Item 1. Business
General Southwest Royalties, Inc. Income Fund VI (the "Partnership" or "Registrant") was organized as a Tennessee limited partnership on December 4, 1986. The offering of limited partnership interests began August 25, 1986, reached minimum capital requirements on October 3, 1986 and concluded January 29, 1987. 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 nonoperating 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 92 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, Illinois, Colorado and Oklahoma. 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 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.
The year 2000 was a record year for crude oil prices. The world energy markets witnessed a continuation of the 1999 recovery seeing prices in the U.S. peak at $37 per barrel in September. Increasing demand and depleting inventories appeared to be the motivators in crude's dramatic rise. At the beginning of 2000, U.S. crude oil inventories were approximately 16% lower than at the beginning of 1999 and summer vacationers made it through a travel season that saw gasoline prices top $2 per gallon in some U.S. markets. The lack of crude oil inventory in the U.S. was also magnified by the colder than normal winter that much of the country experienced. However, several production increases from OPEC coupled with President Clinton's release of 30 million barrels of oil from the U.S. Strategic Petroleum Reserve in September contributed to the slow in prices toward the end of the year. After averaging $30 per barrel for the year and over $32 from August through November, oil prices closed out the year 2000 at $26.80 per barrel.
Tighter supplies, rising demand, and the return of more seasonal summer and winter weather catapulted spot gas prices in 2000 to the highest levels since the market was deregulated in the mid-1980's. Average monthly spot prices rose an astounding 72.9% over 1999 levels to average $3.77/MMBTU. The climb in prices was fairly steady throughout the year, with the first- quarter spot prices averaging $2.44/MMBtu. After the winter season ended with a huge storage deficit of 306 BCF, a combination of factors contributed further to the upward trend in spot prices. As the summer temperatures heated up and the rate of storage injections remained sluggish, competition for gas supplies became fierce between power generators and gas utilities attempting to refill storage. Spot prices really took off in the fourth quarter as competition for storage gas in the waning days of the refill season became supercharged. And then came weeks of early heating-season cold, which caused gas utilities to scramble to meet the heating loads. A year of record high prices was capped off in December, with spot prices averaging $6.14/MMBtu, more than two-and-a-half times the previous five-year December average of $2.43/MMBtu.
Following is a table of the ratios of revenues received from oil and gas production for the last three years:
Oil Gas 2000 39% 61% 1999 44% 56% 1998 37% 63%
As the table indicates, the Partnership's revenue is almost evenly divided between its oil and gas production, the Partnership revenues will be highly dependent upon the future prices and demands for oil and gas.
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. Two purchasers accounted for 59% of the Partnership's total oil and gas production during 2000: Phillips 66 Natural Gas Co. for 48% and Plain Marketing, LP for 11%. Three purchasers accounted for 64% of the Partnership's total oil and gas production during 1999: Phillips 66 Natural Gas Co. for 42%, Scurlock Permian LLC for 11% and Genesis Crude Oil for 11%. Two purchasers accounted for 49% of the Partnership's total oil and gas production during 1998: Nustar Joint Venture for 38% and Scurlock Permian LLC for 11%. 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, 2000, there were 92 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, 2000, the Partnership possessed an interest in oil and gas properties located in Jackson and Weld Counties of Colorado; Clinton, Lawrence and Marion Counties of Illinois; Alfalfa, Beaver, Ellis, Garvin, Haskell, Latimer, Leflore, Logan, McClain, Noble, Pottawatomie, Roger Mills, Seminole and Woods Counties of Oklahoma; Brazos, Burleson, Coke, Eastland, Ector, Fayette, Gaines, Jim Wells, Lee, Lipscomb, Mitchell, Nolan, Pecos, Reeves, Runnels, Sterling, Upton, Ward and Winkler Counties of Texas. These properties consist of various interests in approximately 167 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 2000, 1999 and 1998.
During 2000, five leases were sold for approximately $2,500. There were no leases sold during 1999. During 1998, 78 leases were sold for approximately $61,000.
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) - ----------------- ------------ ------ ---------- --------- Mobil Amacker 7/87 at 23% 10 59,000 4,319,000 Tippet to 100% net Upton County, profits Texas interests
*Ryder Scott Petroleum Engineers prepared the reserve and present value data for the Partnership's existing properties as of January 1, 2001. 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, 2000 of $26.80 was used as the beginning basis for the oil price. Oil price adjustments from $26.80 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 $25.39 per barrel in the preparation of the reserve report as of January 1, 2001.
In the determination of the gas price, the New York Mercantile Exchange price at December 31, 2000 of $9.78 was used as the beginning basis. Gas price adjustments from $9.78 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 $10.01 per Mcf in the preparation of the reserve report as of January 1, 2001.
