than that shown on the accompanying Balance Sheets in accordance with generally accepted accounting principles.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
2. Summary of Significant Accounting Policies- continued
Cash and Cash Equivalents For purposes of the statements of cash flows, the Partnership considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Partnership maintains its cash at one financial institution.
Number of Limited Partner Units As of December 31, 1997, 1996 and 1995, there were 7,499 limited partner units outstanding held by 730 partners.
Concentrations of Credit Risk The Partnership is subject to credit risk through trade receivables. Although a substantial portion of its debtors' ability to pay is dependent upon the oil and gas industry, credit risk is minimized due to a large customer base. All partnership revenues are received by the Managing General Partner and subsequently remitted to the partnership and all expenses are paid by the Managing General Partner and subsequently reimbursed by the partnership.
Fair Value of Financial Instruments The carrying amount of cash and accounts receivable approximates fair value due to the short maturity of these instruments.
Recent Accounting Pronouncements In June 1997, the FASB issued "Reporting Comprehensive Income," SFAS No. 130, which establishes standards for reporting and display of comprehensive income and its components in a full set of general- purpose financial statements. Specifically, this statements requires that an enterprise (i) classify items of other comprehensive income by their nature in a financial statement and (ii) display the accumulated balance of other comprehensive income separately from retained earnings and additional paid-in capital in the equity section of a statement of financial position. This statement is effective for fiscal years beginning after December 15, 1997. The Partnership anticipates adoption of SFAS No. 130 in its year ended December 31, 1998 financial statements.
Comprehensive income consists of the change in equity of a business enterprise during a period from transactions and other events and circumstances from nonowner sources. Specifically, this includes net income and other comprehensive income, which is made up of certain changes in assets and liabilities that are not reported in a statement of operations but are included in the balances within a separate component of equity in a statement of financial position. Such changes include, but are not limited to, unrealized gains for marketable securities and futures contracts, foreign currency translation adjustments and minimum pension liability adjustments.
Net Income (loss) per limited partnership unit The net income (loss) per limited partnership unit is calculated by using the number of outstanding limited partnership units.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
3. Commitments and Contingent Liabilities After completion of the Partnership's first full fiscal year of operations and each year thereafter, the Managing General Partner has offered and will continue to offer to purchase each limited partner's interest in the Partnership, at a price based on tangible assets of the Partnership, plus the present value of the future net revenues of proved oil and gas properties, minus liabilities with a risk factor discount of up to one-third which may be implemented at the sole discretion of the Managing General Partner. However, the Managing General Partner's obligation to purchase limited partner units is limited to an expenditure of an amount not in excess of 10% of the total limited partner units initially subscribed for by limited partners.
The Partnership is subject to various federal, state and local environmental laws and regulations which establish standards and requirements for protection of the environment. The Partnership cannot predict the future impact of such standards and requirements, which are subject to change and can have retroactive effectiveness. The Partnership continues to monitor the status of these laws and regulations.
As of December 31, 1997, the Partnership has not been fined, cited or notified of any environmental violations and management is not aware of any unasserted violations which would have a material adverse effect upon capital expenditures, earnings or the competitive position in the oil and gas industry.
However, the Managing General Partner does recognize by the very nature of its business, material costs could be incurred in the near term to bring the Partnership into total compliance. The amount of such future expenditures is not determinable due to several factors, including the unknown magnitude of possible contaminations, the unknown timing and extent of the corrective actions which may be required, the determination of the Partnership's liability in proportion to other responsible parties and the extent to which such expenditures are recoverable from insurance or indemnifications from prior owners of the Partnership's properties.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
4. Related Party Transactions A significant portion of the oil and gas properties in which the Partnership has an interest are operated by and purchased from the Managing General Partner. As is usual in the industry and as provided for in the operating agreement for each respective oil and gas property in which the Partnership has an interest, the operator is paid an amount for administrative overhead attributable to operating such properties, with such amounts to Southwest Royalties, Inc. as operator approximating $105,000, $98,000 and $91,000 for the years ended December 31, 1997, 1996 and 1995, respectively. In addition, the Managing General Partner and certain officers and employees may have an interest in some of the properties in which the Partnership also participates.
Certain subsidiaries or affiliates of the Managing General Partner perform various oilfield services for properties in which the Partnership owns an interest. Such services aggregated approximately $1,100, $5,000 and $25,000 for the years ended December 31, 1997, 1996 and 1995, respectively, and the Managing General Partner believes that these costs are comparable to similar charges paid by the Partnership to unrelated third parties.
Southwest Royalties, Inc., the Managing General Partner, was paid $109,200 during 1997, 1996 and 1995, as an administrative fee, for indirect general and administrative overhead expenses.
