item 14 exhibits financial statement schedules reports form 8k a1 financial statements included part ii report reports independent accountants balance sheets statements operations statement changes partners equity statements cash flows notes financial statements 2 schedules required article 12 regulation x either omitted applicable required information shown financial statements notes thereto 3 exhibits 4 certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 27 financial data schedule b reports form 8k reports filed form 8k quarter ended december 31 1998 signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner h wommack iii h wommack iii president date march 31 1999 pursuant requirements securities exchange act 1934 report signed following persons behalf partnership capacities dates indicated h wommack iii h wommack iii chairman board president chief executive officer treasurer director date march 31 1999 h allen corey h allen corey secretary director date march 31 1999 item 14 exhibits financial statement schedules reports form 8k a1 financial statements included part ii report reports independent accountants balance sheets statements operations statement changes partners equity statements cash flows notes financial statements 2 schedules required article 12 regulation x either omitted applicable required information shown financial statements notes thereto 3 exhibits 4 certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 16 letter change certifying accountant incorporated reference partnerships form 8k dated june 9 1997 27 financial data schedule b reports form 8k reports filed form 8k quarter ended december 31 1997 signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner h wommack iii h wommack iii president date march 31 1998 pursuant requirements securities exchange act 1934 report signed following persons behalf partnership capacities dates indicated h wommack iii h wommack iii chairman board president chief executive officer treasurer director date march 31 1998 h allen corey h allen corey secretary director date march 31 1998 item 14 exhibits financial statement schedules reports form 8k a1 financial statements included part ii report independent auditors report balance sheets statements operations statement changes partners equity statements cash flows notes financial statements 2 schedules required article 12 regulation x either omitted applicable required information shown financial statements notes thereto 3 exhibits 4 certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 27 financial data schedule b reports form 8k reports filed form 8k quarter ended december 31 2000 signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner h wommack iii h wommack iii president date march 30 2001 pursuant requirements securities exchange act 1934 report signed following persons behalf partnership capacities dates indicated h wommack iii h wommack iii chairman board president chief executive officer treasurer director date march 30 2001 h allen corey h allen corey secretary director date march 30 2001 item 14 principal accounting fees services following table presents fees professional audit services rendered kpmg llp audit partnership’s annual financial statements years ended december 31 2006 2005 fees billed services rendered kpmg periods audit committee cwei reviewed approved advance audit nonaudit services provided kpmg llp part iv item 15 item 14 exhibits financial statement schedules reports form 8k a1 financial statements included part ii report independent auditors report balance sheets statements operations statement changes partners equity statements cash flows notes financial statements 2 schedules required article 12 regulation x either omitted applicable required information shown financial statements notes thereto 3 exhibits 4 certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 27 financial data schedule b reports form 8k reports filed form 8k quarter ended december 31 1999 signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner h wommack iii h wommack iii president date march 31 2000 pursuant requirements securities exchange act 1934 report signed following persons behalf partnership capacities dates indicated h wommack iii h wommack iii chairman board president chief executive officer treasurer director date march 31 2000 h allen corey h allen corey secretary director date march 31 2000 item 14 exhibits financial statement schedules reports form 8k a1 financial statements included part ii report independent auditors report balance sheets statements operations statement changes partners equity statements cash flows notes financial statements 2 schedules required article 12 regulation x either omitted applicable required information shown financial statements notes thereto 3 exhibits 4 certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b reports form 8k reports filed form 8k quarter ended december 31 2001 signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner h wommack iii h wommack iii president date march 29 2002 pursuant requirements securities exchange act 1934 report signed following persons behalf partnership capacities dates indicated h wommack iii h wommack iii chairman board president chief executive officer treasurer director date march 29 2002 h allen corey h allen corey secretary director date march 29 2002 item 14 exhibits financial statement schedules reports form 8k a1 financial statements included part ii report independent auditors report balance sheets statements operations statement changes partners equity statements cash flows notes financial statements 2 schedules required article 12 regulation x either omitted applicable required information shown financial statements notes thereto 3 exhibits 4 certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 991 certification pursuant 18 usc section 1350 992 certification pursuant 18 usc section 1350 b reports form 8k reports filed form 8k quarter ended december 31 2002 signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner h wommack iii h wommack iii president date march 28 2003 pursuant requirements securities exchange act 1934 report signed following persons behalf partnership capacities dates indicated bys h wommack iii james n chapman h wommack iii james n chapman chairman board director president director chief executive officer date march 28 2003 date march 28 2003 william p joseph j nicoletti radecki jr william p nicoletti joseph j radecki jr director date march 28 2003 date march 28 2003 richard john white rinehart richard rinehart john white director date march 28 2003 date march 28 2003 herbert c williamson iii herbert c williamson iii director date march 28 2003 certifications hh wommack iii certify 1 reviewed annual report form 10k southwest royalties institutional income fund xa lp 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d 14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 28 2003 hh wommack iii h wommack iii chairman president director chief executive officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp certifications bill e coggin certify 1 reviewed annual report form 10k southwest royalties institutional income fund xa lp 2 based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3 based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows registrant periods presented annual report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d 14 registrant designed disclosure controls procedures ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period annual report prepared b evaluated effectiveness registrants disclosure controls procedures date within 90 days prior filing date annual report evaluation date c presented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5 registrants certifying officers disclosed based recent evaluation registrants auditors audit committee registrants board directors persons performing equivalent functions significant deficiencies design operation internal controls could adversely affect registrants ability record process summarize report financial data identified registrants auditors material weaknesses internal controls b fraud whether material involves management employees significant role registrants internal controls 6 registrants certifying officers indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses date march 28 2003 bill e coggin bill e coggin executive vice president chief financial officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp exhibit index item description page exhibit 991 certification pursuant 18 usc 41 section 1350 adopted pursuant section 906 sarbanesoxley act 2002 exhibit 992 certification pursuant 18 usc 42 section 1350 adopted pursuant section 906 sarbanesoxley act 2002 certification pursuant 19 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 connection annual report southwest royalties institutional income fund xa limited partnership company form 10k period ending december 31 2002 filed securities exchange commission date hereof report hh wommack iii chief executive officer managing general partner company certify pursuant 18 usc 1350 adopted pursuant 906 sarbanesoxley act 2002 1 report fully complies requirements section 13a 15d securities exchange act 1934 2 information contained report fairly presents material respects financial condition results operation company date march 28 2003 hh wommack iii h wommack iii chairman president director chief executive officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp certification pursuant 19 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 connection annual report southwest royalties institutional income fund xa limited partnership company form 10k period ending december 31 2002 filed securities exchange commission date hereof report bill e coggin chief financial officer managing general partner company certify pursuant 18 usc 1350 adopted pursuant 906 sarbanes oxley act 2002 3 report fully complies requirements section 13a 15d securities exchange act 1934 4 information contained report fairly presents material respects financial condition results operation company date march 28 2003 bill e coggin bill e coggin executive vice president chief financial officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp item 14 principal accountant fees services following table presents fees professional audit services rendered kpmg llp audit partnerships annual financial statements years ended december 31 2003 2002 fees billed services rendered kpmg periods year ended december 2003 31 2002 audit fees 8893 4763 audit related fees1 tax fees total 8893 4763 audit committee managing general partner reviewed approved advance audit nonaudit services provided kpmg llp part iv item 15 item 14 principal accounting fees services following table presents fees professional audit services rendered kpmg llp audit partnership’s annual financial statements years ended december 31 2008 2007 fees billed services rendered kpmg periods audit committee cwei reviewed approved advance audit nonaudit services provided kpmg llp part iv item 15 item 14 exhibits financial statement schedules reports form 8k a1 financial statements included part ii report independent accountants balance sheets statements operations statement changes partners equity statements cash flows notes financial statements 2 schedules required article 12 regulation sx either omitted applicable required information shown financial statements notes thereto 3 exhibits 4 certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 27 financial data schedule b reports form 8k reports filed form 8k quarter ended december 31 1996 signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner h wommack iii h wommack iii president date march 26 1996 pursuant requirements securities exchange act 1934 report signed following persons behalf partnership capacities dates indicated h wommack iii h wommack iii chairman board president chief executive officer treasurer director date march 26 1997 h allen corey h allen corey secretary director date march 26 1997 item 14 principal accountant fees services following table presents fees professional audit services rendered kpmg llp audit partnerships annual financial statements years ended december 31 2005 2004 fees billed services rendered kpmg periods year ended december 2005 2004 31 audit fees 13303 12865 audit related fees tax fees total 13303 12865 audit committee cwei reviewed approved advance audit nonaudit services provided kpmg llp part iv item 15 item 14 principal accounting fees services following table presents fees professional audit services rendered kpmg llp audit partnership’s annual financial statements years ended december 31 2007 2006 fees billed services rendered kpmg periods audit committee cwei reviewed approved advance audit nonaudit services provided kpmg llp part iv item 15 item 14 principal accounting fees services following table presents fees professional audit services rendered kpmg llp audit partnership’s annual financial statements years ended december 31 2010 2009 fees billed services rendered kpmg periods audit committee cwei reviewed approved advance audit nonaudit services provided kpmg llp part iv item 15 item 14 principal accounting fees services following table presents fees professional audit services rendered kpmg llp audit partnerships annual financial statements years ended december 31 2004 2003 fees billed services rendered kpmg periods year ended december 2004 2003 31 audit fees 12865 8893 audit related fees tax fees total 12865 8893 audit committee cwei reviewed approved advance audit nonaudit services provided kpmg llp part iv item 15 item 14 principal accounting fees services following table presents fees professional audit services rendered kpmg llp audit partnership’s annual financial statements years ended december 31 2009 2008 fees billed services rendered kpmg periods audit committee cwei reviewed approved advance audit nonaudit services provided kpmg llp part iv item 15 item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold lease operating expenses enhanced recovery projects offset drilling activities pursuant farmout arrangements depletion wells since wells deplete time production generally expected decline year well operating costs general administrative costs usually decrease production declines however costs may decrease proportionately net income available distribution limited partners therefore expected fluctuate later years based factors based current conditions management anticipates performing workovers 1999 enhance production expected price improvement workovers may performed year 2000 partnership may increase year 2000 otherwise partnership likely experience historical decline approximately 7 per year results operations general comparison