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 2000.
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, proved developed non-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 farmout 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 farmout, 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 2000 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 $500. 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 2000, 953 limited partner units were tendered to and purchased by the Managing General Partner at an average base price of $160.04 per unit. In 1999, 117 limited partner units were tendered to and purchased by the Managing General Partner at an average base price of $92.83 per unit. In 1998, 490 limited partner units were tendered to and purchased by the Managing General Partner at an average base price of $161.40 per unit.
Number of Limited Partner Interest Holders As of December 31, 2000 there were 767 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 2000, quarterly distributions were made totaling $1,175,000, with $1,057,500 distributed to the limited partners and $117,500 to the general partners. For the year ended December 31, 2000, distributions of $52.88 per limited partner unit were made, based upon 20,000 limited partner units outstanding. Distributions for 2000 increased significantly due to the record high oil and gas prices received during the year. During 1999, distributions were made totaling $475,000, with $427,500 distributed to the limited partners and $47,500 to the general partners. For the year ended December 31, 1999, distributions of $21.38 per limited partner unit were made, based upon 20,000 limited partner units outstanding. During 1998, distributions were made totaling $439,961, with $398,261 distributed to the limited partners and $41,700 to the general partners. For the year ended December 31, 1998, distributions of $19.91 per limited partner unit were made, based upon 20,000 limited partner units outstanding.
Item 6.
Item 6. Selected Financial Data
The following selected financial data for the years ended December 31, 2000, 1999, 1998, 1997 and 1996 should be read in conjunction with the financial statements included in Item 8:
Years ended December 31, ------------------------------------------------------------ 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Revenues $1,435,664 830,452 367,745 964,866 1,317,978
Net income (loss) 1,215,573 523,863 (49,492) 526,063 934,674
Partners' share of net income (loss):
General partners 121,557 52,386 (4,949) 52,607 93,468
Limited partners 1,094,016 471,477 (44,543) 473,456 841,206
Limited partners' net income (loss) per unit 54.70 23.57 (2.23) 23.67 42.06
Limited partners' cash distributions per unit 52.88 21.38 19.91 41.81 51.27
Total assets $2,242,902 2,202,052 2,152,173 2,641,528 3,044,532
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
General The Partnership was formed to acquire nonoperating 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 farmout 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 several workovers during 2001 and 2002 to enhance production. The partnership may have an increase in production volumes for the years 2001 and 2002, but thereafter, the partnership could possibly experience the historical production decline of approximately 9% per year.
Results of Operations
A. General Comparison of the Years Ended December 31, 2000 and 1999
The following table provides certain information regarding performance factors for the years ended December 31, 2000 and 1999:
Year Ended Percentage December 31, Increase 2000 1999 (Decrease) ---- ---- --------- Average price per barrel of oil $ 28.81 16.98 70% Average price per mcf of gas $ 4.21 2.31 82% Oil production in barrels 33,200 43,840 (24%) Gas production in mcf 352,300 406,660 (13%) Income from net profits interests $ 1,423,101 823,002 73% Partnership distributions $ 1,175,000 475,000 147% Limited partner distributions $ 1,057,500 427,500 147% Per unit distribution to limited partners $ 52.88 21.38 147% Number of limited partner units 20,000 20,000
Revenues
The Partnership's income from net profits interests increased to $1,423,101 from $823,002 for the years ended December 31, 2000 and 1999, respectively, an increase of 73%. The principal factors affecting the comparison of the years ended December 31, 2000 and 1999 are as follows:
1. The average price for a barrel of oil received by the Partnership increased during the year ended December 31, 2000 as compared to the year ended December 31, 1999 by 70%, or $11.83 per barrel, resulting in an increase of approximately $392,800 in income from net profits interests. Oil sales represented 39% of total oil and gas sales during the year ended December 31, 2000 as compared to 44% during the year ended December 31, 1999.
The average price for an mcf of gas received by the Partnership increased during the same period by 82%, or $1.90 per mcf, resulting in an increase of approximately $669,400 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 $1,062,200. 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 10,640 barrels or 24% during the year ended December 31, 2000 as compared to the year ended December 31, 1999, resulting in a decrease of approximately $180,700 in income from net profits interests.
Gas production decreased approximately 54,360 mcf or 13% during the same period, resulting in a decrease of approximately $125,600 in income from net profits interests.
The total decrease in income from net profits interests due to the change in production is approximately $306,300. The decrease in production is due primarily to one well, which a workover was preformed on during the first quarter of 1999, dramatically increasing production during the second quarter of 1999. This same well by year end 1999 had shut down and was no longer a producing well, thus the decrease for the twelve months ended December 31, 2000.