Receivables from Southwest Royalties, Inc., the Managing General Partner, of $123,280 and $190,242 are from oil and gas production, net of lease operating costs and production taxes, as of December 31, 1997 and 1996, respectively.
In addition, a director and officer of the Managing General Partner is a partner in a law firm, with such firm providing legal services to the Partnership approximating $900, $1,300 and $800 for the years ended December 31, 1997, 1996 and 1995, respectively.
5. Major Customers No material portion of the Partnership's business is dependent on a single purchaser, or a very few purchasers, where the loss of one would have a material adverse impact on the Partnership. Three purchasers accounted for 76% of the Partnership's total oil and gas production during 1997: Scurlock Permian Corporation 34%, Phillips 66 Company 26% and Vintage Petroleum Inc. 16%. Four purchasers accounted for 83% of the Partnership's total oil and gas production during 1996: Scurlock Permian Corporation 35%, Phillips 66 Company 23%, Vintage Petroleum, Inc. 15% and Aquila Southwest Pipeline Corporation 10%. Three purchasers accounted for 79% of the Partnership's total oil and gas production during 1995: Scurlock Permian Corporation 40%, Phillips 66 Company 26% and Aquila Southwest Pipeline 13%. All purchasers of the Partnership's oil and gas production are unrelated third parties. In the event any of these purchasers were to discontinue purchasing the Partnership's production, the Managing General Partner believes that a substitute purchaser or purchasers could be located without undue delay. No other purchaser accounted for an amount equal to or greater than 10% of the Partnership's sales of oil and gas production.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
6. Estimated Oil and Gas Reserves (unaudited) The Partnership's interest in proved oil and gas reserves is as follows:
Oil (bbls) Gas (mcf) ---------- - --------- Proved developed and undeveloped reserves -
January 1, 1995 228,000 1,603,000
Revisions of previous estimates 54,000 218,000 Production (31,000) (194,000) Sale of minerals in place - (8,000) ------- --------- December 31, 1995 251,000 1,619,000
Revisions of previous estimates 73,000 169,000 Production (29,000) (153,000) Sale of minerals in place (1,000) (7,000) ------- --------- December 31, 1996 294,000 1,628,000
Revisions of previous estimates (49,000) (107,000) Production (33,000) (160,000) ------- --------- December 31, 1997 212,000 1,361,000 ======= =========
Proved developed reserves -
December 31, 1995 214,000 1,545,000 ======= ========= December 31, 1996 257,000 1,553,000 ======= ========= December 31, 1997 173,000 1,258,000 ======= =========
All of the Partnership's reserves are located within the continental United States.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
6. Estimated Oil and Gas Reserves (unaudited)- continued *The reserve estimates were prepared as of January 1, 1998, by Donald R. Creamer, P.E., an independent registered petroleum engineer. The reserve estimates were made in accordance with guidelines established by the Securities and Exchange Commission pursuant to Rule 4-10(a) of Regulation S-X. Such guidelines require oil and gas reserve reports be prepared under existing economic and operating conditions with no provisions for price and cost escalation except by contractual arrangements.
The New York Mercantile Exchange price at December 31, 1997 of $17.64 was used as the beginning basis for the oil price. Oil price adjustments from $17.64 per barrel were made in the individual evaluations to reflect oil quality, gathering and transportation costs. The results are an average price received at the lease of $17.12 per barrel in the preparation of the reserve report as of January 1, 1998.
In the determination of the gas price, the New York Mercantile Exchange price at December 31, 1997 of $2.26 was used as the beginning basis. Gas price adjustments from $2.26 per Mcf were made in the individual evaluations to reflect BTU content, gathering and transportation costs and gas processing and shrinkage. The results are an average price received at the lease of $2.39 per Mcf in the preparation of the reserve report as of January 1, 1998.
The evaluation of oil and gas properties is not an exact science and inevitably involves a significant degree of uncertainty, particularly with respect to the quantity of oil or gas that any given property is capable of producing. Estimates of oil and gas reserves are based on available geological and engineering data, the extent and quality of which may vary in each case and, in certain instances, may prove to be inaccurate. Consequently, properties may be depleted more rapidly than the geological and engineering data have indicated.
Unanticipated depletion, if it occurs, will result in lower reserves than previously estimated; thus an ultimately lower return for the Partnership. Basic changes in past reserve estimates occur annually. As new data is gathered during the subsequent year, the engineer must revise his earlier estimates. A year of new information, which is pertinent to the estimation of future recoverable volumes, is available during the subsequent year evaluation. In applying industry standards and procedures, the new data may cause the previous estimates to be revised. This revision may increase or decrease the earlier estimated volumes. Pertinent information gathered during the year may include actual production and decline rates, production from offset wells drilled to the same geologic formation, increased or decreased water production, workovers, and changes in lifting costs, among others. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered.