years ended december 31 1998 1997 following table provides certain information regarding performance factors years ended december 31 1998 1997 year ended percentage december 31 increase 1998 1997 decrease average price per barrel oil 1160 1806 36 average price per mcf gas 197 260 24 oil production barrels 23700 29400 19 gas production mcf 38150 49800 23 income net profits interests 14752 258854 106 partnership distributions 50000 230000 78 limited partner distributions 45000 207000 78 per unit distribution limited partners 398 1829 78 number limited partner units 11316 revenues partnerships income net profits interests decreased 14752 258854 years ended december 31 1998 1997 respectively decrease 106 principal factors affecting comparison years ended december 31 1998 1997 follows 1 average price barrel oil received partnership decreased year ended december 31 1998 compared year ended december 31 1997 36 646 per barrel resulting decrease approximately 190000 income net profits interests oil sales represented 79 total oil gas sales year ended december 31 1998 compared 80 year ended december 31 1997 average price mcf gas received partnership decreased period 24 63 per mcf resulting decrease approximately 31400 income net profits interests total decrease income net profits interests due change prices received oil gas production approximately 221400 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 5700 barrels 19 year ended december 31 1998 compared year ended december 31 1997 resulting decrease approximately 66100 income net profits interests gas production decreased approximately 11700 mcf 23 period resulting decrease approximately 23000 income net profits interests total decrease income net profits interests due change production approximately 89100 decrease oil gas production due primarily property sales downtime shutins wells uneconomical repair 3 lease operating costs production taxes 9 lower approximately 36700 less year ended december 31 1998 compared year ended december 31 1997 costs expenses total costs expenses increased 268419 181162 years ended december 31 1998 1997 respectively increase 48 increase result higher depletion expense provision impairment general administrative costs 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs increased 9 approximately 9100 year ended december 31 1998 compared year ended december 31 1997 2 depletion expense increased 125000 year ended december 31 1998 83000 period 1997 represents increase 51 depletion calculated using units revenue method amortization based percentage current period gross revenues total future gross oil gas revenues estimated partnerships independent petroleum consultants contributing factor increase depletion expense comparative periods decrease price oil gas used determine partnerships reserves january 1 1999 compared 1998 another contributing factor due impact revisions previous estimates reserves revisions previous estimates attributed changes production performance oil gas price production costs impact revision would increased depletion expense approximately 58000 december 31 1997 3 partnership reduced net capitalized costs oil gas properties 36143 provision impairment effect reducing net income affect cash flow partner distributions see summary significant accounting policies oil gas properties results operations b general comparison years ended december 31 1997 1996 following table provides certain information regarding performance factors years ended december 31 1997 1996 year ended percentage december 31 increase 1997 1996 decrease average price per barrel oil 1806 1965 8 average price per mcf gas 260 239 9 oil production barrels 29400 40700 28 gas production mcf 49800 50700 2 income net profits interests 258854 363959 29 partnership distributions 230000 226000 2 limited partner distributions 207000 203400 2 per unit distribution limited partners 1829 1797 2 number limited partner units 11316 revenues partnerships income net profits interests decreased 258854 363959 years ended december 31 1997 1996 respectively decrease 29 principal factors affecting comparison years ended december 31 1997 1996 follows 1 average price barrel oil received partnership decreased year ended december 31 1997 compared year ended december 31 1996 8 159 per barrel resulting decrease approximately 64700 income net profits interests oil sales represented 80 total oil gas sales year ended december 31 1997 compared 87 year ended december 31 1996 average price mcf gas received partnership increased period 9 21 per mcf resulting increase approximately 10600 income net profits interests net total decrease income net profits interests due change prices received oil gas production approximately 54100 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 11300 barrels 28 year ended december 31 1997 compared year ended december 31 1996 resulting decrease approximately 204100 income net profits interests gas production decreased approximately 900 mcf 2 period resulting decrease approximately 2300 income net profits interests total decrease income net profits interests due change production approximately 206400 decrease oil production due primarily farmout agreement lowered partnerships interest ballard grayburg san andres unit 3 lease operating costs production taxes 28 lower approximately 155500 less year ended december 31 1997 compared year ended december 31 1996 decrease primarily attributable farmout agreement lowered partnerships interest ballard grayburg san andres unit costs expenses total costs expenses increased 181162 170984 years ended december 31 1997 1996 respectively increase 6 increase result higher depletion expense partially offset general administrative expense 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs decreased 1 approximately 800 year ended december 31 1997 compared year ended december 31 1996 3 depletion expense increased 83000 year ended december 31 1997 72000 period 1996 represents increase 15 depletion calculated using units revenue method amortization based percentage current period gross revenues total future gross oil gas revenues estimated partnerships independent petroleum consultants contributing factor increase depletion expense comparative periods decrease price oil gas used determine partnerships reserves january 1 1998 compared 1997 another contributing factor due impact revisions previous estimates reserves revisions previous estimates attributed changes production performance oil gas price production costs impact revision would increased depletion expense approximately 24000 december 31 1996 c revenue distribution comparison partnership income loss years ended december 31 1998 1997 1996 283067 87080 209089 respectively excluding effects depreciation depletion amortization provision impairment net income loss would 121924 1998 170080 1997 281089 1996 correspondingly partnership distributions years ended december 31 1998 1997 1996 50000 230000 226000 respectively differences indicative changes oil gas prices production property sales sources 1998 distributions 50000 oil gas operations approximately 45955 change oil gas properties approximately 100300 resulting excess cash contingencies subsequent distributions sources 1997 distributions 230000 oil gas operations approximately 226900 change oil gas properties approximately 2500 balance available cash hand beginning period sources 1996 distributions 226000 oil gas operations approximately 185300 property sales approximately 1100 balance available cash hand beginning period total distributions year ended december 31 1998 50000 45000 distributed limited partners 5000 general partners per unit distribution limited partners period 398 total distributions year ended december 31 1997 230000 207000 distributed limited partners 23000 general partners per unit distribution limited partners period 1829 total distributions year ended december 31 1996 226000 203400 distributed limited partners 22600 general partners per unit distribution limited partners period 1797 since inception partnership cumulative monthly cash distributions 3033122 made partners december 31 1998 2778161 24551 per limited partner unit distributed limited partners representing 49 return capital contributed liquidity capital resources primary source cash operations receipt income net profits interests oil gas properties partnership knows material change anticipate change cash flows provided used operating activities approximately 45955 1998 compared 226900 1997 approximately 185300 1996 primary use 1998 cash flow operating activities operations cash flows provided investing activities approximately 100300 1998 compared 2500 1997 approximately 1100 1996 principal source 1998 cash flow investing activities sale oil gas properties cash flows used financing activities approximately 50000 1998 compared 229900 1997 approximately 226100 1996 use 1998 financing activities distributions partners december 31 1998 partnership approximately 7737 working capital managing general partner knows unusual contractual commitments believes revenues generated operations adequate meet needs partnership liquidity managing general partner managing general partner highly leveraged capital structure 210 million interest payments due 1999 debt obligations due severely depressed commodity prices managing general partner experiencing difficulty generating sufficient cash flow meet obligations sustain operations managing general partner currently process renegotiating terms various obligations creditors andor attempting seek new lenders equity investors additionally managing general partner would consider disposing certain assets order meet obligations assurance managing general partners debt restructuring efforts successful lenders agree course action consistent managing general partners requirements restructuring obligations even agreement reached may require approval additional lenders assured furthermore assurance sales assets successfully accomplished terms acceptable managing general partner current circumstances managing general partners ability continue going concern depends upon ability 1 successfully restructure obligations obtain additional financing may required 2 maintain compliance debt covenants 3 generate sufficient cash flow meet obligations timely basis 4 achieve satisfactory levels future earnings managing general partner unsuccessful efforts may unable meet obligations making necessary undertake actions may appropriate preserve asset values information systems year 2000 managing general partner provides data processing needs partnership managing general partner continuing effort identify assess exposure potential year 2000 software imbedded chip processing date sensitivity issue managing general partners data processing subsidiary midland southwest software inc managing general partner proactively initiated plan identify applicable hardware software assess impact effect estimate costs construct implement corrective actions prepare contingency plans identification assessment managing general partner currently believes identified internal external software hardware may date sensitivity problems four critical systems andor functions identified 1 proprietary software partnership ogas used oil gas property management financial accounting functions 2 dec vaxvms hardware operating system 3 various thirdparty application software including lease economic analysis fixed asset management geological applications payrollhuman resource programs 4 external agents proprietary software partnership currently process meeting compliance requirements estimated completion date mid year 1999 since internally generated software package managing general partner estimated cost approximately 25000 estimating necessary manhours modifications made internal staff represent additional costs partnership managing general partner made contingency plans time since conversion ahead schedule handled managing general partner controlled internal programmers given complexity systems modified anticipated problems may arise expected early completion date managing general partner feels adequate time available overcome unforeseen delays dec released fully compliant version operating system used partnership dec vax system installed august 1999 managing general partner believes solve potential problems system managing general partner identified various thirdparty software may date sensitivity problems working vendors secure solutions well prepare contingency plans review evaluation vendor plans status managing general partner believes problems resolved prior year 2000 alternate contingency plan sufficiently adequately remediate problem material disruption business functions external agents partnership include suppliers customers owners vendors banks product purchasers including pipelines oil gas property operators managing general partner process identifying communicating critical external agent plan progress thereof addressing year 2000 issue process schedule managing general partner time believes material interference disruption associated critical external agents functions necessary partnerships business managing general partner estimates completion audit midyear 1999 believes alternate plans devised circumvent material problems arising critical external agent noncompliance cost date managing general partner incurred minimal internal manhour costs identification planning maintenance managing general partner believes necessary additional costs also minimal fall normal general maintenance procedures updates accurate cost cannot determined time expected total cost remediate systems less 50000 riskscontingency failure correct critical systems partnership failure material business partner external agent resolve critical year 2000 issues could serious adverse impact ability partnership continue operations meet obligations based managing general partners evaluation assessment date believed interruption operation minor shortlived pose material monetary loss safety environmental risk partnership however assessment complete impossible accurately identify risks quantify potential impacts establish final contingency plan managing general partner believes assessment contingency planning complete later midyear 1999 worst case scenario securities exchange commission requires public companies must forecast reasonably likely worst case year 2000 scenario assuming managing general partners year 2000 plan effective analysis reasonably likely worst case year 2000 scenarios partnership may face leads contemplation following possibilities though considered highly unlikely must included consideration worst cases widespread failure electrical gas similar supplies utilities serving partnership widespread disruption services communications common carriers