3. Lease operating costs and production taxes were 18% higher, or approximately $153,500 more during the year ended December 31, 2000 as compared to the year ended December 31, 1999. The increase in lease operating costs and production taxes is due in part to an increase in major repairs and maintenance and in part to the rise in production taxes directly associated with the rise in oil and gas prices received during the past year. The rise in oil and gas prices for 2000 has allowed the Partnership to perform these repairs and maintenance in the hopes of increasing production, thereby increasing revenues.
Costs and Expenses
Total costs and expenses decreased to $220,091 from $306,589 for the years ended December 31, 2000 and 1999, respectively, a decrease of 28%. The decrease is primarily the result of lower depletion expense, partially offset by an increase in general and administrative costs.
1. General and administrative costs consists of independent accounting and engineering fees, computer services, postage, and Managing General Partner personnel costs. General and administrative costs increased 2% or approximately $2,500 during the year ended December 31, 2000 as compared to the year ended December 31, 1999.
2. Depletion expense decreased to $67,000 for the year ended December 31, 2000 from $156,000 for the same period in 1999. This represents a decrease of 57%. 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.
The major factor to the decrease in depletion expense between the comparative periods was the increase in the price of oil and gas used to determine the Partnership's reserves for January 1, 2001 as compared to 2000. 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 $14,000 as of December 31, 1999.
Results of Operations
B. General Comparison of the Years Ended December 31, 1999 and 1998
The following table provides certain information regarding performance factors for the years ended December 31, 1999 and 1998:
Year Ended Percentage December 31, Increase 1999 1998 (Decrease) ---- ---- --------- Average price per barrel of oil $ 16.98 12.38 37% Average price per mcf of gas $ 2.31 1.89 22% Oil production in barrels 43,840 40,600 8% Gas production in mcf 406,660 453,300 (10%) Income from net profits interests $ 823,002 362,778 127% Partnership distributions $ 475,000 439,961 7% Limited partner distributions $ 427,500 398,261 7% Per unit distribution to limited partners $ 21.38 19.91 7% Number of limited partner units 20,000 20,000
Revenues
The Partnership's income from net profits interests increased to $823,002 from $362,778 for the years ended December 31, 1999 and 1998, respectively, an increase of 127%. The principal factors affecting the comparison of the years ended December 31, 1999 and 1998 are as follows:
1. The average price for a barrel of oil received by the Partnership increased during the year ended December 31, 1999 as compared to the year ended December 31, 1998 by 37%, or $4.60 per barrel, resulting in an increase of approximately $186,800 in income from net profits interests. Oil sales represented 44% of total oil and gas sales during the year ended December 31, 1999 as compared to 37% during the year ended December 31, 1998.
The average price for an mcf of gas received by the Partnership increased during the same period by 22%, or $.42 per mcf, resulting in an increase of approximately $190,400 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 $377,200. 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 3,240 barrels or 8% during the year ended December 31, 1999 as compared to the year ended December 31, 1998, resulting in an increase of approximately $55,000 in income from net profits interests.
Gas production decreased approximately 46,640 mcf or 10% during the same period, resulting in a decrease of approximately $107,700 in income from net profits interests.
The net total decrease in income from net profits interests due to the change in production is approximately $52,700. The increase in oil production is due primarily to a successful workover performed during the beginning of 1999. Production climbed during the middle of 1999 and then experienced a sharp decline. The decrease in gas production is due primarily to a significant gas well, which experienced down time, but after a major workover has slowly regained previous production levels.
3. Lease operating costs and production taxes were 13% lower, or approximately $134,000 less during the year ended December 31, 1999 as compared to the year ended December 31, 1998. The decrease in lease operating costs were primarily due to downtime and the shut-in of uneconomical wells.
Costs and Expenses
Total costs and expenses decreased to $306,589 from $417,237 for the years ended December 31, 1999 and 1998, respectively, a decrease of 27%. The decrease is primarily the result of lower depletion expense and general and administrative costs.
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 12% or approximately $19,600 during the year ended December 31, 1999 as compared to the year ended December 31, 1998. The decrease of general and administrative costs were due in part to additional accounting costs incurred in 1998 in relation to the outsourcing of K-1 tax package preparation and a change in auditors requiring opinions from both the predecessors and successor auditors. Additionally, the Managing General Partner in its effort to cut back on general and administrative costs whenever and wherever possible was able to reduce the cost of reserve reports and K-1 tax package preparation during 1999.
2. Depletion expense decreased to $156,000 for the year ended December 31, 1999 from $247,000 for the same period in 1998. This represents a decrease of 37%. 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 decrease in depletion expense between the comparative periods was the increase in the price of oil and gas used to determine the Partnership's reserves for January 1, 2000 as compared to 1999. 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 decreased depletion expense approximately $85,000 as of December 31, 1998.
