Item 1. Business
General Southwest Royalties, Inc. Income Fund V (the "Partnership" or "Registrant") was organized as a Tennessee limited partnership on May 1, 1986. The offering of limited partnership interests began January 22, 1986, reached minimum capital requirements on May 1, 1986 and concluded July 22, 1986. The Partnership has no subsidiaries.
The Partnership has expended its capital and acquired interests in producing oil and gas properties. After such acquisitions, the Partnership has produced and marketed the crude oil and natural gas produced from such properties. In most cases, the Partnership purchased royalty or overriding royalty interests and working interests in oil and gas properties that were converted into net profits interests or other non-operating interests. The Partnership purchased either all or part of the rights and obligations under various oil and gas leases.
The principal executive offices of the Partnership are located at 407 N. Big Spring, Suite 300, Midland, Texas, 79701. The Managing General Partner of the Partnership, Southwest Royalties, Inc. (the "Managing General Partner") and its staff of 89 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. Effective December 31, 2001, Mr. Wommack sold his general partner interest to the Managing 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 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 and gas production depend upon numerous factors beyond the Partnership's control, including competition, economic, political and regulatory developments and competitive energy sources, and make it particularly difficult to estimate future prices of oil and natural gas.
For nearly nine months, despite the fears of a global recession, crude oil prices held steady between $26 and $28 per barrel due in part to a series of OPEC and non-OPEC production cuts. Then, following what has become known simply as "9-11", crude prices plunged immediately to $22 and gradually fell to below $18 per barrel. Slower demand across the U.S. caused by the threat of recession and warmer than expected weather also led to declining prices in the latter half of 2001. However, the oil cartel and other non-member countries agreed for the fourth time since February to curb output in an effort to stabilize prices. Crude oil contracts trading on the NYMEX closed the year at approximately $20 per barrel.
Spot prices in 2001 climbed to their highest levels ever, with the yearly average price nationwide reaching $4.14/MMBtu, up 9.77% from the 2000 average of $3.77/MMBtu. Prices reached their zenith in the first quarter of 2001 before beginning a steady decline throughout the remainder of the year. The terrorist attacks of September 11 knocked the New York Mercantile Exchange out of the market for several days and shook the spot marketplace into a maintenance mode. As companies measured the impact of the attacks on the U.S. economy, spot prices deteriorated further. In the fourth quarter, prices bottomed out for the year with the three-month average falling to $2.31/MMBtu. As for 2002, record-high storage levels and the expectation of a flat economy through the first half of the year are leading industry experts to predict prices to average $2.05/MMBtu, remaining above the $2.00 per MMBtu level for a 5th consecutive year.
Following is a table of the ratios of revenues received from oil and gas production for the last three years:
Oil Gas 2001 48% 52% 2000 53% 47% 1999 56% 44%
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. Three purchasers accounted for 77% of the Partnership's total oil and gas production during 2001: Duke Energy Field Services for 33%, Plains Marketing, LP for 28% and Sid Richardson Energy Services for 16%. Three purchasers accounted for 76% of the Partnership's total oil and gas production during 2000: Phillips 66 Company for 34%, Plain Marketing LP for 32% and Vintage Petroleum, Inc. for 10%. Three purchasers accounted for 64% of the Partnership's total oil and gas production during 1999: Scurlock Permian LLC for 28%, Phillips 66 Company for 26% and Vintage Petroleum Inc. for 10%. 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, 2001, there were 89 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, 2001, the Partnership possessed an interest in oil and gas properties located in Pottawatomie County, Oklahoma; and Crane, Dawson, Midland, Ward, Winkler and Upton Counties of Texas. These properties consist of various interests in approximately 59 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 2001, 2000 and 1999.
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) - ----------------- ------------ ------ ---------- --------- Damson-Rhoda Walker 12/86 at 44% 7 13,000 53,000 Ward County, to 100% net Texas profits interests
Devonian 5/86 at 28% to 1 4,000 73,000 Midland County, 100% net profits Texas interests
Mewbourne 1/87 at 50% to 7 17,000 99,000 Crane County, 100% net profits Texas interests
Walton Acquisition 12/86 at 22.5% to 6 - 93,000 Winkler County, 40% net profits Texas interests
*Ryder Scott Petroleum Engineers prepared the reserve and present value data for the Partnership's existing properties as of January 1, 2002. 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.
Oil price adjustments were made in the individual evaluations to reflect oil quality, gathering and transportation costs. The results of the reserve report as of January 1, 2002 are an average price of $18.85 per barrel.
Gas price adjustments were made in the individual evaluations to reflect BTU content, gathering and transportation costs and gas processing and shrinkage. The results of the reserve report as of January 1, 2002 are an average price of $2.70 per Mcf.
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 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 and proved undeveloped. All of the proved reserves are included in the engineering reports which evaluate the Partnership's present reserves.
Because the Partnership does not engage in drilling activities, the development of proved undeveloped reserves is conducted pursuant to farm- out arrangements with the Managing General Partner or unrelated third parties. Generally, the Partnership retains a carried interest such as an overriding royalty interest under the terms of a farm-out or receives cash.
The Partnership or the owners of properties in which the Partnership owns an interest can engage in workover projects or supplementary recovery projects, for example, to extract behind the pipe reserves which qualify as proved developed non-producing reserves. See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Partnership is a party.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders during the fourth quarter of 2001 through the solicitation of proxies or otherwise.
Part II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
Market Information Limited partnership interests, or units, in the Partnership were initially offered and sold for a price of $1,000. Limited partner units are not traded on any exchange and there is no public or organized trading market for them. The Managing General Partner has become aware of certain limited and sporadic transfers of units between limited partners and third parties, but has no verifiable information regarding the prices at which such units have been transferred. Further, a transferee may not become a substitute limited partner without the consent of the Managing General Partner.
After completion of the Partnership's first full fiscal year of operations and each year thereafter, the Managing General Partner has offered and will continue to offer to purchase each limited partner's interest in the Partnership, at a price based on tangible assets of the Partnership, plus the present value of the future net revenues of proved oil and gas properties, minus liabilities with a risk factor discount of up to one- third which may be implemented at the sole discretion of the Managing General Partner. However, the Managing General Partner's obligation to purchase limited partner units is limited to an expenditure of an amount not in excess of 10% of the total limited partner units initially subscribed for by limited partners. In 2001, 613.5 limited partner units were tendered to and purchased by the Managing General Partner at an average base price of $350.53 per unit. In 2000, 605.9 limited partner units were tendered to and purchased by the Managing General Partner at an average base price of $116.72 per unit. In 1999, 167.7 limited partner units were tendered to and purchased by the Managing General Partner at an average base price of $51.12 per unit.