similar disruption means modes transportation partnership employees contractors suppliers customers significant disruption partnerships ability gain access continue working office buildings facilities failure thirdparties systems effects would cumulative material adverse impact partnerships critical systems partnership could experience inability customers traders others pay timely basis obligations owed partnership circumstances adverse effect partnership diminution partnership revenues could material although quantifiable time item 8 item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold lease operating expenses enhanced recovery projects offset drilling activities pursuant farmout arrangements depletion wells since wells deplete time production generally expected decline year well operating costs general administrative costs usually decrease production declines however costs may decrease proportionately net income available distribution limited partners therefore expected fluctuate later years based factors based current conditions management anticipates performing workovers next year enhance production partnership may undergo increase 1998 thereafter partnership could possibly experience normal decline 8 10 per year results operations general comparison years ended december 31 1997 1996 following table provides certain information regarding performance factors years ended december 31 1997 1996 year ended percentage december 31 increase 1997 1996 decrease average price per barrel oil 1806 1965 8 average price per mcf gas 260 239 9 oil production barrels 29400 40700 28 gas production mcf 49800 50700 2 income net profits interests 258854 363959 29 partnership distributions 230000 226000 2 limited partner distributions 207000 203400 2 per unit distribution limited partners 1829 1797 2 number limited partner units 11316 revenues partnerships income net profits interests decreased 258854 363959 years ended december 31 1997 1996 respectively decrease 29 principal factors affecting comparison years ended december 31 1997 1996 follows 1 average price barrel oil received partnership decreased year ended december 31 1997 compared year ended december 31 1996 8 159 per barrel resulting decrease approximately 64700 income net profits interests oil sales represented 80 total oil gas sales year ended december 31 1997 compared 87 year ended december 31 1996 average price mcf gas received partnership increased period 9 21 per mcf resulting increase approximately 10600 income net profits interests net total decrease income net profits interests due change prices received oil gas production approximately 54100 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 11300 barrels 28 year ended december 31 1997 compared year ended december 31 1996 resulting decrease approximately 204100 income net profits interests gas production decreased approximately 900 mcf 2 period resulting decrease approximately 2300 income net profits interests total decrease income net profits interests due change production approximately 206400 decrease oil production due primarily farmout agreement lowered partnerships interest ballard grayburg san andres unit 3 lease operating costs production taxes 28 lower approximately 155500 less year ended december 31 1997 compared year ended december 31 1996 decrease primarily attributable farmout agreement lowered partnerships interest ballard grayburg san andres unit costs expenses total costs expenses increased 181162 170984 years ended december 31 1997 1996 respectively increase 6 increase result higher depletion expense partially offset general administrative expense 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs decreased 1 approximately 800 year ended december 31 1997 compared year ended december 31 1996 2 depletion expense increased 83000 year ended december 31 1997 72000 period 1996 represents increase 15 depletion calculated using units revenue method amortization based percentage current period gross revenues total future gross oil gas revenues estimated partnerships independent petroleum consultants contributing factor increase depletion expense comparative periods decrease price oil gas used determine partnerships reserves january 1 1998 compared 1997 another contributing factor due impact revisions previous estimates reserves revisions previous estimates attributed changes production performance oil gas price production costs impact revision would increased depletion expense approximately 24000 december 31 1996 results operations b general comparison years ended december 31 1996 1995 following table provides certain information regarding performance factors years ended december 31 1996 1995 year ended percentage december 31 increase 1996 1995 decrease average price per barrel oil 1965 1631 20 average price per mcf gas 239 178 34 oil production barrels 40700 36400 12 gas production mcf 50700 51500 2 income net profits interests 363959 129803 180 partnership distributions 226000 137344 65 limited partner distributions 203400 125844 62 per unit distribution limited partners 1797 1112 62 number limited partner units 11316 revenues partnerships income net profits interests increased 363959 129803 years ended december 31 1996 1995 respectively increase 180 principal factors affecting comparison years ended december 31 1996 1995 follows 1 average price barrel oil received partnership increased year ended december 31 1996 compared year ended december 31 1995 20 334 per barrel resulting increase approximately 121600 income net profits interests oil sales represented 87 total oil gas sales years ended december 31 1996 1995 average price mcf gas received partnership increased period 34 61 per mcf resulting increase approximately 31400 income net profits interests total increase income net profits interests due change prices received oil gas production approximately 153000 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production increased approximately 4300 barrels 12 year ended december 31 1996 compared year ended december 31 1995 resulting increase approximately 84500 income net profits interests gas production decreased approximately 800 mcf 2 period resulting decrease approximately 1900 income net profits interests net total increase income net profits interests due change production approximately 82600 3 subsequent december 31 1996 partnership received 14850 lawsuit settlement scana petroleum oil gas purchaser ethel cornelius lease leases operator alltex exploration concerning pricing 4 lease operating costs production taxes less 1 higher approximately 2300 year ended december 31 1996 compared year ended december 31 1995 costs expenses total costs expenses decreased 170984 198948 years ended december 31 1996 1995 respectively decrease 14 decrease result lower general administrative expense depletion expense 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs decreased 2 approximately 2300 year ended december 31 1996 compared year ended december 31 1995 2 depletion expense decreased 72000 year ended december 31 1996 94000 period 1995 represents decrease 23 depletion calculated using units revenue method amortization based percentage current period gross revenues total future gross oil gas revenues estimated partnerships independent petroleum consultants contributing factor decline depletion expense comparative periods increase price oil gas used determine partnerships reserves january 1 1997 compared 1996 another contributing factor due impact revisions previous estimates reserves revisions previous estimates attributed changes production performance oil gas price production costs impact revision would decreased depletion expense approximately 30000 december 31 1995 c revenue distribution comparison partnership income loss years ended december 31 1997 1996 1995 87080 209089 68065 respectively excluding effects depreciation depletion amortization net income would 170080 1997 281089 1996 29625 1995 correspondingly partnership distributions years ended december 31 1997 1996 1995 230000 226000 137344 respectively differences indicative changes oil gas prices production property sales sources 1997 distributions 230000 oil gas operations approximately 226900 change oil gas properties approximately 2500 balance available cash hand beginning period sources 1996 distributions 226000 oil gas operations approximately 185300 property sales approximately 1100 balance available cash hand beginning period sources 1995 distributions 137344 oil gas operations approximately 90200 property sales approximately 55800 resulting excess cash contingencies subsequent distributions total distributions year ended december 31 1997 230000 207000 distributed limited partners 23000 general partners per unit distribution limited partners period 1829 total distributions year ended december 31 1996 226000 203400 distributed limited partners 22600 general partners per unit distribution limited partners period 1797 total distributions year ended december 31 1995 137344 125844 distributed limited partners 11500 general partners per unit distribution limited partners period 1112 since inception partnership cumulative monthly cash distributions 2983122 made partners december 31 1997 2733161 24153 per limited partner unit distributed limited partners representing 48 return capital contributed liquidity capital resources primary source cash operations receipt income net profits interests oil gas properties partnership knows material change anticipate change december 31 1997 nymex oil price 1764 dropped 1432 march 18 1998 price decline first quarter 1998 could cause material write oil gas properties possible reduction future distributions investors cash flows provided operating activities approximately 226900 1997 compared 185300 1996 approximately 90200 1995 primary source 1997 cash flow operating activities profitable operations cash flows provided investing activities approximately 2500 1997 compared 1100 1996 approximately 55800 1995 principal source 1997 cash flow investing activities sale oil gas properties cash flows used financing activities approximately 229900 1997 compared 226100 1996 approximately 137200 1995 use 1997 financing activities distributions partners december 31 1997 partnership approximately 63900 working capital managing general partner knows unusual contractual commitments believes revenues generated operations adequate meet needs partnership information systems year 2000 managing general partner provides data processing needs partnership managing general partner reviewed evaluated information systems determine systems accurately process data referencing year 2000 primarily necessary programming modifications correct year 2000 referencing managing general partners internal accounting operating systems made todate however managing general partner completed evaluation vendors suppliers systems determine effect non compliance systems would operation managing general partnership operations partnership item 8 item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold lease operating expenses enhanced recovery projects offset drilling activities pursuant farmout arrangements depletion wells since wells deplete time production generally expected decline year well operating costs general administrative costs usually decrease production declines however costs may decrease proportionately net income available distribution limited partners therefore expected fluctuate later years based factors based current conditions management anticipates performing workovers 2001 enhance production partnership may increase production volumes year 2001 otherwise partnership likely experience historical production decline approximately 7 per year results operations general comparison years ended december 31 2000 1999 following table provides certain information regarding performance factors years ended december 31 2000 1999 year ended percentage december 31 increase 2000 1999 decrease average price per barrel oil 2832 1636 73 average price per mcf gas 424 251 69 oil production barrels 15400 16830 8 gas production mcf 33400 38830 14 income net profits interests 317883 133177 139 partnership distributions 155322 100 limited partner distributions 149240 100 per unit distribution limited partners 1319 100 number limited partner units 11316 revenues partnerships income net profits interests increased 317883 133177 years ended december 31 2000 1999 respectively increase 139 principal factors affecting comparison years ended december 31 2000 1999 follows 1 average price barrel oil received partnership increased year ended december 31 2000 compared year ended december 31 1999 73 1196 per barrel resulting increase approximately 184200 income net profits interests oil sales represented 75 total oil gas sales year ended december 31 2000 compared 74 year ended december 31 1999 average price mcf gas received partnership increased period 69 173 per mcf resulting increase approximately 57800 income net profits interests total increase income net profits interests due change prices received oil gas production approximately 242000 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 1430 barrels 8 year ended december 31 2000 compared year ended december 31 1999 resulting decrease approximately 23400 income net profits interests gas production decreased approximately 5430 mcf 14 period resulting decrease approximately 13600 income net profits interests total decrease income net profits interests due change production approximately 37000 3 lease operating costs production taxes 8 higher approximately 20200 year ended december 31 2000 compared year ended december 31 1999 costs expenses total costs expenses decreased 106326 108635 years ended december 31 2000 1999 respectively decrease 2 decrease result lower depletion expense general administrative costs 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs decreased 1 approximately 1300 year ended december 31 2000 compared year ended december 31 1999 2 depletion expense decreased 12000 year ended december 31 2000 13000 period 1999 represents decrease 8 depletion calculated using units revenue method amortization based percentage current period gross revenues total future gross oil gas revenues estimated partnerships independent petroleum consultants major factor decrease depletion expense comparative periods increase price oil gas used determine partnerships reserves january 1 2001 compared 2000 revisions previous estimates attributed changes production performance oil gas price production costs impact revision would increased depletion expense approximately 2000 december 31 1999 results operations b general comparison years ended december 31 1999 1998 following table provides certain information regarding performance factors years ended december 31 