C. Revenue and Distribution Comparison
Partnership net income (loss) for the years ended December 31, 2000, 1999 and 1998 was $1,215,573 in 2000, $523,863 in 1999 and $(49,492) in 1998. Excluding the effects of depreciation, depletion and amortization, net income for the years ended December 31, 2000, 1999 and 1998 would have been $1,282,573, $679,863 and $197,508, respectively. Correspondingly, Partnership distributions for the years ended December 31, 2000, 1999 and 1998 were $1,175,000, $475,000 and $439,961, respectively. These differences are indicative of the changes in oil and gas prices, production and properties during 2000, 1999 and 1998.
The sources for the 2000 distributions of $1,175,000 were oil and gas operations of approximately $1,154,900 and the change in oil and gas properties of approximately $2,500, with the balance from available cash on hand at the beginning of the period. The sources for the 1999 distributions of $475,000 were oil and gas operations of approximately $616,600, resulting in excess cash for contingencies or subsequent distributions. The sources for the 1998 distributions of $439,961 were oil and gas operations of approximately $339,200 and the change in oil and gas properties of approximately $98,400, with the balance from available cash on hand at the beginning of the period.
Total distributions during the year ended December 31, 2000 were $1,175,000 of which $1,057,500 was distributed to the limited partners and $117,500 to the general partners. The per unit distribution to limited partners during the same period was $52.88. Total distributions during the year ended December 31, 1999 were $475,000 of which $427,500 was distributed to the limited partners and $47,500 to the general partners. The per unit distribution to limited partners during the same period was $21.38. Total distributions during the year ended December 31, 1998 were $439,961 of which $398,261 was distributed to the limited partners and $41,700 to the general partners. The per unit distribution to limited partners during the same period was $19.91.
Since inception of the Partnership, cumulative monthly cash distributions of $16,326,459 have been made to the partners. As of December 31, 2000, $14,709,282 or $735.46 per limited partner unit, has been distributed to the limited partners, representing a 147% 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.
Cash flows provided by operating activities were approximately $1,154,900 in 2000 compared to $616,600 in 1999 and approximately $339,200 in 1998. The primary source of the 2000 cash flow from operating activities was profitable operations.
Cash flows provided by investing activities were approximately $2,500 in 2000. The Partnership had no cash flows from investing activities in 1999. Cash flows provided by investing activities were approximately $98,400 in 1998.
Cash flows used in financing activities were approximately $1,174,700 in 2000 compared to $474,000 in 1999 and approximately $439,900 in 1998. The only use in financing activities was the distributions to partners.
As of December 31, 2000, the Partnership had approximately $463,200 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.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is not a party to any derivative or embedded derivative instruments.
Item 8.
Item 8. Financial Statements and Supplementary Data
Page
Independent Auditors Report 20
Balance Sheets 21
Statements of Operations 22
Statement of Changes in Partners' Equity 23
Statements of Cash Flows 24
Notes to Financial Statements 26
INDEPENDENT AUDITORS REPORT
The Partners Southwest Royalties, Inc. Income Fund VI (A Tennessee Limited Partnership):
We have audited the accompanying balance sheets of Southwest Royalties, Inc. Income Fund VI (the "Partnership") as of December 31, 2000 and 1999, and the related statements of operations, changes in partners' equity and cash flows for each of the years in the three- year period ended December 31, 2000. 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 auditing standards generally accepted in the United States of America. 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 VI as of December 31, 2000 and 1999 and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with generally accounting principles generally accepted in the United States of America.