Number of Limited Partner Interest Holders As of December 31, 2001, there were 559 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 quarterly 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 2001, quarterly distributions were made totaling $225,000 with $202,500 distributed to the limited partners and $22,500 to the general partners. For the year ended December 31, 2001, distribution of $27.00 per limited partner unit were made based upon 7,499 limited partner units outstanding. During 2000, quarterly distributions were made totaling $250,000, with $225,000 distributed to the limited partners and $25,000 to the general partners. For the year ended December 31, 2000, distributions of $30.00 per limited partner unit were made, based upon 7,499 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 $50,000, with $45,000 distributed to the limited partners and $5,000 to the general partners. For the year ended December 31, 1999, distributions of $6.00 per limited partner unit were made, based upon 7,499 limited partner units outstanding. The decline in distributions experienced in 1998 continued into 1999 with a small recovery in the fourth quarter.
Item 6.
Item 6. Selected Financial Data
The following selected financial data for the years ended December 31, 2001, 2000, 1999, 1998 and 1997 should be read in conjunction with the financial statements included in Item 8:
Years ended December 31, ---------------------------------------------------------- 2001 2000 1999 1998 1997 ---- ---- ---- ---- ---- Revenues $ 240,889 393,888 279,250 123,887 397,117
Net income (loss) 33,430 254,351 117,488 (724,042) 102,274
Partners' share of net income (loss):
General partners 3,343 25,435 11,749 (72,404) 10,228
Limited partners 30,087 228,916 105,739 (651,638) 92,046
Limited partners' net income (loss) per unit 4.01 30.53 14.10 (86.90) 12.27
Limited partners' cash distributions per unit 27.00 30.00 6.00 12.54 42.97
Total assets $ 353,457 545,215 540,747 473,384 1,301,730
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
General The Partnership was formed to acquire non-operating interests in producing oil and gas properties, to produce and market crude oil and natural gas produced from such properties and to distribute any net proceeds from operations to the general and limited partners. Net revenues from producing oil and gas properties are not reinvested in other revenue producing assets except to the extent that producing facilities and wells are reworked or where methods are employed to improve or enable more efficient recovery of oil and gas reserves. The economic life of the Partnership thus depends on the period over which the Partnership's oil and gas reserves are economically recoverable.
Increases or decreases in Partnership revenues and, therefore, distributions to partners will depend primarily on changes in the prices received for production, changes in volumes of production sold, lease operating expenses, enhanced recovery projects, offset drilling activities pursuant to farm-out arrangements and on the depletion of wells. Since wells deplete over time, production can generally be expected to decline from year to year.
Well operating costs and general and administrative costs usually decrease with production declines; however, these costs may not decrease proportionately. Net income available for distribution to the limited partners has fluctuated over the past few years and is expected to fluctuate in later years based on these factors.
Development drilling and workovers may be performed to increase production in the years 2002 and 2003. The partnership may have a slight increase in production volumes for the years 2002 and 2003, but thereafter, the partnership will most likely experience the historical production decline of 11% per year.
Critical Accounting Policies Full cost ceiling calculations The Partnership follows the full cost method of accounting for its oil and gas properties. The full cost method subjects companies to quarterly calculations of a "ceiling", or limitation on the amount of properties that can be capitalized on the balance sheet. If the Partnership's capitalized costs are in excess of the calculated ceiling, the excess must be written off as an expense.
The Partnership's discounted present value of its proved oil and natural gas reserves is a major component of the ceiling calculation, and represents the component that requires the most subjective judgments. Estimates of reserves are forecasts based on engineering data, projected future rates of production and the timing of future expenditures. The process of estimating oil and natural gas reserves requires substantial judgment, resulting in imprecise determinations, particularly for new discoveries. Different reserve engineers may make different estimates of reserve quantities based on the same data. The Partnership's reserve estimates are prepared by outside consultants.
The passage of time provides more qualitative information regarding estimates of reserves, and revisions are made to prior estimates to reflect updated information. However, there can be no assurance that more significant revisions will not be necessary in the future. If future significant revisions are necessary that reduce previously estimated reserve quantities, it could result in a full cost property writedown. In addition to the impact of these estimates of proved reserves on calculation of the ceiling, estimates of proved reserves are also a significant component of the calculation of DD&A.
While the quantities of proved reserves require substantial judgment, the associated prices of oil and natural gas reserves that are included in the discounted present value of the reserves do not require judgment. The ceiling calculation dictates that prices and costs in effect as of the last day of the period are generally held constant indefinitely. Because the ceiling calculation dictates that prices in effect as of the last day of the applicable quarter are held constant indefinitely, the resulting value is not indicative of the true fair value of the reserves. Oil and natural gas prices have historically been cyclical and, on any particular day at the end of a quarter, can be either substantially higher or lower than the Partnership's long-term price forecast that is a barometer for true fair value.
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.
Results of Operations
A. General Comparison of the Years Ended December 31, 2001 and 2000
The following table provides certain information regarding performance factors for the years ended December 31, 2001 and 2000:
Year Ended Percentage December 31, Increase 2001 2000 (Decrease) ---- ---- --------- Average price per barrel of oil $ 24.75 29.18 (15%) Average price per mcf of gas $ 4.23 4.56 (7%) Oil production in barrels 14,900 17,600 (15%) Gas production in mcf 94,200 100,600 (6%) Income from net profits interests $ 238,680 390,786 (39%) Partnership distributions $ 225,000 250,000 (10%) Limited partner distributions $ 202,500 225,000 (10%) Per unit distribution to limited partners $ 27.00 30.00 (10%) Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests decreased to $238,680 from $390,786 for the years ended December 31, 2001 and 2000, respectively, a decrease of 39%. The principal factors affecting the comparison of the years ended December 31, 2001 and 2000 are as follows:
1. The average price for a barrel of oil received by the Partnership decreased during the year ended December 31, 2001 as compared to the year ended December 31, 2000 by 15%, or $4.43 per barrel, resulting in a decrease of approximately $66,000 in income from net profits interests. Oil sales represented 48% of total oil and gas sales during the year ended December 31, 2001 as compared to 53% during the year ended December 31, 2000.