1999 1998 year ended percentage december 31 increase 1999 1998 decrease average price per barrel oil 1636 1160 41 average price per mcf gas 251 197 27 oil production barrels 16830 23700 29 gas production mcf 38830 38150 2 income net profits interests 133177 14752 1003 partnership distributions 50000 100 limited partner distributions 45000 100 per unit distribution limited partners 398 100 number limited partner units 11316 revenues partnerships income net profits interests increased 133177 14752 years ended december 31 1999 1998 respectively increase 1003 principal factors affecting comparison years ended december 31 1999 1998 follows 1 average price barrel oil received partnership increased year ended december 31 1999 compared year ended december 31 1998 41 476 per barrel resulting increase approximately 112800 income net profits interests oil sales represented 74 total oil gas sales year ended december 31 1999 compared 79 year ended december 31 1998 average price mcf gas received partnership increased period 27 54 per mcf resulting increase approximately 20600 income net profits interests total increase income net profits interests due change prices received oil gas production approximately 133400 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 6870 barrels 29 year ended december 31 1999 compared year ended december 31 1998 resulting decrease approximately 112400 income net profits interests gas production increased approximately 680 mcf 2 period resulting increase approximately 1700 income net profits interests net total decrease income net profits interests due change production approximately 110700 decrease oil production due primarily property sales 1999 1998 3 lease operating costs production taxes 34 lower approximately 125200 less year ended december 31 1999 compared year ended december 31 1998 decrease lease operating costs due primarily property sales 1999 1998 costs expenses total costs expenses decreased 108635 268419 years ended december 31 1999 1998 respectively decrease 60 decrease result lower depletion expense provision impairment general administrative costs 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs decreased 11 approximately 11600 year ended december 31 1999 compared year ended december 31 1998 3 depletion expense decreased 13000 year ended december 31 1999 125000 period 1998 represents decrease 90 depletion calculated using units revenue method amortization based percentage current period gross revenues total future gross oil gas revenues estimated partnerships independent petroleum consultants contributing factor decrease depletion expense comparative periods increase price oil gas used determine partnerships reserves january 1 2000 compared 1999 another contributing factor due impact revisions previous estimates reserves revisions previous estimates attributed changes production performance oil gas price production costs impact revision would decreased depletion expense approximately 86000 december 31 1998 3 partnership reduced net capitalized costs oil gas properties 1998 36143 provision impairment effect reducing net income affect cash flow partner distributions see summary significant accounting policies oil gas properties c revenue distribution comparison partnership income loss years ended december 31 2000 1999 1998 214142 24636 283067 respectively excluding effects depreciation depletion amortization provision impairment net income loss would 226142 2000 37636 1999 121924 1998 correspondingly partnership distributions years ended december 31 2000 1999 1998 155322 none 50000 respectively differences indicative changes oil gas prices production property sales sources 2000 distributions 155322 oil gas operations approximately 184900 change oil gas properties approximately 5 resulting excess cash contingencies subsequent distributions twelve months ended december 31 1999 sources 1998 distributions 50000 oil gas operations approximately 45955 change oil gas properties approximately 100300 resulting excess cash contingencies subsequent distributions total distributions year ended december 31 2000 155322 149240 distributed limited partners 6082 general partners per unit distribution limited partners period 1319 distributions twelve months ended december 31 1999 total distributions year ended december 31 1998 50000 45000 distributed limited partners 5000 general partners per unit distribution limited partners period 398 since inception partnership cumulative monthly cash distributions 3188444 made partners december 31 2000 2927401 25870 per limited partner unit distributed limited partners representing 52 return capital contributed liquidity capital resources primary source cash operations receipt income net profits interests oil gas properties partnership knows material change anticipate change cash flows provided used operating activities approximately 184900 2000 compared 23400 1999 approximately 46000 1998 primary source 2000 cash flow operating activities operations cash flows provided used investing activities approximately 5 2000 compared 44900 1999 approximately 100300 1998 principal use 2000 cash flow investing activities addition oil gas properties cash flows provided used financing activities approximately 155600 2000 139 1999 approximately 50000 1998 december 31 2000 partnership approximately 145600 working capital managing general partner knows unusual contractual commitments believes revenues generated operations adequate meet needs partnership item 7a item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold lease operating expenses enhanced recovery projects offset drilling activities pursuant farmout arrangements depletion wells since wells deplete time production generally expected decline year well operating costs general administrative costs usually decrease production declines however costs may decrease proportionately net income available distribution limited partners therefore expected decline later years based factors critical accounting policies partnership follows full cost method accounting oil gas properties full cost method subjects companies quarterly calculations “ceiling” limitation amount properties capitalized balance sheet partnership’s capitalized costs excess calculated ceiling excess must written expense partnership’s discounted present value proved oil natural gas reserves major component ceiling calculation represents component requires subjective judgments estimates reserves forecasts based engineering data projected future rates production timing future expenditures process estimating oil natural gas reserves requires substantial judgment resulting imprecise determinations particularly new discoveries different reserve engineers may make different estimates reserve quantities based data partnership’s reserve estimates prepared outside consultants passage time provides qualitative information regarding estimates reserves revisions made prior estimates reflect updated information however assurance significant revisions necessary future significant revisions necessary reduce previously estimated reserve quantities could result full cost property writedown addition impact estimates proved reserves calculation ceiling estimates proved reserves also significant component calculation depletion depreciation amortization “dda” quantities proved reserves require substantial judgment associated prices oil natural gas reserves included discounted present value reserves require judgment ceiling calculation dictates prices costs effect last day period generally held constant indefinitely ceiling calculation dictates prices effect last day applicable quarter held constant indefinitely resulting value indicative true fair value reserves oil natural gas prices historically cyclical particular day end quarter either substantially higher lower partnership’s longterm price forecast barometer true fair value supplemental information following unaudited information intended supplement financial statements included form 10k data readily available statements operating results following discussion compares results year ended december 31 2006 two previous years references 2006 2005 2004 within section refer respective annual periods income net profits oil gas prices remained high compared previous two years comparing 2006 2005 oil gas sales net profits interests decreased 17800 price variances accounted 60800 increase production variances accounted 78600 decrease comparing 2005 2004 oil gas sales net profits interests increased 200800 price variances accounted 197000 increase production variances accounted 3800 increase production 2006 boe basis 10 lower 2005 9 lower 2004 oil production 14 lower 2006 2005 due primarily production decline one property gas production 1 lower 2006 2005 due primarily normal production declines 2006 realized oil price 18 higher 2005 63 higher 2004 realized gas price 11 lower 2005 11 higher 2004 historically markets oil gas volatile likely continue volatile little control prices receive production wellhead since physical marketing arrangements marketsensitive oil gas production costs boe basis increased 2054 per boe 2005 1962 per boe 2004 2487 per boe 2006 increase oil gas production costs 2006 primarily due cost plug abandon four wells exceeded asset retirement obligation wells expenses depletion boe basis increased 54 2005 34 2004 comparing 2006 2005 depletion expense increased 4200 rate variances accounted 5300 increase production variances accounted 1100 decrease comparing 2005 2004 depletion expense decreased 1600 rate variances accounted 1700 decrease production variances accounted 100 increase depletion rates function net capitalized costs estimated reserve quantities rates 2007 expected similar 2006 rates general administrative “ga” expenses 10 higher 2006 2005 5 higher 2004 due primarily higher professional fees audit tax services texas margin taxes may 2006 state texas adopted house bill 3 modified state’s franchise tax structure replacing previous tax based capital earned surplus margin tax “texas margin tax” effective franchise tax reports filed january 1 2008 texas margin tax computed applying applicable tax rate 1 partnership’s business profit margin generally determined total revenue less either cost goods sold compensation applicable however partnership believes based interpretation texas margin tax apply partnership since substantially income derived net profits interest liquidity capital resources partnership distributions year ended december 31 2006 331623 298191 distributed limited partners 33462 general partners cumulative cash distributions 4261325 made general limited partners december 31 2006 december 31 2006 3892499 34398 per limited partner unit distributed limited partners representing 69 contributed capital primary source cash operating activities oil gas sales net production costs cash flow provided operating activities 22 lower 2005 due combined effects several drivers 2 decrease oil gas sales combined increase production costs use financing activities distribution partners 2 lower 2005 december 31 2006 partnership approximately 85300 working capital managing general partner knows unusual contractual commitments although partnership held many longlived properties inception restrictions property development imposed partnership agreement partnership cannot develop nonproducing properties without continued development producing reserves continue deplete accordingly partnership’s properties matured depleted net cash flows operations partnership steadily declined except periods substantially increased commodity pricing maintenance properties administrative expenses partnership increasing relative production properties continue deplete maintenance properties administrative costs percentage production expected continue increase recent accounting pronouncements june 2006 financial accounting standards board “fasb” issued fasb interpretation 48 “accounting uncertainty income taxes” “fin48” clarify manner enterprises account uncertainties provisions income taxes generally standard presented fin 48 “more likely not” standard intended enhance relevancy comparability financial reporting companies fin 48 effective fiscal years beginning december 31 2006 adoption fin 48 expected impact partnership’s financial statements item 7a item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold lease operating expenses enhanced recovery projects offset drilling activities pursuant farmout arrangements depletion wells since wells deplete time production generally expected decline year well operating costs general administrative costs usually decrease production declines however costs may decrease proportionately net income available distribution limited partners therefore expected fluctuate later years based factors based current conditions management anticipates performing workovers 2000 enhance production partnership may increase production volumes year 2001 otherwise partnership likely experience historical production decline approximately 7 per year results operations general comparison years ended december 31 1999 1998 following table provides certain information regarding performance factors years ended december 31 1999 1998 year ended percentage december 31 increase 1999 1998 decrease average price per barrel oil 1636 1160 41 average price per mcf gas 251 197 27 oil production barrels 16830 23700 29 gas production mcf 38830 38150 2 income net profits interests 133177 14752 1003 partnership distributions 50000 100 limited partner distributions 45000 100 per unit distribution limited partners 398 100 number limited partner units 11316 revenues partnerships income net profits interests increased 133177 14752 years ended december 31 1999 1998 respectively increase 1003 principal factors affecting comparison years ended december 31 1999 1998 follows 1 average price barrel oil received partnership increased year ended december 31 1999 compared year ended december 31 1998 41 476 per barrel resulting increase approximately 112800 income net profits interests oil sales represented 74 total oil gas sales year ended december 31 1999 compared 79 year ended december 31 1998 average price mcf gas received partnership increased period 27 54 per mcf resulting increase approximately 20600 income net profits interests total increase income net profits interests due change prices received oil gas production approximately 133400 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 6870 barrels 29 year ended december 31 1999 compared year ended december 31 1998 resulting decrease approximately 112400 income net profits interests gas production increased approximately 680 mcf 2 period resulting increase approximately 1700 income net profits interests net total decrease income net profits interests