KPMG LLP
Midland, Texas March 21, 2001
Southwest Royalties, Inc. Income Fund VI (a Tennessee limited partnership) Balance Sheets December 31, 2000 and 1999
2000 1999 ---- ---- Assets
Current assets: Cash and cash equivalents $ 163,762 181,112 Receivable from Managing General Partner 301,006 173,306
- --------- --------- Total current assets 464,768 354,418
- --------- --------- Oil and gas properties - using the full- cost method of accounting 8,424,134 8,426,634 Less accumulated depreciation, depletion and amortization 6,646,000 6,579,000
- --------- --------- Net oil and gas properties 1,778,134 1,847,634
- --------- --------- $ 2,242,902 2,202,052
========= ========= Liabilities and Partners' Equity
Current liability - distribution payable $ 1,594 1,317
- --------- --------- Partners' equity: General partners (630,439) (634,496) Limited partners 2,871,747 2,835,231
- --------- --------- Total partners' equity 2,241,308 2,200,735
- --------- --------- $ 2,242,902 2,202,052
========= =========
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund VI (a Tennessee limited partnership) Statements of Operations Years ended December 31, 2000, 1999 and 1998
2000 1999 ---- ---- - ---- Revenues
Income from net profits interests $ 1,423,101 823,002 362,778 Interest 12,563 7,450 4,967 --------- - --------- --------- 1,435,664 830,452 367,745 --------- - --------- --------- Expenses
General and administrative 153,091 150,589 170,237 Depreciation, depletion and amortization 67,000 156,000 247,000 --------- - --------- --------- 220,091 306,589 417,237 --------- - --------- --------- Net income (loss) $ 1,215,573 523,863 (49,492) ========= ========= ========= Net income (loss) allocated to:
Managing General Partner $ 109,401 47,147 (4,454) ========= ========= ========= General partner $ 12,156 5,239 (495) ========= ========= ========= Limited partners $ 1,094,016 471,477 (44,543) ========= ========= ========= Per limited partner unit $ 54.70 23.57 (2.23) ========= ========= =========
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund VI (a Tennessee limited partnership) Statement of Changes in Partners' Equity Years ended December 31, 2000, 1999 and 1998
General Limited Partners Partners Total -------- -------- -----
Balance at December 31, 1997 $ (592,733) 3,234,058 2,641,325
Net loss (4,949) (44,543) (49,492)
Distributions (41,700) (398,261) (439,961) -------- - ---------- ---------- Balance at December 31, 1998 (639,382) 2,791,254 2,151,872
Net income 52,386 471,477 523,863
Distributions (47,500) (427,500) (475,000) -------- - ---------- ---------- Balance at December 31, 1999 (634,496) 2,835,231 2,200,735
Net income 121,557 1,094,016 1,215,573
Distributions (117,500) (1,057,500)(1,175,000) -------- - ---------- ---------- Balance at December 31, 2000 $ (630,439) 2,871,747 2,241,308 ======== ========== ==========
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund VI (a Tennessee limited partnership) Statements of Cash Flows Years ended December 31, 2000, 1999 and 1998
2000 1999 ---- ---- - ---- Cash flows from operating activities:
Cash received from net profits interests $ 1,298,078 766,709 489,768 Cash paid to Managing General Partner for administrative fees and general and administrative overhead (155,768) (157,603)(155,489) Interest received 12,563 7,450 4,967 --------- - --------- --------- Net cash provided by operating activities 1,154,873 616,556 339,246 --------- - --------- --------- Cash provided by investing activities:
Sale of oil and gas properties 2,500 - 98,437 --------- - --------- --------- Cash used in financing activities:
Distributions to partners (1,174,723) (473,983)(439,863) --------- - --------- ---------
Net (decrease) increase in cash and cash equivalents (17,350) 142,573 (2,180)
Beginning of year 181,112 38,539 40,719 --------- - --------- --------- End of year $ 163,762 181,112 38,539 ========= ========= =========
(continued)
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund VI (a Tennessee limited partnership) Statements of Cash Flows, continued Years ended December 31, 2000, 1999 and 1998
2000 1999 ---- ---- - ---- Reconciliation of net income (loss) to net cash provided by operating activities:
Net income (loss) $ 1,215,573 523,863 (49,492)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation, depletion and amortization 67,000 156,000 247,000 (Increase) decrease in receivables (125,023) (56,294) 126,990 (Decrease) increase in payables (2,677) (7,013) 14,748 --------- - -------- ------- Net cash provided by operating activities $ 1,154,873 616,556 339,246 ========= ======== =======
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund VI (a Tennessee limited partnership)
Notes to Financial Statements
1. Organization Southwest Royalties, Inc. Income Fund VI was organized under the laws of the state of Tennessee on December 4, 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 VI (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, 2000, 1999 and 1998, 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 VI (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, 2000, 1999 and 1998, the Partnership was over produced by 6,004, 1,429 and 1,596 mcf of gas.
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, 2000 and 1999 is $1,076,779 and $981,811, respectively, less than that shown on the accompanying Balance Sheets in accordance with generally accepted accounting principles.
Southwest Royalties, Inc. Income Fund VI (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, 2000, 1999 and 1998, there were 20,000 limited partner units outstanding held by 767, 826 and 848 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.
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 VI (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, 2000, 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 VI (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 $103,300, $105,400 and $128,200, for the years ended December 31, 2000, 1999 and 1998, 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 $54,800, $75,500 and $16,200, for the years ended December 31, 2000, 1999 and 1998, 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 $144,000 during 2000, 1999 and 1998, as an administrative fee for indirect general and administrative overhead expenses.