The average price for an mcf of gas received by the Partnership decreased during the same period by 7%, or $.33 per mcf, resulting in a decrease of approximately $31,100 in income from net profits interests.
The total decrease in income from net profits interests due to the change in prices received from oil and gas production is approximately $97,100. 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 2,700 barrels or 15% during the year ended December 31, 2001 as compared to the year ended December 31, 2000, resulting in a decrease of approximately $78,800 in income from net profits interests.
Gas production decreased approximately 6,400 mcf or 6% during the same period, resulting in a decrease of approximately $29,200 in income from net profits interests.
The total decrease in income from net profits interests due to the change in production is approximately $108,000.
3. Lease operating costs and production taxes were 9% lower, or approximately $52,900 less during the year ended December 31, 2001 as compared to the year ended December 31, 2000.
Costs and Expenses
Total costs and expenses increased to $207,459 from $139,537 for the years ended December 31, 2001 and 2000, respectively, an increase of 49%. The increase is the result of higher depletion expense, partially offset by a decrease general and administrative expense.
1. General and administrative costs consists of independent accounting and engineering fees, computer services, postage, and Managing General Partner personnel costs. General and administrative costs decreased 2% or approximately $2,100 during the year ended December 31, 2001 as compared to the year ended December 31, 2000.
2. Depletion expense increased to $92,000 for the year ended December 31, 2001 from $22,000 for the same period in 2000. This represents an increase of 318%. 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 increase in depletion expense between the comparative periods was the decrease in the price of oil and gas used to determine the Partnership's reserves for January 1, 2002 as compared to 2001, and the decrease in oil and gas revenues received by the Partnership during 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 $60,000 as of December 31, 2000.
Results of Operations
B. 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 $ 29.18 17.60 66% Average price per mcf of gas $ 4.56 2.42 88% Oil production in barrels 17,600 22,110 (20%) Gas production in mcf 100,600 124,650 (19%) Income from net profits interests $ 390,786 278,643 40% Partnership distributions $ 250,000 50,000 400% Limited partner distributions $ 225,000 45,000 400% Per unit distribution to limited partners $ 30.00 6.00 400% Number of limited partner units 7,499 7,499
Revenues
The Partnership's income from net profits interests increased to $390,786 from $278,643 for the years ended December 31, 2000 and 1999, respectively, an increase of 40%. 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 66%, or $11.58 per barrel, resulting in an increase of approximately $203,800 in income from net profits interests. Oil sales represented 53% of total oil and gas sales during the year ended December 31, 2000 as compared to 56% 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 88%, or $2.14 per mcf, resulting in an increase of approximately $215,300 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 $419,100. 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 4,510 barrels or 20% during the year ended December 31, 2000 as compared to the year ended December 31, 1999, resulting in a decrease of approximately $79,400 in income from net profits interests.
Gas production decreased approximately 24,050 mcf or 19% during the same period, resulting in a decrease of approximately $58,200 in income from net profits interests.
The total decrease in income from net profits interests due to the change in production is approximately $137,600. The decrease in production is due primarily to one well, which a workover was performed 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 41% higher, or approximately $169,000 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, such as pulling expenses being performed on several leases, 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 $139,537 from $161,762 for the years ended December 31, 2000 and 1999, respectively, a decrease of 14%. The decrease is the result of lower depletion expense and general and administrative expense.
1. General and administrative costs consists of independent accounting and engineering fees, computer services, postage, and Managing General Partner personnel costs. General and administrative costs decreased less than 1% or approximately $200 during the year ended December 31, 2000 as compared to the year ended December 31, 1999.
3. Depletion expense decreased to $22,000 for the year ended December 31, 2000 from $44,000 for the same period in 1999. This represents a decrease of 50%. 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.
C. Revenue and Distribution Comparison
Partnership net income for the years ended December 31, 2001, 2000 and 1999 was $33,430, $254,351 and $117,488, respectively. Excluding the effects of depreciation, depletion and amortization, net income for the years ended December 31, 2001, 2000 and 1999 would have been $125,430, $276,351 and $161,488, respectively. Correspondingly, Partnership distributions for the years ended December 31, 2001, 2000 and 1999 were $225,000, $250,000 and $50,000, respectively. These differences are indicative of the changes in oil and gas prices, production and properties during 2001, 2000 and 1999.
The sources for the 2001 distributions of $225,000 were oil and gas operations of approximately $246,500, resulting in excess cash for contingencies or subsequent distributions. The source for the 2000 distributions of $250,000 were oil and gas operations of approximately $248,900, with the balance from available cash on hand at the beginning of the period. The sources for the 1999 distributions of $50,000 were oil and gas operations of approximately $81,700, resulting in excess cash for contingencies or subsequent distributions.
Total distributions during the year ended December 31, 2001 were $225,000 of which $202,500 was distributed to the limited partners and $22,500 to the general partners. The per unit distribution to limited partners during the same period was $27.00. Total distributions during the year ended December 31, 2000 were $250,000 of which $225,000 was distributed to the limited partners and $25,000 to the general partners. The per unit distribution to limited partners during the same period was $30.00. Total distributions during the year ended December 31, 1999 were $50,000 of which $45,000 was distributed to the limited partners and $5,000 to the general partners. The per unit distribution to limited partners during the same period was $6.00.
Since inception of the Partnership, cumulative monthly cash distributions of $7,863,543 have been made to the partners. As of December 31, 2001, $7,060,820 or $941.57 per limited partner unit, has been distributed to the limited partners, representing an 94% 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 $246,500 in 2001 compared to $248,900 in 2000 and approximately $81,700 in 1999. The primary source of the 2001 cash flow from operating activities was profitable operations.
The Partnership had no cash flows from investing activities in 2001, 2000 and 1999.
Cash flows used in financing activities were approximately $225,500 in 2001 compared to $249,900 in 2000 and approximately $50,100 in 1999. The only use in financing activities was the distributions to partners.
As of December 31, 2001, the Partnership had approximately $58,800 in working capital. The Managing General Partner knows of no unusual contractual commitments and believes the revenue generated from operations are adequate to meet the needs of the Partnership.