due change production approximately 110700 decrease oil production due primarily property sales 1999 1998 3 lease operating costs production taxes 34 lower approximately 125200 less year ended december 31 1999 compared year ended december 31 1998 decrease lease operating costs due primarily property sales 1999 1998 costs expenses total costs expenses decreased 108635 268419 years ended december 31 1999 1998 respectively decrease 60 decrease result lower depletion expense provision impairment general administrative costs 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs decreased 11 approximately 11600 year ended december 31 1999 compared year ended december 31 1998 2 depletion expense decreased 13000 year ended december 31 1999 125000 period 1998 represents decrease 90 depletion calculated using units revenue method amortization based percentage current period gross revenues total future gross oil gas revenues estimated partnerships independent petroleum consultants contributing factor decrease depletion expense comparative periods increase price oil gas used determine partnerships reserves january 1 2000 compared 1999 another contributing factor due impact revisions previous estimates reserves revisions previous estimates attributed changes production performance oil gas price production costs impact revision would decreased depletion expense approximately 86000 december 31 1998 3 partnership reduced net capitalized costs oil gas properties 1998 36143 provision impairment effect reducing net income affect cash flow partner distributions see summary significant accounting policies oil gas properties results operations b general comparison years ended december 31 1998 1997 following table provides certain information regarding performance factors years ended december 31 1998 1997 year ended percentage december 31 increase 1998 1997 decrease average price per barrel oil 1160 1806 36 average price per mcf gas 197 260 24 oil production barrels 23700 29400 19 gas production mcf 38150 49800 23 income net profits interests 14752 258854 106 partnership distributions 50000 230000 78 limited partner distributions 45000 207000 78 per unit distribution limited partners 398 1829 78 number limited partner units 11316 revenues partnerships income net profits interests decreased 14752 258854 years ended december 31 1998 1997 respectively decrease 106 principal factors affecting comparison years ended december 31 1998 1997 follows 1 average price barrel oil received partnership decreased year ended december 31 1998 compared year ended december 31 1997 36 646 per barrel resulting decrease approximately 190000 income net profits interests oil sales represented 79 total oil gas sales year ended december 31 1998 compared 80 year ended december 31 1997 average price mcf gas received partnership decreased period 24 63 per mcf resulting decrease approximately 31400 income net profits interests total decrease income net profits interests due change prices received oil gas production approximately 221400 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 5700 barrels 19 year ended december 31 1998 compared year ended december 31 1997 resulting decrease approximately 66100 income net profits interests gas production decreased approximately 11700 mcf 23 period resulting decrease approximately 23000 income net profits interests total decrease income net profits interests due change production approximately 89100 decrease oil gas production due primarily property sales downtime shutins wells uneconomical repair 3 lease operating costs production taxes 9 lower approximately 36700 less year ended december 31 1998 compared year ended december 31 1997 costs expenses total costs expenses increased 268419 181162 years ended december 31 1998 1997 respectively increase 48 increase result higher depletion expense provision impairment general administrative costs 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs increased 9 approximately 9100 year ended december 31 1998 compared year ended december 31 1997 3 depletion expense increased 125000 year ended december 31 1998 83000 period 1997 represents increase 51 depletion calculated using units revenue method amortization based percentage current period gross revenues total future gross oil gas revenues estimated partnerships independent petroleum consultants contributing factor increase depletion expense comparative periods decrease price oil gas used determine partnerships reserves january 1 1999 compared 1998 another contributing factor due impact revisions previous estimates reserves revisions previous estimates attributed changes production performance oil gas price production costs impact revision would increased depletion expense approximately 58000 december 31 1997 3 partnership reduced net capitalized costs oil gas properties 36143 provision impairment effect reducing net income affect cash flow partner distributions see summary significant accounting policies oil gas properties c revenue distribution comparison partnership income loss years ended december 31 1999 1998 1997 24636 283067 87080 respectively excluding effects depreciation depletion amortization provision impairment net income loss would 37636 1999 121924 1998 170080 1997 correspondingly partnership distributions years ended december 31 1999 1998 1997 none 50000 230000 respectively differences indicative changes oil gas prices production property sales distributions twelve months ended december 31 1999 sources 1998 distributions 50000 oil gas operations approximately 45955 change oil gas properties approximately 100300 resulting excess cash contingencies subsequent distributions sources 1997 distributions 230000 oil gas operations approximately 226900 change oil gas properties approximately 2500 balance available cash hand beginning period distributions twelve months ended december 31 1999 total distributions year ended december 31 1998 50000 45000 distributed limited partners 5000 general partners per unit distribution limited partners period 398 total distributions year ended december 31 1997 230000 207000 distributed limited partners 23000 general partners per unit distribution limited partners period 1829 since inception partnership cumulative monthly cash distributions 3033122 made partners december 31 1999 2778161 24551 per limited partner unit distributed limited partners representing 49 return capital contributed liquidity capital resources primary source cash operations receipt income net profits interests oil gas properties partnership knows material change anticipate change cash flows provided used operating activities approximately 23429 1999 compared 45955 1998 approximately 226900 1997 primary use 1999 cash flow operating activities operations cash flows provided investing activities approximately 44900 1999 compared 100300 1998 approximately 2500 1997 principal source 1999 cash flow investing activities sale oil gas properties cash flows provided used financing activities approximately 139 1999 compared 50000 1998 approximately 229900 1997 december 31 1999 partnership approximately 74800 working capital managing general partner knows unusual contractual commitments believes revenues generated operations adequate meet needs partnership liquidity managing general partner managing general partner highly leveraged capital structure 351 million principal 175 million interest payments due 2000 debt obligations due severely depressed commodity prices experienced last quarter 1997 throughout 1998 continuing second quarter 1999 managing general partner experiencing difficulty generating sufficient cash flow meet obligations sustain operations managing general partner currently process renegotiating terms various obligations creditors andor attempting seek new lenders equity investors additionally managing general partner would consider disposing certain assets order meet obligations assurance managing general partners debt restructuring efforts successful lenders agree course action consistent managing general partners requirements restructuring obligations even agreement reached may require approval additional lenders assured furthermore assurance sales assets successfully accomplished terms acceptable managing general partner current circumstances managing general partners ability continue going concern depends upon ability 1 successfully restructure obligations obtain additional financing may required 2 maintain compliance debt covenants 3 generate sufficient cash flow meet obligations timely basis 4 achieve satisfactory levels future earnings managing general partner unsuccessful efforts may unable meet obligations making necessary undertake actions may appropriate preserve asset values information systems year 2000 year 2000 issue referred risk disruptions operations caused failure computercontrolled systems including systems used third parties properly recognize date sensitive information year changed 1999 2000 year ended december 31 1999 managing general partners data processing subsidiary midland southwest software inc installed new software part ongoing project upgrade financial management information systems cost upgrading software occurred normal course midland southwest softwares business material results operations financial condition partnership experienced significant business disruptions due year 2000 issues causing processing errors systems third partys systems period operations january 1 2000 filing 10k item 8 item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold lease operating expenses enhanced recovery projects offset drilling activities pursuant farmout arrangements depletion wells since wells deplete time production generally expected decline year well operating costs general administrative costs usually decrease production declines however costs may decrease proportionately net income available distribution limited partners therefore expected fluctuate later years based factors based current conditions management anticipates performing workovers 2002 enhance production partnership likely experience historical production decline approximately 8 per year critical accounting policies full cost ceiling calculations partnership follows full cost method accounting oil gas properties full cost method subjects companies quarterly calculations ceiling limitation amount properties capitalized balance sheet partnerships capitalized costs excess calculated ceiling excess must written expense partnerships discounted present value proved oil natural gas reserves major component ceiling calculation represents component requires subjective judgments estimates reserves forecasts based engineering data projected future rates production timing future expenditures process estimating oil natural gas reserves requires substantial judgment resulting imprecise determinations particularly new discoveries different reserve engineers may make different estimates reserve quantities based data partnerships reserve estimates prepared outside consultants passage time provides qualitative information regarding estimates reserves revisions made prior estimates reflect updated information however assurance significant revisions necessary future significant revisions necessary reduce previously estimated reserve quantities could result full cost property writedown addition impact estimates proved reserves calculation ceiling estimates proved reserves also significant component calculation dda quantities proved reserves require substantial judgment associated prices oil natural gas reserves included discounted present value reserves require judgment ceiling calculation dictates prices costs effect last day period generally held constant indefinitely ceiling calculation dictates prices effect last day applicable quarter held constant indefinitely resulting value indicative true fair value reserves oil natural gas prices historically cyclical particular day end quarter either substantially higher lower partnerships longterm price forecast barometer true fair value partnerships policy depreciation depletion amortization oil gas properties computed units revenue method units revenue method depreciation depletion amortization computed basis current gross revenues production relation future gross revenues based current prices estimated production proved oil gas reserves results operations general comparison years ended december 31 2001 2000 following table provides certain information regarding performance factors years ended december 31 2001 2000 year ended percentage december 31 increase 2001 2000 decrease average price per barrel oil 2257 2832 20 average price per mcf gas 438 424 3 oil production barrels 15300 15400 1 gas production mcf 32700 33400 2 income net profits interests 189907 317883 40 partnership distributions 200093 155322 29 limited partner distributions 180084 149240 21 per unit distribution limited partners 1591 1319 21 number limited partner units 11316 revenues partnerships income net profits interests decreased 189907 317883 years ended december 31 2001 2000 respectively decrease 40 principal factors affecting comparison years ended december 31 2001 2000 follows 1 average price barrel oil received partnership decreased year ended december 31 2001 compared year ended december 31 2000 20 575 per barrel resulting decrease approximately 88000 income net profits interests oil sales represented 71 total oil gas sales year ended december 31 2001 compared 75 year ended december 31 2000 average price mcf gas received partnership increased period 3 14 per mcf resulting increase approximately 4600 income net profits interests net total decrease income net profits interests due change prices received oil gas production approximately 83400 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 100 barrels 1 year ended december 31 2001 compared year ended december 31 2000 resulting decrease approximately 2800 income net profits interests gas production decreased approximately 700 mcf 2 period resulting decrease approximately 3000 income net profits interests total decrease income net profits interests due change production approximately 5800 3 lease operating costs production taxes 15 higher approximately 38800 year ended december 31 2001 compared year ended december 31 2000 costs expenses total costs expenses increased 113625 106326 years ended december 31 2001 2000 respectively increase 7 increase result higher depletion expense general administrative costs 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs increased 1 approximately 1300 year ended december 31 2001 compared year ended december 31 2000 2 depletion expense increased 18000 year ended december 31 2001 12000 period 2000 represents increase 50 depletion calculated using units revenue method amortization based