The Partnership has reserves which are classified as proved developed producing and proved undeveloped. All of the proved reserves are included in the engineering reports which evaluate the Partnership's present reserves.
Because the Partnership does not engage in drilling activities, the development of proved undeveloped reserves is conducted pursuant to farm-out arrangements with the Managing General Partner or unrelated third parties. Generally, the Partnership retains a carried interest such as an overriding royalty interest under the terms of a farm-out or receives cash.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
6. Estimated Oil & Gas Reserves (unaudited) - continued The standardized measure of discounted future net cash flows relating to proved oil and gas reserves at December 31, 1997, 1996 and 1995 is presented below:
1997 1996 1995 ---- ---- ----
Future cash inflows, net of production and development costs $ 3,165,000 6,926,000 3,733,000 10% annual discount for estimated timing of cash flows 1,165,000 2,722,000 1,414,000 --------- --------- --------- Standardized measure of discounted future net cash flows $ 2,000,000 4,204,000 2,319,000 ========= ========= =========
The principal sources of change in the standardized measure of discounted future net cash flows for the years ended December 31, 1997, 1996 and 1995 are as follows:
1997 1996 1995 ---- ---- ----
Sales of oil and gas produced, net of production costs $ (394,000) (781,000) (592,000) Changes in prices and production costs (1,829,000) 1,943,000 773,000 Changes of production rates (timing) and other (99,000) 457,000 (443,000) Sales of minerals in place - (5,000) (4,000) Revisions of previous quantities estimates (302,000) (80,000) 425,000 Accretion of discount 420,000 351,000 227,000 Discounted future net cash flows - Beginning of year 4,204,000 2,319,000 1,933,000 --------- --------- --------- End of year $ 2,000,000 4,204,000 2,319,000 ========= ========= =========
Future net cash flows were computed using year-end prices and costs that related to existing proved oil and gas reserves in which the Partnership has mineral interests.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On June 9, 1997 Southwest Royalties, Inc. the Partnership's Managing General Partner (Southwest Royalties, Inc.) dismissed Joseph Decosimo and Company as the Partnership's independent accountants. The Managing General Partner's Board of Directors approved the decision to change the Partnership's independent accountants.
The reports of Joseph Decosimo and Company on the financial statements for the past two fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principle.
In connection with its audits for the two most recent fiscal years and through June 9, 1997, there have been no disagreements with Joseph Decosimo and Company on any matter of accounting principles or practices, financial statements disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Joseph Decosimo and Company would have caused them to make reference thereto in their report on the financial statements for such years.
The Registrant has requested that Joseph Decosimo and Company furnish it with a letter addressed to the SEC stating whether or not is agrees with the above statements. A copy of that letter is included as Exhibit 16 and has been filed with the Securities and Exchange Commission.
Part III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
Management of the Partnership is provided by Southwest Royalties, Inc., as Managing General Partner. The names, ages, offices, positions and length of service of the directors and executive officers of Southwest Royalties, Inc. are set forth below. Each director and executive officer serves for a term of one year. The present directors of the Managing General Partner have served in their capacity since the Company's formation in 1983.
Name Age Position - -------------------- --- ----------------------------------- - ------- H. H. Wommack, III 42 Chairman of the Board, President, Chief Executive Officer, Treasurer and Director
H. Allen Corey 43 Secretary and Director
Bill E. Coggin 44 Vice President and Chief Financial Officer
Phillip F. Hock, Jr. 54 Vice President, Exploration
Jon P. Tate 40 Vice President, Land and Assistant Secretary
Joel D. Talley 36 Vice President, Acquisitions and Exploitation Manager
R. Douglas Keathley 42 Vice President, Operations
J. Steven Person 39 Vice President, Marketing
H. H. Wommack, III, is Chairman of the Board, President, Chief Executive Officer, Treasurer, principal stockholder and a director of the Managing General Partner, and has served as its President since the Company's organization in August, 1983. Prior to the formation of the Company, Mr. Wommack was a self-employed independent oil producer engaged in the purchase and sale of royalty and working interests in oil and gas leases, and the drilling of exploratory and developmental oil and gas wells. Mr. Wommack holds a J.D. degree from the University of Texas from which he graduated in 1980, and a B.A. from the University of North Carolina in 1977.