Liquidity - MD&A
The Partnership accrued an oil and gas revenue receivable (included in the payable to the Managing General Partner) of $67,164 at December 31, 2001, and recognized a net loss in the fourth quarter of 2001 on an accrual basis for its net profits interest in oil and gas properties. Cash distributions of the net profits interest are based on actual cash received from the underlying oil and gas properties, net of expenses incurred during that quarterly period. Accordingly, if the net profits interest calculation results in expenses incurred exceeding the oil and gas income received during a quarter no net cash is due to the Partnership's net profits interest until the deficit is recovered from future net profits. Future cash distributions to the Partnership are dependent on a positive quarterly net profits calculation on the underlying properties, which differs from the calculation on an accrual basis.
Liquidity - Managing General Partner
The Managing General Partner has a highly leveraged capital structure with $50.0 million and $123.7 million of principal due in August of 2003 and October of 2004, respectively. The Managing General Partner will incur approximately $17.6 million in interest payments in 2002 on its debt obligations. Due to the depressed commodity prices experienced during the last quarter of 2001, the Managing General Partner is experiencing difficulty in generating sufficient cash flow to meet its obligations and sustain its operations. The Managing General Partner is currently in the process of renegotiating the terms of its various obligations with its creditors and/or attempting to seek new lenders or equity investors. Additionally, the Managing General Partner would consider disposing of certain assets in order to meet its obligations.
There can be no assurance that the Managing General Partner's debt restructuring efforts will be successful or that the lenders will agree to a course of action consistent with the Managing General Partners requirements in restructuring the obligations. Even if such agreement is reached, it may require approval of additional lenders, which is not assured. Furthermore, there can be no assurance that the sales of assets can be successfully accomplished on terms acceptable to the Managing General Partner. Under current circumstances, the Managing General Partner's ability to continue as a going concern depends upon its ability to (1) successfully restructure its obligations or obtain additional financing as may be required, (2) maintain compliance with all debt covenants, (3) generate sufficient cash flow to meet its obligations on a timely basis, and (4) achieve satisfactory levels of future earnings. If the Managing General Partner is unsuccessful in its efforts, it may be unable to meet its obligations making it necessary to undertake such other actions as may be appropriate to preserve asset values. Upon the occurrence of any event of dissolution by the Managing General Partner, the holders of a majority of limited partnership interests may, by written agreement, elect to continue the business of the Partnership in the Partnership's name, with Partnership property, in a reconstituted partnership under the terms of the partnership agreement and to designate a successor Managing General Partner.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 138, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Assessment by the Managing General Partner revealed this pronouncement to have no impact on the partnerships.
The FASB has issued Statement No. 143 "Accounting for Asset Retirement Obligations" which establishes requirements for the accounting of removal- type costs associated with asset retirements. The standard is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. The Managing General Partner is currently assessing the impact on the partnerships financial statements.
On October 3, 2001, the FASB issued Statements No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This pronouncement supercedes FAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed" and eliminates the requirement of Statement 121 to allocate goodwill to long-lived assets to be tested for impairment. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The Managing General Partner is currently assessing the impact to the partnerships financial statements.
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 V (A Tennessee Limited Partnership):
We have audited the accompanying balance sheets of Southwest Royalties, Inc. Income Fund V (the "Partnership") as of December 31, 2001 and 2000, 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, 2001. 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 V as of December 31, 2001 and 2000 and the results of its operations and its cash flows for each of the years in the three year period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.
KPMG LLP
Midland, Texas March 10, 2002
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership) Balance Sheets December 31, 2001 and 2000
2001 2000 ---- ---- Assets -------
Current assets: Cash and cash equivalents $ 64,290 43,322 Receivable from Managing General Partner - 115,255 Distribution receivable 304 -
- --------- --------- Total current assets 64,594 158,577
- --------- --------- Oil and gas properties - using the full- cost method of accounting 6,159,438 6,159,438 Less accumulated depreciation, depletion and amortization 5,864,800 5,772,800
- --------- --------- Net oil and gas properties 294,638 386,638
- --------- --------- $ 359,232 545,215
========= ========= Liabilities and Partners' Equity --------------------------------
Current liabilities: Distribution payable $ - 188 Payable to Managing General Partner 5,775 -
- --------- --------- Total current liabilities 5,775 188
- --------- --------- Partners' equity: General partners (640,847) (621,690) Limited partners 994,304 1,166,717
- --------- --------- Total partners' equity 353,457 545,027
- --------- --------- $ 359,232 545,215
========= =========
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership) Statements of Operations Years ended December 31, 2001, 2000 and 1999
2001 2000 ---- ---- - ---- Revenues --------
Income from net profits interests $ 238,680 390,786 278,643 Interest 2,209 3,102 607 ------- - ------- ------- 240,889 393,888 279,250 ------- - ------- ------- Expenses --------
General and administrative 115,459 117,537 117,762 Depreciation, depletion and amortization 92,000 22,000 44,000 ------- - ------- ------- 207,459 139,537 161,762 ------- - ------- ------- Net income $ 33,430 254,351 117,488 ======= ======= ======= Net income allocated to:
Managing General Partner $ 3,009 22,892 10,574 ======= ======= ======= General partner $ 334 2,543 1,175 ======= ======= ======= Limited partners $ 30,087 228,916 105,739 ======= ======= ======= Per limited partner unit $ 4.01 30.53 14.10 ======= ======= =======
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership) Statement of Changes in Partners' Equity Years ended December 31, 2001, 2000 and 1999
General Limited Partners Partners Total -------- -------- - ----- Balance at December 31, 1998 $ (628,874) 1,102,062 473,188
Net income 11,749 105,739 117,488
Distributions (5,000) (45,000) (50,000) -------- - --------- --------- Balance at December 31, 1999 (622,125) 1,162,801 540,676
Net income 25,435 228,916 254,351
Distributions (25,000) (225,000) (250,000) -------- - --------- --------- Balance at December 31, 2000 (621,690) 1,166,717 545,027
Net income 3,343 30,087 33,430
Distributions (22,500) (202,500) (225,000) -------- - --------- --------- Balance at December 31, 2001 $ (640,847) 994,304 353,457 ======== ========= =========
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership) Statements of Cash Flows Years ended December 31, 2001, 2000 and 1999
2001 2000 ---- ---- - ---- Cash flows from operating activities:
Cash received from net profits interests $ 353,842 330,342 221,934 Cash paid to Managing General Partner for administrative fees and general and administrative overhead (109,591) (84,578)(140,862) Interest received 2,209 3,102 607 -------- - -------- -------- Net cash provided by operating activities 246,460 248,866 81,679 -------- - -------- -------- Cash used in financing activities:
Distributions to partners (225,492) (249,883) (50,125) -------- - -------- -------- Net increase (decrease) in cash and cash equivalents 20,968 (1,017) 31,554