percentage current period gross revenues total future gross oil gas revenues estimated partnerships independent petroleum consultants major factor increase depletion expense comparative periods decrease price oil gas used determine partnerships reserves january 1 2002 compared 2001 decrease oil gas revenues received partnership 2001 compared 2000 revisions previous estimates attributed changes production performance oil gas price production costs impact revision would increased depletion expense approximately 3000 december 31 2000 results operations b general comparison years ended december 31 2000 1999 following table provides certain information regarding performance factors years ended december 31 2000 1999 year ended percentage december 31 increase 2000 1999 decrease average price per barrel oil 2832 1636 73 average price per mcf gas 424 251 69 oil production barrels 15400 16830 8 gas production mcf 33400 38830 14 income net profits interests 317883 133177 139 partnership distributions 155322 100 limited partner distributions 149240 100 per unit distribution limited partners 1319 100 number limited partner units 11316 revenues partnerships income net profits interests increased 317883 133177 years ended december 31 2000 1999 respectively increase 139 principal factors affecting comparison years ended december 31 2000 1999 follows 1 average price barrel oil received partnership increased year ended december 31 2000 compared year ended december 31 1999 73 1196 per barrel resulting increase approximately 184200 income net profits interests oil sales represented 75 total oil gas sales year ended december 31 2000 compared 74 year ended december 31 1999 average price mcf gas received partnership increased period 69 173 per mcf resulting increase approximately 57800 income net profits interests total increase income net profits interests due change prices received oil gas production approximately 242000 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 1430 barrels 8 year ended december 31 2000 compared year ended december 31 1999 resulting decrease approximately 23400 income net profits interests gas production decreased approximately 5430 mcf 14 period resulting decrease approximately 13600 income net profits interests total decrease income net profits interests due change production approximately 37000 3 lease operating costs production taxes 8 higher approximately 20200 year ended december 31 2000 compared year ended december 31 1999 costs expenses total costs expenses decreased 106326 108635 years ended december 31 2000 1999 respectively decrease 2 decrease result lower depletion expense general administrative costs 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs decreased 1 approximately 1300 year ended december 31 2000 compared year ended december 31 1999 3 depletion expense decreased 12000 year ended december 31 2000 13000 period 1999 represents decrease 8 depletion calculated using units revenue method amortization based percentage current period gross revenues total future gross oil gas revenues estimated partnerships independent petroleum consultants major factor decrease depletion expense comparative periods increase price oil gas used determine partnerships reserves january 1 2001 compared 2000 revisions previous estimates attributed changes production performance oil gas price production costs impact revision would increased depletion expense approximately 2000 december 31 1999 c revenue distribution comparison partnership income years ended december 31 2001 2000 1999 76774 214142 24636 respectively excluding effects depreciation depletion amortization net income would 94774 2001 226142 2000 37636 1999 correspondingly partnership distributions years ended december 31 2001 2000 1999 200093 155322 none respectively differences indicative changes oil gas prices production property sales sources 2001 distributions 200093 oil gas operations approximately 151600 balance available cash hand beginning period sources 2000 distributions 155322 oil gas operations approximately 184900 change oil gas properties approximately 5 resulting excess cash contingencies subsequent distributions twelve months ended december 31 1999 total distributions year ended december 31 2001 200093 180084 distributed limited partners 20009 general partners per unit distribution limited partners period 1591 total distributions year ended december 31 2000 155322 149240 distributed limited partners 6082 general partners per unit distribution limited partners period 1319 distributions twelve months ended december 31 1999 since inception partnership cumulative monthly cash distributions 3388537 made partners december 31 2001 3107485 27461 per limited partner unit distributed limited partners representing 55 return capital contributed liquidity capital resources primary source cash operations receipt income net profits interests oil gas properties partnership knows material change anticipate change cash flows provided used operating activities approximately 151600 2001 compared 184900 2000 approximately 23400 1999 primary source 2001 cash flow operating activities operations cash flows provided used investing activities 2001 compared 5 2000 approximately 44900 1999 cash flows provided used financing activities approximately 199800 2001 155600 2000 100 1999 december 31 2001 partnership approximately 40300 working capital managing general partner knows unusual contractual commitments believes revenues generated operations adequate meet needs partnership liquidity managing general partner managing general partner highly leveraged capital structure 500 million 1237 million principal due august 2003 october 2004 respectively managing general partner incur approximately 176 million interest payments 2002 debt obligations due depressed commodity prices experienced last quarter 2001 managing general partner experiencing difficulty generating sufficient cash flow meet obligations sustain operations managing general partner currently process renegotiating terms various obligations creditors andor attempting seek new lenders equity investors additionally managing general partner would consider disposing certain assets order meet obligations assurance managing general partners debt restructuring efforts successful lenders agree course action consistent managing general partners requirements restructuring obligations even agreement reached may require approval additional lenders assured furthermore assurance sales assets successfully accomplished terms acceptable managing general partner current circumstances managing general partners ability continue going concern depends upon ability 1 successfully restructure obligations obtain additional financing may required 2 maintain compliance debt covenants 3 generate sufficient cash flow meet obligations timely basis 4 achieve satisfactory levels future earnings managing general partner unsuccessful efforts may unable meet obligations making necessary undertake actions may appropriate preserve asset values upon occurrence event dissolution managing general partner holders majority limited partnership interests may written agreement elect continue business partnership partnerships name partnership property reconstituted partnership terms partnership agreement designate successor managing general partner recent accounting pronouncements june 1998 financial accounting standards board fasb issued statement financial accounting standards sfas no133 accounting derivative instruments hedging activities sfas 133 amended sfas 138 establishes accounting reporting standards derivative instruments including certain derivative instruments embedded contracts hedging activities assessment managing general partner revealed pronouncement impact partnerships fasb issued statement 143 accounting asset retirement obligations establishes requirements accounting removal type costs associated asset retirements standard effective fiscal years beginning june 15 2002 earlier application encouraged managing general partner currently assessing impact partnerships financial statements october 3 2001 fasb issued statements 144 accounting impairment disposal longlived assets pronouncement supercedes fas 121 accounting impairment longlived assets longlived assets disposed eliminates requirement statement 121 allocate goodwill longlived assets tested impairment provisions statement effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years managing general partner currently assessing impact partnerships financial statements item 7a item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold lease operating expenses enhanced recovery projects offset drilling activities pursuant farmout arrangements depletion wells since wells deplete time production generally expected decline year well operating costs general administrative costs usually decrease production declines however costs may decrease proportionately net income available distribution limited partners therefore expected fluctuate later years based factors based current conditions management anticipates performing drilling projects workovers years 2003 2004 enhance production partnership may increase production volumes years 2003 2004 otherwise partnership likely experience historical production decline approximated 8 per year critical accounting policies full cost ceiling calculations partnership follows full cost method accounting oil gas properties full cost method subjects companies quarterly calculations ceiling limitation amount properties capitalized balance sheet partnerships capitalized costs excess calculated ceiling excess must written expense partnerships discounted present value proved oil natural gas reserves major component ceiling calculation represents component requires subjective judgments estimates reserves forecasts based engineering data projected future rates production timing future expenditures process estimating oil natural gas reserves requires substantial judgment resulting imprecise determinations particularly new discoveries different reserve engineers may make different estimates reserve quantities based data partnerships reserve estimates prepared outside consultants passage time provides qualitative information regarding estimates reserves revisions made prior estimates reflect updated information however assurance significant revisions necessary future significant revisions necessary reduce previously estimated reserve quantities could result full cost property writedown addition impact estimates proved reserves calculation ceiling estimates proved reserves also significant component calculation dda quantities proved reserves require substantial judgment associated prices oil natural gas reserves included discounted present value reserves require judgment ceiling calculation dictates prices costs effect last day period generally held constant indefinitely ceiling calculation dictates prices effect last day applicable quarter held constant indefinitely resulting value indicative true fair value reserves oil natural gas prices historically cyclical particular day end quarter either substantially higher lower partnerships longterm price forecast barometer true fair value prior october 1 2002 partnership calculated depletion oil gas properties units revenue method partnership changed methods estimating depletion effective october 1 2002 units production method units production method predominantly used throughout oil gas industry allow partnership closely align peers change estimate impact depletion expense fourth quarter results operations general comparison years ended december 31 2002 2001 following table provides certain information regarding performance factors years ended december 31 2002 2001 year ended percenta ge december 31 increase 2002 2001 decreas e average price per 2339 4 barrel oil 2257 average price per mcf 304 31 gas 438 oil production 12900 15300 16 barrels gas production mcf 29800 32700 9 income net 107806 189907 43 profits interests partnership 200093 100 distributions limited partner 180084 100 distributions per unit distribution 100 limited partners 1591 number limited 11316 partner units revenues partnerships income net profits interests decreased 107806 189907 years ended december 31 2002 2001 respectively decrease 43 principal factors affecting comparison years ended december 31 2002 2001 follows 1 average price barrel oil received partnership increased year ended december 31 2002 compared year ended december 31 2001 4 82 per barrel resulting increase approximately 10600 income net profits interests oil sales represented 77 total oil gas sales year ended december 31 2002 compared 71 year ended december 31 2001 average price mcf gas received partnership decreased period 31 134 per mcf resulting decrease approximately 40000 income net profits interests net total decrease income net profits interests due change prices received oil gas production approximately 29400 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 2400 barrels 16 year ended december 31 2002 compared year ended december 31 2001 resulting decrease approximately 54200 income net profits interests gas production decreased approximately 2900 mcf 9 period resulting decrease approximately 12700 income net profits interests total decrease income net profits interests due change production approximately 66900 decrease oil production mainly due well hole casing repaired production coming back normal decrease gas production result lease steep natural decline decrease partially offset increase connection change estimate reflected fourth quarter 2001 production month july partnership small interest well discovered producing larger portion gas lease another well lease major producer partnership owned small interest 3 lease operating costs production taxes 5 lower approximately 14300 less year ended december 31 2002 compared year ended december 31 2001 costs expenses total costs expenses decreased 107297 113625 years ended december 31 2002 2001 respectively decrease 6 decrease result lower depletion expense partially offset increase general administrative costs 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs increased 1 approximately 700 year ended december 31 2002 compared year ended december 31 2001 2 depletion expense decreased 11000 year ended december 31 2002 18000 period 2001 represents decrease 39 prior october 1 2002 partnership calculated depletion oil gas properties units revenue method partnership changed methods estimating depletion effective october 1 2002 units production method units production method predominantly used throughout oil gas industry allow partnership closely align peers change estimate impact depletion expense fourth quarter major factor decrease depletion expense comparative periods increase