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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[x] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the fiscal year ended December 31, 2001
OR
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission File Number 0-15408
Southwest Royalties, Inc. Income Fund V
(Exact name of registrant as specified in
its limited partnership agreement)
Tennessee 75-2104619
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
407 N. Big Spring, Suite 300, Midland, Texas 79701
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (915) 686-9927
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
limited partnership interests
Indicate by check mark whether registrant (1) has filed reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes x No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [x]
The registrant's outstanding securities consist of Units of limited
partnership interests for which there exists no established public market
from which to base a calculation of aggregate market value.
The total number of pages contained in this report is 51 The exhibit index
is found on page 46
Table of Contents
Item Page
Part I
1. Business 3
2. Properties 6
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
Part II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters 9
6. Selected Financial Data 10
7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
8. Financial Statements and Supplementary Data 19
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 34
Part III
10. Directors and Executive Officers of the Registrant 35
11. Executive Compensation 37
12. Security Ownership of Certain Beneficial Owners
and Management 37
13. Certain Relationships and Related Transactions 39
Part IV
14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 40
Signatures 45
Part I
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. 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. Legal Proceedings
There are no material pending legal proceedings to which the Partnership is
a party.
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. 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. 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. 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. Quantitative and Qualitative Disclosures About Market Risk
The Partnership is not a party to any derivative or embedded derivative
instruments.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements
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
1999
---- ----
- ----
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
1999
---- ----
- ----
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
1999
---- ----
- ----
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. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Part III
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. 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. 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. 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. 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