Beginning of year 43,322 44,339 12,785 -------- - -------- -------- End of year $ 64,290 43,322 44,339 ======== ======== ========
(continued)
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership) Statements of Cash Flows, continued Years ended December 31, 2001, 2000 and 1999
2001 2000 ---- ---- - ---- Reconciliation of net income to net cash provided by operating activities:
Net income $ 33,430 254,351 117,488
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization 92,000 22,000 44,000 Decrease (increase) in receivables 115,162 (60,444) (56,709) Increase (decrease) in payables 5,868 32,959 (23,100) ------- - ------- ------- Net cash provided by operating activities $ 246,460 248,866 81,679 ======= ======= =======
The accompanying notes are an integral part of these financial statements.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
1. Organization Southwest Royalties, Inc. Income Fund V was organized under the laws of the state of Tennessee on May 1, 1986, for the purpose of acquiring producing oil and gas properties and to produce and market crude oil and natural gas produced from such properties for a term of 50 years, unless terminated at an earlier date as provided for in the Partnership Agreement. The Partnership sells its oil and gas production to a variety of purchasers with the prices it receives being dependent upon the oil and gas economy. Southwest Royalties, Inc. serves as the Managing General Partner and H. H. Wommack, III, as the individual general partner. Effective December 31, 2001, Mr. Wommack sold his general partner interest to the Managing General Partner. Revenues, costs and expenses are allocated as follows:
Limited General Partners Partners -------- -------- Interest income on capital contributions 100% - Oil and gas sales 90% 10% All other revenues 90% 10% Organization and offering costs (1) 100% - Amortization of organization costs 100% - Property acquisition costs 100% - Gain/loss on property disposition 90% 10% Operating and administrative costs (2) 90% 10% Depreciation, depletion and amortization of oil and gas properties 90% 10% All other costs 90% 10%
(1) All organization costs in excess of 3% of initial capital contributions will be paid by the Managing General Partner and will be treated as a capital contribution. The Partnership paid the Managing General Partner an amount equal to 3% of initial capital contributions for such organization costs.
(2) Administrative costs in any year which exceed 2% of capital contributions shall be paid by the Managing General Partner and will be treated as a capital contribution.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
2. Summary of Significant Accounting Policies
Oil and Gas Properties Oil and gas properties are accounted for at cost under the full-cost method. Under this method, all productive and nonproductive costs incurred in connection with the acquisition, exploration and development of oil and gas reserves are capitalized. Gain or loss on the sale of oil and gas properties is not recognized unless significant oil and gas reserves are involved.
The Partnership's policy for depreciation, depletion and amortization of oil and gas properties is computed under the units of revenue method. Under the units of revenue method, depreciation, depletion and amortization is computed on the basis of current gross revenues from production in relation to future gross revenues, based on current prices, from estimated production of proved oil and gas reserves.
Under the units of revenue method, the Partnership computes the provision by multiplying the total unamortized cost of oil and gas properties by an overall rate determined by dividing (a) oil and gas revenues during the period by (b) the total future gross oil and gas revenues as estimated by the Partnership's independent petroleum consultants. It is reasonably possible that those estimates of anticipated future gross revenues, the remaining estimated economic life of the product, or both could be changed significantly in the near term due to the potential fluctuation of oil and gas prices or production. The depletion estimate would also be affected by this change.
Should the net capitalized costs exceed the estimated present value of oil and gas reserves, discounted at 10%, such excess costs would be charged to current expense. As of December 31, 2001, 2000 and 1999, the net capitalized costs did not exceed the estimated present value of oil and gas reserves.
The Partnership's interest in oil and gas properties consists of net profits interests in proved properties located within the continental United States. A net profits interest is created when the owner of a working interest in a property enters into an arrangement providing that the net profits interest owner will receive a stated percentage of the net profit from the property. The net profits interest owner will not otherwise participate in additional costs and expenses of the property.
The Partnership recognizes income from its net profits interest in oil and gas property on an accrual basis, while the quarterly cash distributions of the net profits interest are based on a calculation of actual cash received from oil and gas sales, net of expenses incurred during that quarterly period. The net profits interest is a calculated revenue interest that burdens the underlying working interest in the property, and the net profits interest owner is not responsible for the actual development or production expenses incurred. Accordingly, if the net profits interest calculation results in expenses incurred exceeding the oil and gas income received during a quarter, no cash distribution is due to the Partnership's net profits interest until the deficit is recovered from future net profits. The Partnership accrues a quarterly loss on its net profits interest provided there is a cumulative net amount due for accrued revenue as of the balance sheet date.
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. The Partnerships depletion calculation and full-cost ceiling test for oil and gas properties uses oil and gas reserves estimates, which are inherently imprecise. Actual results could differ from those estimates.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
2. Summary of Significant Accounting Policies- continued
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, 2001, 2000 and 1999, there were no significant amounts of imbalance in terms of units and value.
Income Taxes No provision for income taxes is reflected in these financial statements, since the tax effects of the Partnership's income or loss are passed through to the individual partners.
In accordance with the requirements of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", the Partnership's tax basis in its net oil and gas properties at December 31, 2001 and 2000 is $528,389 and $522,470, respectively, more than that shown on the accompanying Balance Sheets in accordance with generally accepted accounting principles.
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, 2001, 2000 and 1999, there were 7,499 limited partner units outstanding held by 559, 624 and 691 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 V (a Tennessee limited partnership)
Notes to Financial Statements
2. Summary of Significant Accounting Policies- continued
Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133, as amended by SFAS No. 138, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Assessment by the Managing General Partner revealed this pronouncement to have no impact on the partnerships.
The FASB has issued Statement No. 143 "Accounting for Asset Retirement Obligations" which establishes requirements for the accounting of removal-type costs associated with asset retirements. The standard is effective for fiscal years beginning after June 15, 2002, with earlier application encouraged. The Managing General Partner is currently assessing the impact on the partnerships financial statements.
On October 3, 2001, the FASB issued Statements No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This pronouncement supercedes FAS 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed" and eliminates the requirement of Statement 121 to allocate goodwill to long-lived assets to be tested for impairment. The provisions of this statement are effective for financial statements issued for fiscal years beginning after December 15, 2001, and interim periods within those fiscal years. The Managing General Partner is currently assessing the impact to the partnerships financial statements.