price oil gas used determine partnerships reserves january 1 2003 compared 2002 decrease oil gas revenues received partnership 2002 compared 2001 results operations b general comparison years ended december 31 2001 2000 following table provides certain information regarding performance factors years ended december 31 2001 2000 year ended percenta ge december 31 increase 2001 2000 decreas e average price per 2257 20 barrel oil 2832 average price per mcf 438 3 gas 424 oil production 15300 15400 1 barrels gas production mcf 32700 33400 2 income net 189907 317883 40 profits interests partnership 200093 155322 29 distributions limited partner 180084 149240 21 distributions per unit distribution 1591 21 limited partners 1319 number limited 11316 partner units revenues partnerships income net profits interests decreased 189907 317883 years ended december 31 2001 2000 respectively decrease 40 principal factors affecting comparison years ended december 31 2001 2000 follows 1 average price barrel oil received partnership decreased year ended december 31 2001 compared year ended december 31 2000 20 575 per barrel resulting decrease approximately 88000 income net profits interests oil sales represented 71 total oil gas sales year ended december 31 2001 compared 75 year ended december 31 2000 average price mcf gas received partnership increased period 3 14 per mcf resulting increase approximately 4600 income net profits interests net total decrease income net profits interests due change prices received oil gas production approximately 83400 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 100 barrels 1 year ended december 31 2001 compared year ended december 31 2000 resulting decrease approximately 2800 income net profits interests gas production decreased approximately 700 mcf 2 period resulting decrease approximately 3000 income net profits interests total decrease income net profits interests due change production approximately 5800 3 lease operating costs production taxes 15 higher approximately 38800 year ended december 31 2001 compared year ended december 31 2000 costs expenses total costs expenses increased 113625 106326 years ended december 31 2001 2000 respectively increase 7 increase result higher depletion expense general administrative costs 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs increased 1 approximately 1300 year ended december 31 2001 compared year ended december 31 2000 2 depletion expense increased 18000 year ended december 31 2001 12000 period 2000 represents increase 50 depletion calculated using units revenue method amortization based percentage current period gross revenues total future gross oil gas revenues estimated partnerships independent petroleum consultants major factor increase depletion expense comparative periods decrease price oil gas used determine partnerships reserves january 1 2002 compared 2001 decrease oil gas revenues received partnership 2001 compared 2000 revisions previous estimates attributed changes production performance oil gas price production costs impact revision would increased depletion expense approximately 3000 december 31 2000 c revenue distribution comparison partnership income years ended december 31 2002 2001 2000 2727 76774 214142 respectively excluding effects depreciation depletion amortization net income would 13727 2002 94774 2001and 226142 2000 correspondingly partnership distributions years ended december 31 2002 2001 2000 0 200093 155322 respectively differences indicative changes oil gas prices production property sources 2001 distributions 200093 oil gas operations approximately 151600 balance available cash hand beginning period sources 2000 distributions 155322 oil gas operations approximately 184900 change oil gas properties approximately 5 resulting excess cash contingencies subsequent distributions due decrease revenues result decline oil gas production well decrease gas prices year ended december 31 2002 total distributions year ended december 31 2001 200093 180084 distributed limited partners 20009 general partners per unit distribution limited partners period 1591 total distributions year ended december 31 2000 155322 149240 distributed limited partners 6082 general partners per unit distribution limited partners period 1319 since inception partnership cumulative monthly cash distributions 3388537 made partners december 31 2002 3107485 27461 per limited partner unit distributed limited partners representing 55 return capital contributed liquidity capital resources primary source cash operations receipt income net profits interests oil gas properties partnership knows material change anticipate change cash flows provided operating activities approximately 3200 2002 compared 151600 2001 approximately 184900 2000 primary source 2002 cash flow operating activities operations cash flows used investing activities 2002 2001 compared 5 2000 cash flows provided used financing activities approximately 300 2002 199800 2001 155600 2000 december 31 2002 partnership approximately 54000 working capital managing general partner knows unusual contractual commitments although partnership held many longlived properties inception restrictions property development imposed partnership agreement managing general partner anticipates point near future partnership need liquidated maintenance properties administrative expenses increasing relative production properties continue deplete maintenance properties administrative costs percentage production continue increase partnerships properties matured net cash flows operations partnership generally declined except periods substantially increased commodity pricing since partnership cannot develop nonproducing properties producing reserves continue deplete causing cash flow steadily decline october 17 2002 southwest royalties inc managing general partner filed s4 registration securities business combinations securities exchange commission s4 relates proposed plan merger twentyone limited partnerships liquidity managing general partner managing general partner highly leveraged capital structure approximately 1240 million principal due december 31 2002 december 31 2004 managing general partner constantly monitoring cash position ability meet financial obligations become due effort continually exploring various strategies addressing current future liquidity needs managing general partner regularly pursues evaluates recapitalization strategies acquisition opportunities including opportunities engage mergers consolidations business combinations given time may various stages evaluating opportunities based current production commodity prices cash flow operations managing general partner adequate cash flow fund debt service developmental projects day operations sufficient build cash balance would allow managing general partner meet debt principal maturities scheduled 2004 therefore managing general partner must renegotiate terms various obligations seek new lenders equity investors order meet financial obligations specifically maturing 2004 managing general partner may required dispose certain assets order meet obligations assurance managing general partners debt restructuring efforts successful debt holders agree course action consistent managing general partners requirements restructurings obligations furthermore assurance sales assets successfully accomplished terms acceptable managing general partner recent accounting pronouncements fasb issued statement 143 accounting asset retirement obligations establishes requirements accounting removal type costs associated asset retirements standard effective fiscal years beginning june 15 2002 earlier application encouraged managing general partner currently assessing impact partnerships financial statements item 7a item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold lease operating expenses enhanced recovery projects offset drilling activities pursuant farmout arrangements depletion wells since wells deplete time production generally expected decline year well operating costs general administrative costs usually decrease production declines however costs may decrease proportionately net income available distribution limited partners therefore expected decline later years based factors based current conditions management anticipates performing drilling projects workovers year 2004 enhance production partnership likely continue experience historical production decline approximated 8 per year accordingly commodity prices remain unchanged partnership expects future earnings decline due anticipated production declines critical accounting policies full cost ceiling calculations partnership follows full cost method accounting oil gas properties full cost method subjects companies quarterly calculations ceiling limitation amount properties capitalized balance sheet partnerships capitalized costs excess calculated ceiling excess must written expense partnerships discounted present value proved oil natural gas reserves major component ceiling calculation represents component requires subjective judgments estimates reserves forecasts based engineering data projected future rates production timing future expenditures process estimating oil natural gas reserves requires substantial judgment resulting imprecise determinations particularly new discoveries different reserve engineers may make different estimates reserve quantities based data partnerships reserve estimates prepared outside consultants passage time provides qualitative information regarding estimates reserves revisions made prior estimates reflect updated information however assurance significant revisions necessary future significant revisions necessary reduce previously estimated reserve quantities could result full cost property writedown addition impact estimates proved reserves calculation ceiling estimates proved reserves also significant component calculation dda quantities proved reserves require substantial judgment associated prices oil natural gas reserves included discounted present value reserves require judgment ceiling calculation dictates prices costs effect last day period generally held constant indefinitely ceiling calculation dictates prices effect last day applicable quarter held constant indefinitely resulting value indicative true fair value reserves oil natural gas prices historically cyclical particular day end quarter either substantially higher lower partnerships longterm price forecast barometer true fair value 2002 partnership changed methods accounting depletion capitalized costs unitsofrevenue method unitsof production method newly adopted accounting principle preferable circumstances unitsofproduction method results better matching costs oil gas production related revenue received periods volatile prices production experienced recent periods additionally unitsofproduction method predominant method used full cost companies oil gas industry accordingly change improves comparability partnerships financial statements peer group results operations general comparison years ended december 31 2003 2002 following table provides certain information regarding performance factors years ended december 31 2003 2002 year ended percenta ge december 31 increase 2003 2002 decreas e average price per 2844 22 barrel oil 2339 average price per mcf 500 64 gas 304 oil production 11500 12900 11 barrels gas production mcf 27900 29800 6 income net 206441 107806 91 profits interests partnership 50406 100 distributions limited partner 45365 100 distributions per unit distribution 401 100 limited partners number limited 11316 partner units revenues partnerships income net profits interests increased 206441 107806 years ended december 31 2003 2002 respectively increase 91 principal factors affecting comparison years ended december 31 2003 2002 follows 1 average price barrel oil received partnership increased year ended december 31 2003 compared year ended december 31 2002 22 505 per barrel resulting increase approximately 58100 income net profits interests oil sales represented 70 total oil gas sales year ended december 31 2003 compared 77 year ended december 31 2002 average price mcf gas received partnership increased period 64 196 per mcf resulting increase approximately 54700 income net profits interests total increase income net profits interests due change prices received oil gas production approximately 112800 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 1400 barrels 11 year ended december 31 2003 compared year ended december 31 2002 resulting decrease approximately 32700 income net profits interests gas production decreased approximately 1900 mcf 6 period resulting decrease approximately 5800 income net profits interests total decrease income net profits interests due change production approximately 38500 decrease oil volumes due sale two leases plug abandonment one lease 3 income amount 12546 2003 primarily represents litigation settlement income class action lawsuit two purchasers underpaying certain types oil certain locations time periods 19881998 4 lease operating costs production taxes 9 lower approximately 24278 less year ended december 31 2003 compared year ended december 31 2002 decrease lease operating costs due sale two leases costs expenses total costs expenses increased 132887 108297 years ended december 31 2003 2002 respectively increase 23 increase result addition accretion expense higher general administrative costs depletion expense 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs increased 10 approximately 10000 year ended december 31 2003 compared year ended december 31 2002 2 depletion expense increased 15000 year ended december 31 2003 12000 period 2002 represents increase 25 contributing factor decrease depletion expense relation boe depletion rate year ended december 31 2003 93 applied 16150 boe compared 67 applied 17867 boe period 2002 cumulative effect change accounting principle sfas 143 january 1 2003 partnership adopted statement financial accounting standards 143 accounting asset retirement obligations sfas 143 adoption sfas 143 required companies fiscal years beginning june 15 2002 new standard requires partnership recognize liability present value legal obligations associated retirement tangible longlived assets capitalize equal amount cost asset depreciate additional cost estimated useful life asset january 1 2003 partnership recorded additional costs net accumulated depreciation approximately 167102 long term liability approximately 149466 gain approximately 17635 cumulative effect depreciation additional costs accretion expense liability related expected abandonment costs oil natural gas producing properties december 31 2003 asset retirement obligation 149098 decrease balance january 1 2003 due sale oil gas properties