H. Allen Corey, a founder of the Managing General Partner, has served as the Managing General Partner's secretary and a director since its inception. Mr. Corey is President of Trolley Barn Brewery, Inc., a brew pub restaurant chain based in the Southeast. Prior to his involvement with Trolley Barn, Mr. Corey was a partner at the law firm of Miller & Martin in Chattanooga, Tennessee. He is currently of counsel to the law firm of Baker, Donelson, Bearman & Caldwell, with the offices in Chattanooga, Tennessee. Mr. Corey received a J.D. degree from the Vanderbilt University Law School and B.A. degree from the University of North Carolina at Chapel Hill.
Bill E. Coggin, Vice President and Chief Financial Officer, has been with the Managing General Partner since 1985. Mr. Coggin was Controller for Rod Ric Corporation of Midland, Texas, an oil and gas drilling company, during the latter part of 1984. He was Controller for C.F. Lawrence & Associates, Inc., an independent oil and gas operator also of Midland, Texas during the early part of 1984. Mr. Coggin taught public school for four years prior to his business experience. Mr. Coggin received a B.S. in Education and a B.B.A. in Accounting from Angelo State University.
Phillip F. Hock, Jr., Vice President, Exploration, assumed his responsibilities with the Managing General Partner as a geologist in November 1993. Prior to joining the Managing General Partner, Mr. Hock was employed four (4) years by Ramco Oil and Gas as Exploitation Manager (1989- 1993), Robinson Brothers Drilling Company as Exploration Manager (1980- 1984), and as petroleum geologist by several companies throughout his career, Magic Circle Oil and Gas (1988-1989), Reading and Bates Petroleum Company (1984-1988), and Exxon (1971-1980). Mr. Hock received a B. S. in Geology from Morehead State University and a M. S. in Geology form the University of New Mexico.
Jon P. Tate, Vice President, Land and Assistant Secretary, assumed his responsibilities with the Managing General Partner in 1989. Prior to joining the Managing General Partner, Mr. Tate was employed by C.F. Lawrence & Associates, Inc., an independent oil and gas company, as Land Manager from 1981 through 1989. Mr. Tate is a member of the Permian Basin Landman's Association and received his B.B.S. degree from Hardin-Simmons University.
Joel D. Talley, Vice President, Acquisitions and Exploitation Manager, assumed his responsibilities with the Managing General Partner on July 15, 1996. Prior to joining the Managing General Partner, Mr. Talley was employed for four (4) years by Merit Energy Company as Acquisitions Manager and then as Region Manager over West Texas, New Mexico and Wyoming (1992- 1996) and eight (8) years by ARCO Oil & Gas Company in various engineering positions (1984-1992). Mr. Talley received his B.S. in Mechanical Engineering in 1984 from Texas A&M University.
R. Douglas Keathley, Vice President, Operations, assumed his responsibilities with the Managing General Partner as a Production Engineer in October, 1992. Prior to joining the Managing General Partner, Mr. Keathley was employed for four (4) years by ARCO Oil & Gas Company as senior drilling engineer working in all phases of well production (1988- 1992), eight (8) years by Reading & Bates Petroleum Company as senior petroleum engineer responsible for drilling (1980-1988) and two (2) years by Tenneco Oil Company as drilling engineer responsible for all phases of drilling (1978-1980). Mr. Keathley received his B.S. in Petroleum Engineering in 1977 from the University of Oklahoma.
J. Steven Person, Vice President, Marketing, assumed his responsibilities with the Managing General Partner as National Marketing Director in 1989. Prior to joining the Managing General Partner, Mr. Person served as Vice President of Marketing for CRI, Inc., and was associated with Capital Financial Group and Dean Witter (1983). He received a B.B.A. from Baylor University in 1982 and an M.D.A. from Houston Baptist University in 1987.
Key Employees
Accounting and Administrative Officer - Debbie A. Brock, age 45, assumed her position with the Managing General Partner in 1991. Prior to joining the Managing General Partner, Ms. Brock was employed with Western Container Corporation as Accounting Manager (1982-1990), Synthetic Industries (Texas), Inc. as Accounting Manager (1976-1982) and held various accounting positions in the manufacturing industry (1971-1975). Ms. Brock received a B.B.A. from the University of Houston.
Controller - Robert A. Langford, age 48, assumed his responsibilities with the Managing General Partner in 1992. Mr. Langford received his B.B.A. degree in Accounting in 1975 from the University of Central Arkansas. Prior to joining the Managing General Partner, Mr. Langford was employed with Forest Oil Corporation as Corporate Coordinator, Regional Coordinator, Accounting Manager. He held various other positions from 1982-1992 and 1976-1980 and was Assistant Controller of National Oil Company from 1980- 1982.