3. Liquidity - Managing General Partner The Managing General Partner has a highly leveraged capital structure with $50.0 million and $123.7 million of principal due in August of 2003 and October of 2004, respectively. The Managing General Partner will incur approximately $17.6 million in interest payments in 2002 on its debt obligations. Due to the depressed commodity prices experienced during the last quarter of 2001, the Managing General Partner is experiencing difficulty in generating sufficient cash flow to meet its obligations and sustain its operations. The Managing General Partner is currently in the process of renegotiating the terms of its various obligations with its creditors and/or attempting to seek new lenders or equity investors. Additionally, the Managing General Partner would consider disposing of certain assets in order to meet its obligations.
There can be no assurance that the Managing General Partner's debt restructuring efforts will be successful or that the lenders will agree to a course of action consistent with the Managing General Partners requirements in restructuring the obligations. Even if such agreement is reached, it may require approval of additional lenders, which is not assured. Furthermore, there can be no assurance that the sales of assets can be successfully accomplished on terms acceptable to the Managing General Partner. Under current circumstances, the Managing General Partner's ability to continue as a going concern depends upon its ability to (1) successfully restructure its obligations or obtain additional financing as may be required, (2) maintain compliance with all debt covenants, (3) generate sufficient cash flow to meet its obligations on a timely basis, and (4) achieve satisfactory levels of future earnings. If the Managing General Partner is unsuccessful in its efforts, it may be unable to meet its obligations making it necessary to undertake such other actions as may be appropriate to preserve asset values. Upon the occurrence of any event of dissolution by the Managing General Partner, the holders of a majority of limited partnership interests may, by written agreement, elect to continue the business of the Partnership in the Partnership's name, with Partnership property, in a reconstituted partnership under the terms of the partnership agreement and to designate a successor Managing General Partner.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
4. 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, 2001, 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.
5. 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 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 $96,500, $100,700 and $92,200 for the years ended December 31, 2001, 2000 and 1999, 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 $5,400, $24,800 and $47,000 for the years ended December 31, 2001, 2000 and 1999, respectively.
Southwest Royalties, Inc., the Managing General Partner, was paid $109,200 during 2001, 2000 and 1999, as an administrative fee, for indirect general and administrative overhead expenses.
(Payable) Receivables (to) from Southwest Royalties, Inc., the Managing General Partner, of $(5,775) and $115,255 are from oil and gas production, net of lease operating costs and production taxes, as of December 31, 2001 and 2000, respectively.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
5. Related Party Transactions - continued In addition, a director and officer of the Managing General Partner is a partner in a law firm, with such firm providing legal services to the Partnership approximating $900, $1,200 and $800 for the years ended December 31, 2001, 2000 and 1999, respectively.
6. Major Customers No material portion of the Partnership's business is dependent on a single purchaser, or a very few purchasers, where the loss of one would have a material adverse impact on the Partnership. Three purchasers accounted for 77% of the Partnership's total oil and gas production during 2001: Duke Energy Field Services for 33%, Plains Marketing, LP for 28% and Sid Richardson Energy Services for 16%. Three purchasers accounted for 76% of the Partnership's total oil and gas production during 2000: Phillips 66 Company for 34%, Plain Marketing LP for 32% and Vintage Petroleum, Inc. for 10%. Three purchasers accounted for 64% of the Partnership's total oil and gas production during 1999: Scurlock Permian Corporation for 28%, Phillips 66 Company for 26% and Vintage Petroleum Inc. for 10%. 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.
7. 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, 1999 78,000 531,000
Revisions of previous estimates 103,000 774,000 Production (22,000) (125,000) ------- --------- December 31, 1999 159,000 1,180,000
Revisions of previous estimates 22,000 139,000 Production (18,000) (101,000) ------- --------- December 31, 2000 163,000 1,218,000
Revisions of previous estimates (102,000) (760,000) Production (15,000) (94,000) ------- --------- December 31, 2001 46,000 364,000 ======= =========
Proved developed reserves -
December 31, 1999 134,000 1,093,000 ======= ========= December 31, 2000 145,000 1,169,000 ======= ========= December 31, 2001 36,000 324,000 ======= =========
All of the Partnership's reserves are located within the continental United States.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
7. Estimated Oil and Gas Reserves (unaudited)- continued *Ryder Scott Petroleum Engineers prepared the reserve and present value data for the Partnership's existing properties as of January 1, 2002. 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.
Oil price adjustments were made in the individual evaluations to reflect oil quality, gathering and transportation costs. The results of the reserve report as of January 1, 2002 are an average price of $18.85 per barrel.
Gas price adjustments were made in the individual evaluations to reflect BTU content, gathering and transportation costs and gas processing and shrinkage. The results of the reserve report as of January 1, 2002 are an average price of $2.70 per Mcf.
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. 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. Accordingly, reserve estimates are often different from the quantities of oil and gas that are ultimately recovered.
The Partnership has reserves which are classified as proved developed producing and proved undeveloped. All of the proved reserves are included in the engineering reports which evaluate the Partnership's present reserves. Because the Partnership does not engage in drilling activities, the development of proved undeveloped reserves is conducted pursuant to farm-out arrangements with the Managing General Partner or unrelated third parties. Generally, the Partnership retains a carried interest such as an overriding royalty interest under the terms of a farm-out or receives cash.