Receivables from Southwest Royalties, Inc., the Managing General Partner, of approximately $301,000 and $173,300 are from oil and gas production, net of lease operating costs and production taxes, as of December 31, 2000 and 1999, 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 $1,300, $900 and $900 for the years ended December 31, 2000, 1999 and 1998, 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. Two purchasers accounted for 59% of the Partnership's total oil and gas production during 2000: Phillips 66 Natural Gas Co. for 48% and Plain Marketing, LP for 11%. Three purchasers accounted for 64% of the Partnership's total oil and gas production during 1999: Phillips 66 Natural Gas Co. for 42%, Scurlock Permian LLC for 11% and Genesis Crude Oil for 11%. Two purchasers accounted for 49% of the Partnership's total oil and gas production during 1998: Nustar Joint Venture 38% and Scurlock Permian LLC 11%. 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 VI (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, 1998 510,000 3,852,000
Revisions of previous estimates (204,000) 1,802,000 Production (41,000) (453,000) Sale of minerals in place (9,000) (118,000) ------- --------- December 31, 1998 256,000 5,083,000
Revisions of previous estimates 215,000 1,078,000 Production (44,000) (407,000) ------- --------- December 31, 1999 427,000 5,754,000
Revisions of previous estimates (6,000) 220,000 Production (33,000) (352,000) ------- --------- December 31, 2000 388,000 5,622,000 ======= ========= Proved developed reserves -
December 31, 1998 216,000 4,891,000 ======= ========= December 31, 1999 385,000 5,398,000 ======= ========= December 31, 2000 308,000 5,196,000 ======= =========
All of the Partnership's reserves are located within the continental United States.
*Ryder Scott Petroleum Engineers prepared the reserve and present value data for the Partnership's existing properties as of January 1, 2001. 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, 2000 of $26.80 was used as the beginning basis for the oil price. Oil price adjustments from $26.80 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 $25.39 per barrel in the preparation of the reserve report as of January 1, 2001.
Southwest Royalties, Inc. Income Fund VI (a Tennessee limited partnership)
Notes to Financial Statements
6. Estimated Oil and Gas Reserves (unaudited) - continued In the determination of the gas price, the New York Mercantile Exchange price at December 31, 2000 of $9.78 was used as the beginning basis. Gas price adjustments from $9.78 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 $10.01 per Mcf in the preparation of the reserve report as of January 1, 2001.
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, proved developed non-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 farmout 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 farmout, or receives cash.
Southwest Royalties, Inc. Income Fund VI (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, 2000, 1999 and 1998 is presented below:
2000 1999 1998 ---- ---- ----
Future cash inflows, net of production and development costs $ 49,205,000 14,581,000 7,278,000 10% annual discount for estimated timing of cash flows 26,968,000 6,733,000 3,397,000 ---------- ---------- ---------- Standardized measure of discounted future net cash flows $ 22,237,000 7,848,000 3,881,000 ========== ========== ==========
The principal sources of change in the standardized measure of discounted future net cash flows for the years ended December 31, 2000, 1999 and 1998 are as follows:
2000 1999 1998 ---- ---- ----
Sales of oil and gas produced, net of production costs $(1,423,000) (823,000) (362,000) Changes in prices and production costs 15,689,000 2,271,000(1,423,000) Changes in estimated future development cost 105,000 (122,000) (29,000) Changes of production rates (timing) and others (1,282,000) (25,000)(1,736,000) Sales of minerals in place (2,000) - (131,000) Revisions of previous quantities estimates 517,000 2,278,000 343,000 Accretion of discount 785,000 388,000 656,000 Discounted future net cash flows - Beginning of year 7,848,000 3,881,000 6,563,000 ---------- ---------- ---------- End of year $ 22,237,000 7,848,000 3,881,000 ========== ========== ==========
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.
Southwest Royalties, Inc. Income Fund VI (a Tennessee limited partnership)
Notes to Financial Statements
7. Selected Quarterly Financial Results - (unaudited)
Quarter ---------------------------------------------- First Second Third Fourth ------ ------- ------ ------ 2000: Total revenues $ 352,100 371,794 390,211 321,559 Total expenses 78,492 49,386 60,911 31,302 Net income 273,608 322,408 329,300 290,257 Net income per limited partners unit 12.31 14.51 14.82 13.06
1999: Total revenues $ 111,631 258,099 366,005 94,717 Total expenses 83,546 81,386 63,468 78,189 Net income 28,085 176,713 302,537 16,528 Net income per limited partners unit 1.26 7.95 13.61 .74
Item 9.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None
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 45 Chairman of the Board, President, Chief Executive Officer, Treasurer and Director
H. Allen Corey 44 Secretary and Director
Bill E. Coggin 46 Vice President and Chief Financial Officer
J. Steven Person 42 Vice President, Marketing
Paul L. Morris 59 Director
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.