Financial Reporting Manager - Bryan Dixon, C.P.A., age 31, assumed his responsibilities with the Managing General Partner in 1992. Mr. Dixon received his B.B.A. degree in Accounting in 1988 from Texas Tech University in Lubbock, Texas. Prior to joining the Managing General Partner, Mr. Dixon was employed as a Senior Auditor with Johnson, Miller & Company from 1991-1992 and Audit Supervisor for Texas Tech University and the Texas Tech University Health Sciences Center from 1988-1991.
Production Superintendent - Steve C. Garner, age 56, assumed his responsibilities with the Managing General Partner as Production Superintendent in July, 1989. Prior to joining the Managing General Partner, Mr. Garner was employed 16 years by Shell Oil Company working in all phases of oil field production as operations foreman, one and one-half years with Petroleum Corporation of Delaware as Production Superintendent, six years as an independent engineering consultant, and one year with Citation Oil & Gas Corp. as a workover, completion and production foreman. Mr. Garner has worked extensively in the Permian Basin oil field for the last 25 years.
Tax Manager - Carolyn Cookson, age 41, assumed her position with the Managing General Partner in April 1989. Prior to joining the Managing General Partner, Ms. Cookson was employed as Director of Taxes at C.F. Lawrence & Associates, Inc. from 1983 to 1989, and worked in public accounting at McCleskey, Cook & Green, P.C. from 1981 to 1983 and Deanna Brady, C.P.A. from 1980 to 1981. She is a member of the Permian Basin Chapter of the Petroleum Accountants' Society, and serves on its Board of Directors and is liaison to the Tax Committee. Ms. Cookson received a B.B.A. in accounting from New Mexico State University.
Investor Relations Manager - Sandra K. Flournoy, age 51, came to Southwest Royalties, Inc. in 1988 from Parker & Parsley Petroleum, where she was Assistant Manager of Investor Services and Broker/Dealer Relations for two years. Prior to that, Ms. Flournoy was Administrative Assistant to the Superintendent at Greenwood ISD for four years.
In certain instances, the Managing General Partner will engage professional petroleum consultants and other independent contractors, including engineers and geologists in connection with property acquisitions, geological and geophysical analysis, and reservoir engineering. The Managing General Partner believes that, in addition to its own "in-house" staff, the utilization of such consultants and independent contractors in specific instances and on an "as-needed" basis allows for greater flexibility and greater opportunity to perform its oil and gas activities more economically and effectively.
Item 11.
Item 11. Executive Compensation
The Partnership does not have any directors or executive officers. The executive officers of the Managing General Partner do not receive any cash compensation, bonuses, deferred compensation or compensation pursuant to any type of plan, from the Partnership. The Managing General Partner received $109,200 during 1997, 1996 and 1995 as an annual administrative fee.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
There are no limited partners who own of record, or are known by the Managing General Partner to beneficially own, more than five percent of the Partnership's limited partnership interests.
The Managing General Partner owns a nine percent interest in the Partnership as a general partner. Through repurchase offers to the limited partners, the Managing General Partner also owns 1,197.5 limited partner units, a 16.0% limited partner interest. The Managing General Partner total percentage interest ownership in the Partnership is 23.4%.
No officer or director of the Managing General Partner owns Units in the Partnership. H. H. Wommack, III, as the individual general partner of the Partnership, owns a one percent interest in the Partnership as a general partner. The officers and directors of the Managing General Partner are considered beneficial owners of the limited partner units acquired by the Managing General Partner by virtue of their status as such. A list of beneficial owners of limited partner units, acquired by the Managing General Partner, is as follows:
Amount and Nature of Percent Name and Address of Beneficial of Title of Class Beneficial Owner Ownership Class - ------------------- --------------------------- --------------- ------- Limited Partnership Southwest Royalties, Inc. Directly Owns 16.0% Interest Managing General Partner 1,197.5 Units 407 N. Big Spring Street Midland, TX 79701
Limited Partnership H. H. Wommack, III Indirectly Owns 16.0% Interest Chairman of the Board, 1,197.5 Units President, CEO, Treasurer and Director of Southwest Royalties, Inc., the Managing General Partner 407 N. Big Spring Street Midland, TX 79701
Limited Partnership H. Allen Corey Indirectly Owns 16.0% Interest Secretary and Director of 1,197.5 Units Southwest Royalties, Inc., the Managing General Partner 633 Chestnut Street Chattanooga, TN 37450-1800
Limited Partnership Bill E. Coggin Indirectly Owns 16.0% Interest Vice President and CFO of 1,197.5 Units Southwest Royalties, Inc., the Managing General Partner 407 N. Big Spring Street Midland, TX 79701
Limited Partnership Phillip F. Hock, Jr. Indirectly Owns 16.0% Interest Vice President, Exploration 1,197.5 Units of Southwest Royalties, Inc., the Managing General Partner 407 N. Big Spring Street Midland, TX 79701
Limited Partnership Jon P. Tate Indirectly Owns 16.0% Interest Vice President, Land and 1,197.5 Units Assistant Secretary of Southwest Royalties, Inc., the Managing General Partner 407 N. Big Spring Street Midland, TX 79701
Limited Partnership J. Steven Person Indirectly Owns 16.0% Interest Vice President, Marketing 1,197.5 Units of Southwest Royalties, Inc., the Managing General Partner 407 N. Big Spring Street Midland, TX 79701
Amount and Nature of Percent Name and Address ofBeneficial of Title of Class Beneficial Owner Ownership Class - ------------------- --------------------------- --------------- ------- Limited Partnership Joel D. Talley Indirectly Owns 16.0% Interest Vice President,1,197.5 Units Acquisitions and Exploitation Manager of Southwest Royalties, Inc., the Managing General Partner 407 N. Big Spring Street Midland, TX 79701