Southwest Royalties, Inc. Income Fund V (a Tennessee limited partnership)
Notes to Financial Statements
7. 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, 2001, 2000 and 1999 is presented below:
2001 2000 1999 ---- ---- ----
Future cash inflows, net of production and development costs $ 641,000 8,866,000 2,662,000 10% annual discount for estimated timing of cash flows 187,000 4,082,000 938,000 --------- --------- --------- Standardized measure of discounted future net cash flows $ 454,000 4,784,000 1,724,000 ========= ========= =========
The principal sources of change in the standardized measure of discounted future net cash flows for the years ended December 31, 2001, 2000 and 1999 are as follows:
2001 2000 1999 ---- ---- ----
Sales of oil and gas produced, net of production costs $ (239,000) (391,000) (279,000) Changes in prices and production costs (4,614,000) 2,996,000 373,000 Changes of production rates (timing) and other 1,017,000 (308,000) 7,000 Revisions of previous quantities estimates (972,000) 591,000 1,125,000 Accretion of discount 478,000 172,000 45,000 Discounted future net cash flows - Beginning of year 4,784,000 1,724,000 453,000 --------- --------- --------- End of year $ 454,000 4,784,000 1,724,000 ========= ========= =========
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 V (a Tennessee limited partnership)
Notes to Financial Statements
8. Selected Quarterly Financial Results - (unaudited)
Quarter ---------------------------------------------- First Second Third Fourth ------ ------- ------ ------ 2001: Total revenues $ 170,313 120,612 (45,035) (5,001) Total expenses 40,531 50,779 67,176 48,973 Net income (loss) 129,782 69,833 (112,211) (53,974) Net income (loss) per limited partners unit 15.58 8.38 (13.47) (6.48)
2000: Total revenues $ 112,109 112,015 93,306 76,458 Total expenses 39,770 36,977 37,298 25,492 Net income 72,339 75,038 56,008 50,965 Net income per limited partners unit 8.68 9.01 6.72 6.12
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 46 Chairman of the Board, President, Chief Executive Officer, Treasurer and Director
H. Allen Corey 45 Secretary and Director
Bill E. Coggin 47 Vice President and Chief Financial Officer
J. Steven Person 43 Vice President, Marketing
Paul L. Morris 60 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 44, 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 46, 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 $109,200 during 2001, 2000 and 1999 as an annual administrative fee.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
There are no limited partners who own of record, or are known by the Managing General Partner to beneficially own, more than five percent of the Partnership's limited partnership interests.
The Managing General Partner owns a nine percent interest in the Partnership as a general partner. Through repurchase offers to the limited partners, the Managing General Partner also owns 2,848.1 limited partner units, a 38.0% limited partner interest. The Managing General Partner total percentage interest ownership in the Partnership is 43.2%.
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 Managing General Partner as of December 31, 2001, repurchased the one percent interest owned by Mr. Wommack for approximately $29,186. 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 38.0% Interest Managing General Partner 2,848.1 Units 407 N. Big Spring Street Midland, TX 79701
Limited Partnership H. H. Wommack, III Indirectly Owns 38.0% Interest Chairman of the Board, 2,848.1 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 38.0% Interest Secretary and Director of 2,848.1 Units Southwest Royalties, Inc., the Managing General Partner 633 Chestnut Street Chattanooga, TN 37450-1800
Limited Partnership Bill E. Coggin Indirectly Owns 38.0% Interest Vice President and CFO of 2,848.1 Units Southwest Royalties, Inc., the Managing General Partner 407 N. Big Spring Street Midland, TX 79701
Limited Partnership J. Steven Person Indirectly Owns 38.0% Interest Vice President, Marketing 2,848.1 Units of Southwest Royalties, Inc., the Managing General Partner 407 N. Big Spring Street Midland, TX 79701
Limited Partnership Paul L. Morris Indirectly Owns 38.0% Interest Director of Southwest 2,848.1 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 2001, the Managing General Partner received $109,200 as an administrative fee. This amount is part of the general and administrative expenses incurred by the Partnership.
In some instances the Managing General Partner and certain officers and employees may be working interest owners in an oil and gas property in which the Partnership also has a net profits interest. Certain properties in which the Partnership has an interest are operated by the Managing General Partner, which was paid approximately $96,500 for administrative overhead attributable to operating such properties during 2001.
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 $5,400 for the year ended December 31, 2001.
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 2001 were approximately $900, which constitutes an immaterial portion of that firm's business.
In the opinion of management, the terms of the above transactions are similar to ones with unaffiliated third parties.
Part IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements:
Included in Part II of this report --
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 V, dated May 1, 1986. (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1986.)
(b) First Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated May 21, 1986. (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1986.)
(c) Second Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated July 1, 1986. (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1986.)
(d) Third Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated July 17, 1986. (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1986.)
(e) Fourth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated September 8, 1986. (Incorporated by reference from Partnership's Form 10-K for the fiscal year ended December 31, 1986.)
(f) Fifth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated October 9, 1987. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1987.)
(g) Sixth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated September 3, 1987. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1987.)
(h) Seventh Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated June 30, 1988. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1988.)
(i) Eighth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated December 31, 1988. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1989.)
(j) Tenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated March 19, 1990. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1990.)
(k) Eleventh Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated December 31, 1990. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1990.)
(l) Twelfth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated September 30, 1991. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1991.)
(m) Thirteenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated December 31, 1991. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1992.)
(n) Fourteenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated March 31, 1992. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1992.)
(o) Fifteenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated June 30, 1992. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1992.)
(p) Sixteenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated November 23, 1992. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1992.)
(q) Seventeenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated April 22, 1993. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 3 1, 1993.)
(r) Eighteenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated September 30, 1993. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1993.)
(s) Nineteenth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated December 31, 1993. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1993.)
(t) Twentieth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated July 26, 1994. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1994.)
(u) Twenty First Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated January 18, 1995. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1994.)
(v) Twenty Second Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated July 26, 1995. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1995.)
(w) Twenty Third Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated January 17, 1996. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1995.)
(x) Twenty Fourth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated April 30, 1996. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1996.)
(y) Twenty Fifth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated September 30, 1996. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1996.)
(z) Twenty Sixth Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated January 15, 1997. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1997.
(aa) Twenty Seventh Amendment to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated May 10, 1997. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1997.)
(bb) Twenty Eighth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income V, dated January 30, 1998. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1998.)
(cc) Twenty Ninth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated July 27, 1998. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1998.)
(dd) Thirtieth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated December 22, 1998. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1998.)
(ee) Thirty First Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated February 25, 1999. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1999.)
(ff) Thirty Second Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated July 27, 1999. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 1999.)
(gg) Thirty Third Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated February 10, 2000. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 2000.)
(hh) Thirty Fourth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated April 26, 2000. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 2000.)
(ii) Thirty Fifth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated September 13, 2000. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 2000.)
(jj) Thirty Sixth Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated February 20, 2001. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 2001.)
(kk) Thirty Seventh Amendment to Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated July 16, 2001. (Incorporated by reference from the Partnership's Form 10-K for the fiscal year ended December 31, 2001.)
99 Limited Partners as of February 20, 2001 Limited Partners as of July 16, 2001
(b) Reports on Form 8-K There were no reports filed on Form 8-K during the quarter ended December 31, 2001.