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.B.A. from Houston Baptist University in 1987.
Paul L. Morris has served as a Director of Southwest Royalties Holdings, Inc. since August 1998 and Southwest Royalties, Inc. since September 1998. Mr. Morris is President and CEO of Wagner & Brown, Ltd., one of the largest independently owned oil and gas companies in the United States. Prior to his position with Wagner & Brown, Mr. Morris served as President of Banner Energy and in various managerial positions with the Columbia Gas System, Inc.
Key Employees
Jon P. Tate, Vice President, Land and Assistant Secretary, age 43, 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 American Association of Petroleum Landmen. Mr. Tate received his B.B.S. degree from Hardin-Simmons University.
R. Douglas Keathley, Vice President, Operations, age 45, 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.
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 $144,000 during 2000, 1999 and 1998 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 as a general partner. Through repurchase offers to the limited partners, the Managing General Partner also owns 5,084.0 limited partner units, a 25.4% limited partner interest. The Managing General Partners total percentage interest ownership in the Partnership is 31.9%.
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 25.4% Interest Managing General Partner 5,084.0 Units 407 N. Big Spring Street Midland, TX 79701
Limited Partnership H. H. Wommack, III Indirectly Owns 25.4% Interest Chairman of the Board, 5,084.0 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 25.4% Interest Secretary and Director of 5,084.0 Units Southwest Royalties, Inc., the Managing General Partner 633 Chestnut Street Chattanooga, TN 37450-1800
Limited Partnership Bill E. Coggin Indirectly Owns 25.4% Interest Vice President and CFO of 5,084.0 Units Southwest Royalties, Inc., the Managing General Partner 407 N. Big Spring Street Midland, TX 79701
Limited Partnership J. Steven Person Indirectly Owns 25.4% Interest Vice President, Marketing 5,084.0 Units Southwest Royalties, Inc., the Managing General Partner 407 N. Big Spring Street Midland, TX 79701
Limited Partnership Paul L. Morris Indirectly Owns 25.4% Interest Director of Southwest 5,084.0 Units 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 2000, the Managing General Partner received $144,000 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, who was paid approximately $103,300 for administrative overhead attributable to operating such properties during 2000.
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 $54,800 for the year ended December 31, 2000
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 2000 were approximately $1,300, 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 --
Independent Auditors Report 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 VI, dated December 4, 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 VI, dated January 16,1987. (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1987.)
(c) Corrected Second Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated May 6, 1987. (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1987.)
(d) Third Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated February 3, 1988 (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1988.)
(e) Fourth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated June 30, 1988 (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1988.)
(f) Fifth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated December 30, 1988 (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1988.)
(g) Sixth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of March 19, 1990. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1990.)
(h) Seventh Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of December 31, 1990. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1990.)
(i) Eighth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of September 30, 1991. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1991.)
(j) Ninth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of December 31, 1991. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1992.)
(k) Tenth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of March 31, 1992. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1992.)
(l) Eleventh Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of June 30, 1992. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1992.)
(m) Twelfth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of November 23, 1992. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1992.)
(n) Thirteenth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of April 22, 1993. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1993.)
(o) Fourteenth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of September 30, 1993. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1993.)
(p) Fifteenth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of December 31, 1993. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1993.)
(q) Sixteenth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of July 26, 1994. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1994.)
(r) Seventeenth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of January 18, 1995. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1994.)
(s) Eighteenth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of July 26, 1995.
(t) Nineteenth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of January 29, 1996.
(u) Twentieth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of April 30, 1996.
2234: (v) Twenty First Amendment to Certificate and Agreement of Limited 2235: Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of September 30, 1996.
2238: (w) Twenty Second Amendment to Certificate and Agreement of Limited 2239: Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of January 15, 1997.
(x) Twenty Third Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of May 10, 1997.
(y) Twenty Fourth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of January 30, 1998.
(z) Twenty Fifth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of July 27, 1998.
(aa) Twenty Sixth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of December 22, 1998.
(bb) Twenty Seventh Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of February 25, 1999.
(cc) Twenty Eighth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of July 27, 1999.
(dd) Twenty Ninth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of February 10, 2000.
(ee) Thirtieth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of April 26, 2000.
(ff) Thirty First Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of September 13, 2000.
27 Financial Data Schedule
99 Limited Partners as of February 10, 2000 Limited Partners as of April 26, 2000 Limited Partners as of September 13, 2000
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the quarter ended December 31, 2000.