Limited Partnership R. Douglas Keathley Indirectly Owns 16.0% Interest Vice President,1,197.5 Units Operations of Southwest Royalties, Inc., the Managing General Partner 407 N. Big Spring Street Midland, TX 79701
There are no arrangements known to the Managing General Partner which may at a subsequent date result in a change of control of the Partnership.
Item 13.
Item 13. Certain Relationships and Related Transactions
In 1997, the Managing General Partner received $109,200 as an administrative fee. This amount is part of the general and administrative expenses incurred by the Partnership.
In some instances the Managing General Partner and certain officers and employees may be working interest owners in an oil and gas property in which the Partnership also has a net profits interest. Certain properties in which the Partnership has an interest are operated by the Managing General Partner, which was paid approximately $105,000 for administrative overhead attributable to operating such properties during 1997.
Certain subsidiaries or affiliates of the Managing General Partner perform various oilfield services for properties in which the Partnership owns an interest. Such services aggregated approximately $1,100 for the year ended December 31, 1997.
The law firm of Baker, Donelson, Bearman & Caldwell of which H. Allen Corey, an officer and director of the Managing General Partner, is a partner, is counsel to the Partnership. Legal services rendered by Baker, Donelson, Bearman & Caldwell to the Partnership during 1997 were approximately $900, which constitutes an immaterial portion of that firm's business.
In the opinion of management, the terms of the above transactions are similar to ones with unaffiliated third parties.
Part IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements:
Included in Part II of this report --
Reports of Independent Accountants Balance Sheets Statements of Operations Statement of Changes in Partners' Equity Statements of Cash Flows Notes to Financial Statements
(2) Schedules required by Article 12 of Regulation S- X are either omitted because they are not applicable or because the required information is shown in the financial statements or the notes thereto.
(3) Exhibits:
4 (a) Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated May 1, 1986. (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1986.)
(b) First Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated May 21, 1986. (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1986.)
(c) Second Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated July 1, 1986. (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1986.)
(d) Third Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated July 17, 1986. (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1986.)
(e) Fourth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated September 8, 1986. (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1986.)
(f) Fifth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated October 9, 1987. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1987.)
(g) Sixth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated September 3, 1987. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1987.)
(h) Seventh Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated June 30, 1988. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1988.)
(i) Eighth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated December 31, 1988. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1989.)
(j) Tenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated March 19, 1990. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1990.)
(k) Eleventh Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated December 31, 1990. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1990.)
(l) Twelfth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated September 30, 1991. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1991.)
(m) Thirteenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated December 31, 1991. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1992.)
(n) Fourteenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated March 31, 1992. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1992.)
(o) Fifteenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated June 30, 1992. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1992.)
(p) Sixteenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated November 23, 1992. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1992.)
(q) Seventeenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated April 22, 1993. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1993.)
(r) Eighteenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated September 30, 1993. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1993.)
(s) Nineteenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated December 31, 1993. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1993.)
(t) Twentieth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated July 26, 1994. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1994.)
(u) Twenty First Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated January 18, 1995. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1994.)
(v) Twenty Second Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated July 26, 1995. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1995.)
(w) Twenty Third Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated January 17, 1996. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1995.)
(x) Twenty Fourth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated April 30, 1996. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1996.)
(y) Twenty Fifth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated September 30, 1996. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1996.)
(z) Twenty Sixth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated January 15, 1997. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1997.