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Partnership has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Southwest Royalties, Inc. Income Fund V, a Tennessee limited partnership
By: Southwest Royalties, Inc., Managing General Partner
By: /s/ H. H. Wommack, III ----------------------------- H. H. Wommack, III, President
Date: April 11, 2002
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: April 11, 2002
By: /s/ H. Allen Corey ----------------------------- H. Allen Corey, Secretary and Director
Date: April 11, 2002
Exhibit Index
Item No. Description Page No.
14(a)(3) Exhibit 4(jj): Thirty Sixth Amendment to the 47 Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated February 20, 2001.
Exhibit 4(kk): Thirty Seventh Amendment to the 49 Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income Fund V, dated July 16, 2001.
This Instrument Prepared By: J. Porter Durham, Jr. Baker, Donelson, Bearman & Caldwell 1800 Republic Centre 633 Chestnut Street Chattanooga, Tennessee 37450
THIRTY-SIXTH AMENDMENT TO CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP OF SOUTHWEST ROYALTIES, INC. INCOME FUND V, A TENNESSEE LIMITED PARTNERSHIP
Pursuant to the Tennessee Revised Uniform Limited Partnership Act, 62-2- 1204 of the Tennessee Code Annotated, and the provisions of the Tennessee Uniform Limited Partnership Act, being formerly 61-2-101, et seq. of the Tennessee Code Annotated, this Thirty-Sixth Amendment (the "Amendment") to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income V is executed to be effective as of the 31st day of December, 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 V was organized as a Tennessee limited partnership pursuant to an Agreement of Limited Partnership, as amended from time to time, dated May 2, 1986 and recorded in Book 3197, Page 943 in the Register's Office of Hamilton County, Tennessee (the "Agreement"); and
WHEREAS, the General Partners, Limited Partners and Withdrawing Limited Partners desire to amend the Agreement in the manner set forth herein;
NOW, THEREFORE, for and in consideration of the mutual rights and obligations herein and other good and valuable consideration the receipt and legal sufficiency of which are acknowledged, the parties hereto agree as follows:
1. Schedule 1 to the Agreement is hereby deleted in its entirety and replaced by the Schedule 1 attached hereto. Those persons and entities which were formerly listed on Schedule 1 to the Agreement but which are not listed on the revised Schedule 1 attached hereto shall be defined collectively as the "Withdrawing Limited Partners."
2. Except as provided herein, the Agreement is hereby constituted and acknowledged as the controlling Agreement of Southwest Royalties, Inc. Income Fund V.
IN WITNESS WHEREOF, the parties hereto acknowledge that they have executed this Amendment to the Agreement to be effective as of the date first above written.
GENERAL PARTNERS:
/s/ H. H. Wommack, III By: ----------------------------------- H. H. Wommack, III, General Partner
By: SOUTHWEST ROYALTIES, INC. Managing General Partner
/s/ H. H. Wommack, III By: ----------------------------------- H. H. Wommack, III, President
LIMITED PARTNERS:
By: General Partners, as attorneys-in-fact for the Limited Partners listed on Schedule 1 attached hereto and those Withdrawing Limited Partners removed from Schedule 1 under Powers of Attorney previously granted
By: /s/ H. H. Wommack, III ----------------------------------- H. H. Wommack, III
By: SOUTHWEST ROYALTIES, INC. Managing General Partner
/s/ H. H. Wommack, III By: -----------------------------------
STATE OF TEXAS ) COUNTY OF MIDLAND )
Before me, 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 20th day of February, 2001.
/s/ B. Ross ----------------------------------- Notary Public
My commission expires: 08/30/03
This Instrument Prepared By: J. Porter Durham, Jr. Baker, Donelson, Bearman & Caldwell 1800 Republic Centre 633 Chestnut Street Chattanooga, Tennessee 37450
THIRTY-SEVENTH AMENDMENT TO CERTIFICATE AND AGREEMENT OF LIMITED PARTNERSHIP OF SOUTHWEST ROYALTIES, INC. INCOME FUND V, A TENNESSEE LIMITED PARTNERSHIP
Pursuant to the Tennessee Revised Uniform Limited Partnership Act, 62-2- 1204 of the Tennessee Code Annotated, and the provisions of the Tennessee Uniform Limited Partnership Act, being formerly 61-2-101, et seq. of the Tennessee Code Annotated, this Thirty-Seventh Amendment (the "Amendment") to the Certificate and Agreement of Limited Partnership of Southwest Royalties, Inc. Income V is executed to be effective as of the 30th day of June, 2001, by and between H.H. WOMMACK, III, an individual ("General Partner"), SOUTHWEST ROYALTIES, INC. ("Managing General Partner")(the Managing General Partner and the General Partner, are hereinafter collectively referred to as "General Partners"), and the General Partners as attorney-in-fact for those persons and entities listed on Schedule 1 attached to this Amendment, whether existing or additional limited partners (collectively the "Limited Partners") and as attorney-in-fact for the Withdrawing Limited Partners, as defined hereinafter.
WHEREAS, Southwest Royalties, Inc. Income V was organized as a Tennessee limited partnership pursuant to an Agreement of Limited Partnership, as amended from time to time, dated May 2, 1986 and recorded in Book 3197, Page 943 in the Register's Office of Hamilton County, Tennessee (the "Agreement"); and
WHEREAS, the General Partners, Limited Partners and Withdrawing Limited Partners desire to amend the Agreement in the manner set forth herein;
NOW, THEREFORE, for and in consideration of the mutual rights and obligations herein and other good and valuable consideration the receipt and legal sufficiency of which are acknowledged, the parties hereto agree as follows:
1. Schedule 1 to the Agreement is hereby deleted in its entirety and replaced by the Schedule 1 attached hereto. Those persons and entities which were formerly listed on Schedule 1 to the Agreement but which are not listed on the revised Schedule 1 attached hereto shall be defined collectively as the "Withdrawing Limited Partners."
2. Except as provided herein, the Agreement is hereby constituted and acknowledged as the controlling Agreement of Southwest Royalties, Inc. Income Fund V.
IN WITNESS WHEREOF, the parties hereto acknowledge that they have executed this Amendment to the Agreement to be effective as of the date first above written.
GENERAL PARTNERS:
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, 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 16th day of July, 2001.
/s/ B. Ross ----------------------------------- Notary Public
My commission expires: 8/30/03
AMENDMENTS FOLLOW AS EX-99