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 VI, a Tennessee limited partnership
By: Southwest Royalties, Inc., Managing General Partner
By: /s/ H. H. Wommack, III ----------------------------- H. H. Wommack, III, President
Date: March 30, 2001
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 30, 2001
By: /s/ H. Allen Corey ----------------------------- H. Allen Corey, Secretary and Director
Date: March 30, 2001
Exhibit Index
Item No. Description Page No.
14(a)(3) Exhibit 4(dd): Twenty Ninth Amendment to Certificate 47 and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of February 10, 2000.
Exhibit 4 (ee): Thirtieth Amendment to Certificate 49 and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of April 26, 2000.
Exhibit 4 (ff): Thirty First Amendment to Certificate 51 and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI, dated as of September 13, 2000.
This Instrument Prepared By: J. Porter Durham, Jr. Baker, Donelson, Bearman & Caldwell 1800 Republic Centre 633 Chestnut Street Chattanooga, Tennessee 37450-1800
TWENTY-NINTH AMENDMENT TO CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP OF SOUTHWEST ROYALTIES, INC. INCOME FUND VI, 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-Ninth Amendment (the "Amendment") to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI is executed to be effective as of the 1st day of January, 2000, 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 Fund VI was organized as a Tennessee limited partnership pursuant to an Agreement of Limited Partnership, as amended from time to time, dated December 4, 1986 and recorded in Book 3280, Page 726 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 VI.
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:
By: /s/ H. H. Wommack, III ----------------------------------- H. H. Wommack, III, General Partner
By: SOUTHWEST ROYALTIES, INC. Managing General Partner
By: /s/ H. H. Wommack, III ----------------------------------- 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
By: /s/ H. H. Wommack, III -----------------------------------
STATE OF TEXAS ) COUNTY OF MIDLAND )
Before me, /s/ B. Ross, a Notary Public in and for the State and County aforesaid, personally appeared H.H. Wommack, III, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself to be 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 and seal at office, on this the 10 day of February, 2000.
/s/ B.Ross ----------------------------------- Notary Public
This Instrument Prepared By: J. Porter Durham, Jr. Baker, Donelson, Bearman & Caldwell 1800 Republic Centre 633 Chestnut Street Chattanooga, Tennessee 37450-1800
THIRTIETH AMENDMENT TO CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP OF SOUTHWEST ROYALTIES, INC. INCOME FUND VI, 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 Thirtieth Amendment (the "Amendment") to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI is executed to be effective as of the 4th day of April, 2000, 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 Fund VI was organized as a Tennessee limited partnership pursuant to an Agreement of Limited Partnership, as amended from time to time, dated December 4, 1986 and recorded in Book 3280, Page 726 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 VI.
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:
By: /s/ H. H. Wommack, III ----------------------------------- H. H. Wommack, III, General Partner
By: SOUTHWEST ROYALTIES, INC. Managing General Partner
By: /s/ H. H. Wommack, III ----------------------------------- 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
By: /s/ H. H. Wommack, III -----------------------------------
STATE OF Texas ) COUNTY OF Midland )
Before me, /s/ B. Ross, a Notary Public in and for the State and County aforesaid, personally appeared H.H. Wommack, III, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself to be 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, 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 and seal at office, on this the 26 day of April, 2000.
/s/ B. Ross ----------------------------------- Notary Public
This Instrument Prepared By: J. Porter Durham, Jr. Baker, Donelson, Bearman & Caldwell 1800 Republic Centre 633 Chestnut Street Chattanooga, Tennessee 37450-1800
THIRTY FIRST AMENDMENT TO CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP OF SOUTHWEST ROYALTIES, INC. INCOME FUND VI, 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 Thirty First Amendment (the "Amendment") to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund VI is executed to be effective as of the 30th day of June, 2000, 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 Fund VI was organized as a Tennessee limited partnership pursuant to an Agreement of Limited Partnership, as amended from time to time, dated December 4, 1986 and recorded in Book 3280, Page 726 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 VI.
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:
By: /s/ H. H. Wommack, III ----------------------------------- H. H. Wommack, III, General Partner
By: SOUTHWEST ROYALTIES, INC. Managing General Partner
By: /s/ H. H. Wommack, III ----------------------------------- 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
By: /s/ H. H. Wommack, III -----------------------------------
STATE OF Texas ) COUNTY OF Midland )
Before me, /s/ B. Ross, a Notary Public in and for the State and County aforesaid, personally appeared H.H. Wommack, III, with whom I am personally acquainted (or proved to me on the basis of satisfactory evidence), and who, upon oath, acknowledged himself to be 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, 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 and seal at office, on this the 13 day of September, 2000.
/s/ B. Ross ----------------------------------- Notary Public
AMENDMENTS FOLLOW AS EX-99