(aa) Twenty Seventh Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated May 10, 1997. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1997.)
16 Letter on Change in Certifying Accountant (Incorporated by reference from Partnership's Form 8- K dated June 9, 1997.)
27 Financial Data Schedule
99 Limited Partners as of January 15, 1997 Limited Partners as of May 10, 1997
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended December 31, 1997.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Southwest Royalties, Inc. Income Fund V, a Tennessee limited partnership
By: Southwest Royalties, Inc., Managing General Partner
By: /s/ H. H. Wommack, III ----------------------------- H. H. Wommack, III, President
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Partnership and in the capacities and on the dates indicated.
By: /s/ H. H. Wommack, III ----------------------------------- H. H. Wommack, III, Chairman of the Board, President, Chief Executive Officer, Treasurer and Director
Date: March 31, 1998
By: /s/ H. Allen Corey ----------------------------- H. Allen Corey, Secretary and Director
Date: March 31, 1998
Exhibit Index
Item No. Description Page No.
14(a)(3) Exhibit 4(z): Twenty Sixth Amendment to the 49 Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated January 15, 1997.
Exhibit 4(aa): Twenty Seventh Amendment to the 51 Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated May 10, 1997.
Exhibit 16: Letter on Changes in Certifying Accountant (Incorporated by reference from Partnership's Form 8-K dated June 9, 1997.)
This Instrument Prepared By: J. Porter Durham, Jr. Miller & Martin 1000 Volunteer Building 832 Georgia Avenue Chattanooga, Tennessee 37402
TWENTY SIXTH AMENDMENT TO CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP OF SOUTHWEST ROYALTIES, INC. INCOME FUND V, A TENNESSEE LIMITED PARTNERSHIP
Pursuant to the Tennessee Revised Uniform Limited Partnership Act, 62-2- 1204 of the Tennessee Code Annotated, and the provisions of the Tennessee Uniform Limited Partnership Act, being formerly 61-2-101, et seq. of the Tennessee Code Annotated, this Twenty sixth Amendment (the "Amendment") to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income V is executed to be effective as of the 15th day of January, 1997, by and between H.H. WOMMACK, III, an individual ("General Partner"), SOUTHWEST ROYALTIES, INC. ("Managing General Partner") (the Managing General Partner and the General Partner, are hereinafter collectively referred to as "General Partners"), and the General Partners as attorney-in-fact for those persons and entities listed on Schedule 1 attached to this Amendment, whether existing or additional limited partners (collectively the "Limited Partners") and as attorney-in-fact for the Withdrawing Limited Partners, as defined hereinafter.
WHEREAS, Southwest Royalties, Inc. Income V was organized as a Tennessee limited partnership pursuant to an Agreement of Limited Partnership, as amended from time to time, dated May 2, 1986 and recorded in Book 3197, Page 943 in the Register's Office of Hamilton County, Tennessee (the "Agreement"); and
WHEREAS, the General Partners, Limited Partners and Withdrawing Limited Partners desire to amend the Agreement in the manner set forth herein;
NOW, THEREFORE, for and in consideration of the mutual rights and obligations herein and other good and valuable consideration the receipt and legal sufficiency of which are acknowledged, the parties hereto agree as follows:
1. Schedule 1 to the Agreement is hereby deleted in its entirety and replaced by the Schedule 1 attached hereto. Those persons and entities which were formerly listed on Schedule 1 to the Agreement but which are not listed on the revised Schedule 1 attached hereto shall be defined collectively as the "Withdrawing Limited Partners."
2. Except as provided herein, the Agreement is hereby constituted and acknowledged as the controlling Agreement of Southwest Royalties, Inc. Income Fund V.
IN WITNESS WHEREOF, the parties hereto acknowledge that they have executed this Amendment to the Agreement to be effective as of the date first above written.
GENERAL PARTNERS:
/s/ H. H. Wommack, III By: ----------------------------------- H. H. Wommack, III, General Partner
By: SOUTHWEST ROYALTIES, INC. Managing General Partner
/s/ H. H. Wommack, III By: ----------------------------------- H. H. Wommack, III, President
LIMITED PARTNERS:
By: General Partners, as attorneys-in-fact for the Limited Partners listed on Schedule 1 attached hereto and those Withdrawing Limited Partners removed from Schedule 1 under Powers of Attorney previously granted
By: /s/ H. H. Wommack, III ----------------------------------- H. H. Wommack, III
By: SOUTHWEST ROYALTIES, INC. Managing General Partner
/s/ H. H. Wommack, III By: -----------------------------------
STATE OF TEXAS ) COUNTY OF MIDLAND )
Personally appeared before me, /s/ Kay Linn, Notary Public, H. H. Wommack, III, with whom I am personally acquainted, and who acknowledged that he executed the within instrument for the purposes therein contained for himself and as the attorney-in-fact for the admitted and withdrawing Limited Partners and as president of Southwest Royalties, Inc. for itself and as attorney-in-fact for the admitted and withdrawing Limited Partners, and who further acknowledged that he is authorized by Southwest Royalties, Inc., the Limited Partners and the Withdrawing Limited Partners to execute this document on its and their behalf.
Witness my hand, at office, this 15th day of January, 1997.
/s/ Kay Linn ----------------------------------- Notary Public
This Instrument Prepared By: J. Porter Durham, Jr. Miller & Martin 1000 Volunteer Building 832 Georgia Avenue Chattanooga, Tennessee 37402
TWENTY SEVENTH AMENDMENT TO CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP OF SOUTHWEST ROYALTIES, INC. INCOME FUND V, A TENNESSEE LIMITED PARTNERSHIP
Pursuant to the Tennessee Revised Uniform Limited Partnership Act, 62-2- 1204 of the Tennessee Code Annotated, and the provisions of the Tennessee Uniform Limited Partnership Act, being formerly 61-2-101, et seq. of the Tennessee Code Annotated, this Twenty seventh Amendment (the "Amendment") to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income V is executed to be effective as of the 10th day of May, 1997, by and between H. H. WOMMACK, III, an individual ("General Partner"), SOUTHWEST ROYALTIES, INC. ("Managing General Partner") (the Managing General Partner and the General Partner, are hereinafter collectively referred to as "General Partners"), and the General Partners as attorney-in-fact for those persons and entities listed on Schedule 1 attached to this Amendment, whether existing or additional limited partners (collectively the "Limited Partners") and as attorney-in-fact for the Withdrawing Limited Partners, as defined hereinafter.
WHEREAS, Southwest Royalties, Inc. Income V was organized as a Tennessee limited partnership pursuant to an Agreement of Limited Partnership, as amended from time to time, dated May 2, 1986 and recorded in Book 3197, Page 943 in the Register's Office of Hamilton County, Tennessee (the "Agreement"); and
WHEREAS, the General Partners, Limited Partners and Withdrawing Limited Partners desire to amend the Agreement in the manner set forth herein;
NOW, THEREFORE, for and in consideration of the mutual rights and obligations herein and other good and valuable consideration the receipt and legal sufficiency of which are acknowledged, the parties hereto agree as follows:
1. Schedule 1 to the Agreement is hereby deleted in its entirety and replaced by the Schedule 1 attached hereto. Those persons and entities which were formerly listed on Schedule 1 to the Agreement but which are not listed on the revised Schedule 1 attached hereto shall be defined collectively as the "Withdrawing Limited Partners."
2. Except as provided herein, the Agreement is hereby constituted and acknowledged as the controlling Agreement of Southwest Royalties, Inc. Income Fund V.
IN WITNESS WHEREOF, the parties hereto acknowledge that they have executed this Amendment to the Agreement to be effective as of the date first above written.
GENERAL PARTNERS:
/s/ H. H. Wommack, III By: ----------------------------------- H. H. Wommack, III, General Partner
By: SOUTHWEST ROYALTIES, INC. Managing General Partner
/s/ H. H. Wommack, III By: ----------------------------------- H. H. Wommack, III, President
LIMITED PARTNERS:
By: General Partners, as attorneys-in-fact for the Limited Partners listed on Schedule 1 attached hereto and those Withdrawing Limited Partners removed from Schedule 1 under Powers of Attorney previously granted
By: /s/ H. H. Wommack, III ----------------------------------- H. H. Wommack, III
By: SOUTHWEST ROYALTIES, INC. Managing General Partner
/s/ H. H. Wommack, III By: -----------------------------------
STATE OF TEXAS ) COUNTY OF MIDLAND )
Personally appeared before me, /s/ Vonda L. Walker, Notary Public, H. H. Wommack, III, with whom I am personally acquainted, and who acknowledged that he executed the within instrument for the purposes therein contained for himself and as the attorney-in-fact for the admitted and withdrawing Limited Partners and as president of Southwest Royalties, Inc. for itself and as attorney-in-fact for the admitted and withdrawing Limited Partners, and who further acknowledged that he is authorized by Southwest Royalties, Inc., the Limited Partners and the Withdrawing Limited Partners to execute this document on its and their behalf.
Witness my hand, at office, this 21st day of May, 1997.
/s/ Vonda L. Walker ----------------------------------- Notary Public
AMENDMENTS FOLLOW AS EX-99