decreased asset retirement obligation 8938 plug abandonment lease 2987 offset accretion expense 11557 pro forma amounts asset retirement obligation december 31 2002 2001 2000 approximately 149466 138465 128274 respectively pro forma amounts asset retirement obligation measured using information assumptions interest rates adoption date january 1 2003 results operations b general comparison years ended december 31 2002 2001 following table provides certain information regarding performance factors years ended december 31 2002 2001 year ended percenta ge december 31 increase 2002 2001 decreas e average price per 2339 4 barrel oil 2257 average price per mcf 304 31 gas 438 oil production 12900 15300 16 barrels gas production mcf 29800 32700 9 income net 107806 189907 43 profits interests partnership 200093 100 distributions limited partner 180084 100 distributions per unit distribution 100 limited partners 1591 number limited 11316 partner units revenues partnerships income net profits interests decreased 107806 189907 years ended december 31 2002 2001 respectively decrease 43 principal factors affecting comparison years ended december 31 2002 2001 follows 1 average price barrel oil received partnership increased year ended december 31 2002 compared year ended december 31 2001 4 82 per barrel resulting increase approximately 10600 income net profits interests oil sales represented 77 total oil gas sales year ended december 31 2002 compared 71 year ended december 31 2001 average price mcf gas received partnership decreased period 31 134 per mcf resulting decrease approximately 40000 income net profits interests net total decrease income net profits interests due change prices received oil gas production approximately 29400 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 2400 barrels 16 year ended december 31 2002 compared year ended december 31 2001 resulting decrease approximately 54200 income net profits interests gas production decreased approximately 2900 mcf 9 period resulting decrease approximately 12700 income net profits interests total decrease income net profits interests due change production approximately 66900 decrease oil production mainly due well hole casing repaired production coming back normal decrease gas production result lease steep natural decline decrease partially offset increase connection change estimate reflected fourth quarter 2001 production month july partnership small interest well discovered producing larger portion gas lease another well lease major producer partnership owned small interest 3 lease operating costs production taxes 5 lower approximately 14300 less year ended december 31 2002 compared year ended december 31 2001 costs expenses total costs expenses decreased 108297 113625 years ended december 31 2002 2001 respectively decrease 5 decrease result lower depletion expense partially offset increase general administrative costs 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs increased 1 approximately 700 year ended december 31 2002 compared year ended december 31 2001 2 depletion expense decreased 12000 year ended december 31 2002 18000 period 2001 represents decrease 33 fourth quarter 2002 partnership changed methods accounting depletion capitalized costs unitsofrevenue method unitsofproduction method newly adopted accounting principle preferable circumstances unitsofproduction method results better matching costs oil gas production related revenue received periods volatile prices production experienced recent periods additionally unitsofproduction method predominant method used full cost companies oil gas industry accordingly change improves comparability partnerships financial statements peer group effect change method increase 2002 depletion expense 1000 decrease 2002 net income 3000 see note 4 notes partnerships financial statements major factor decrease depletion expense comparative periods increase price oil gas used determine partnerships reserves january 1 2003 compared 2002 provided economically recoverable proved reserves january 1 2003 caused depletion rate per equivalent unit produced decline also discussed total equivalent units produced 2002 declined 2001 c revenue distribution comparison partnership income loss years ended december 31 2003 2002 2001 103735 273 76774 respectively partnership distributions years ended december 31 2003 2002 2001 50406 0 200093 respectively differences indicative changes oil gas prices production property sources 2003 distributions 50406 oil gas operations approximately 104800 change oil gas properties approximately 400 resulting excess cash contingencies subsequent distributions 2002 sources 2001 distributions 200093 oil gas operations approximately 151600 balance available cash hand beginning period total distributions year ended december 31 2003 50406 45365 distributed limited partners 5041 general partners per unit distribution limited partners period 401 distributions due decrease revenues result decline oil gas production well decrease gas prices year ended december 31 2002 total distributions year ended december 31 2001 200093 180084 distributed limited partners 20009 general partners per unit distribution limited partners period 1591 cumulative cash distributions 3438943 made general limited partners december 31 2003 december 31 2003 3152850 27862 per limited partner unit distributed limited partners representing 56 return capital contributed liquidity capital resources primary source cash operations receipt income net profits interests oil gas properties partnership knows material change anticipate change cash flows provided operating activities approximately 104800 2003 compared 3200 2002 approximately 151600 2001 cash flows provided investing activities approximately 400 2003 cash flows used investing activities 2002 2001 principal source 2003 cash flows investing activities sale oil gas properties cash flows provided used financing activities approximately 51000 2003 300 2002 199800 2001 use financing activities distributions partners december 31 2003 partnership approximately 113800 working capital managing general partner knows unusual contractual commitments although partnership held many longlived properties inception restrictions property development imposed partnership agreement partnership cannot develop non producing properties without continued development producing reserves continue deplete accordingly partnerships properties matured depleted net cash flows operations partnership steadily declined except periods substantially increased commodity pricing maintenance properties administrative expenses partnership increasing relative production properties continue deplete maintenance properties administrative costs percentage production expected continue increase liquidity managing general partner december 31 2003 managing general partner violation several covenants pertaining amended restated revolving credit agreement due june 1 2006 senior second lien secured credit agreement due october 15 2008 due covenant violations managing general partner default amended restated revolving credit agreement senior second lien secured credit agreement amounts due agreements classified current liability managing general partners balance sheet december 31 2003 significant working capital deficit debt default december 31 2003 raise substantial doubt managing general partners ability continue going concern subsequent december 31 2003 board directors managing general partner announced decision explore merger sale stock transaction involving managing general partner board formed special committee independent directors oversee sales process special committee retained independent financial legal advisors work closely management managing general partner implement sales process assurance sale managing general partner consummated terms consummated sale recent accounting pronouncements eitf considering two issues related reporting oil gas mineral rights issue 03o whether mineral rights tangible intangible assets whether mineral rights intangible assets pursuant sfas 141 business combinations issue 03s application sfas 142 goodwill intangible assets oil gas companies oil gas drilling rights intangible assets whether assets subject classification disclosure provisions sfas 142 partnership classifies cost oil gas mineral rights properties equipment believes consistent oil gas accounting industry practice disclosures required sfas nos 141 142 would made notes financial statements would effect statement income cash flows intangible assets related oil gas mineral rights would continue amortized full cost method accounting item 7a item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold lease operating expenses enhanced recovery projects offset drilling activities pursuant farmout arrangements depletion wells since wells deplete time production generally expected decline year well operating costs general administrative costs usually decrease production declines however costs may decrease proportionately net income available distribution limited partners therefore expected decline later years based factors critical accounting policies partnership follows full cost method accounting oil gas properties full cost method subjects companies quarterly calculations “ceiling” limitation amount properties capitalized balance sheet partnership’s capitalized costs excess calculated ceiling excess must written expense partnership’s discounted present value proved oil natural gas reserves major component ceiling calculation represents component requires subjective judgments estimates reserves forecasts based engineering data projected future rates production timing future expenditures process estimating oil natural gas reserves requires substantial judgment resulting imprecise determinations particularly new discoveries different reserve engineers may make different estimates reserve quantities based data partnership’s reserve estimates prepared outside consultants passage time provides qualitative information regarding estimates reserves revisions made prior estimates reflect updated information however assurance significant revisions necessary future significant revisions necessary reduce previously estimated reserve quantities could result full cost property writedown addition impact estimates proved reserves calculation ceiling estimates proved reserves also significant component calculation depletion depreciation amortization “dda” quantities proved reserves require substantial judgment associated prices oil natural gas reserves included discounted present value reserves require judgment ceiling calculation dictates prices costs effect last day period generally held constant indefinitely ceiling calculation dictates prices effect last day applicable quarter held constant indefinitely resulting value indicative true fair value reserves oil natural gas prices historically cyclical particular day end quarter either substantially higher lower partnership’s longterm price forecast barometer true fair value supplemental information following unaudited information intended supplement financial statements included form 10k data readily available statements operating results following discussion compares results year ended december 31 2008 two previous years references 2008 2007 2006 within section refer respective annual periods revenues oil gas prices remained high compared previous two years comparing 2008 2007 oil gas sales net profits interests increased 357676 price variances accounted 335545 increase production variances accounted 22131 increase comparing 2007 2006 oil gas sales net profits interests increased 45807 price variances accounted 67538 increase production variances accounted 21731 decrease production 2008 boe basis 1 higher 2007 2 lower 2006 oil production 8 higher 2008 2007 due primarily oil well producing first half 2007 gas production 13 lower 2008 2007 due primarily well producing fourth quarter 2008 realized oil price 43 higher 2007 56 higher 2006 realized gas price 31 higher 2007 43 higher 2006 historically markets oil gas volatile likely continue volatile little control prices receive production wellhead since physical marketing arrangements marketsensitive oil gas production costs boe basis increased 2834 per boe 2007 2487 per boe 2006 3578 per boe 2008 increase oil gas production costs 2008 due primarily subsurface repairs oil well cost plug abandon well exceeded asset retirement obligation reduction also contributing increase higher production taxes resulting higher commodity prices expenses depletion boe basis increased 6 2007 56 2006 comparing 2008 2007 depletion expense increased 1544 rate variances accounted 1328 increase production variances accounted 216 increase comparing 2007 2006 depletion expense increased 6353 rate variances accounted 6868 increase production variances accounted 515 decrease depletion rates function net capitalized costs estimated reserve quantities accretion expense decreased 10 due primarily changes asset retirement obligations general administrative “ga” expenses 1 lower 2008 2007 1 higher 2006 texas margin taxes may 2006 state texas adopted house bill 3 modified state’s franchise tax structure replacing previous tax based capital earned surplus margin tax “texas margin tax” effective franchise tax reports filed january 1 2008 texas margin tax computed applying applicable tax rate 1 partnership’s business profit margin generally determined total revenue less either cost goods sold compensation applicable however partnership believes based interpretation texas margin tax apply partnership since substantially income derived net profits interest liquidity capital resources partnership distributions year ended december 31 2008 667414 600318 distributed limited partners 67096 general partners cumulative cash distributions 5159218 made general limited partners december 31 2008 december 31 2008 4700183 41536 per limited partner unit distributed limited partners representing 83 contributed capital primary source cash operating activities oil gas sales net production costs cash flow provided operating activities 2008 158 higher 2007 44 increase oil gas sales plus decrease receivables partially offset higher production costs use financing activities distribution partners 190 higher 2007 december 31 2008 partnership approximately 30100 working capital managing general partner knows unusual contractual commitments although partnership held many longlived properties inception restrictions property development imposed partnership agreement partnership cannot develop nonproducing properties without continued development producing reserves continue deplete accordingly partnership’s properties matured depleted net cash flows operations partnership steadily declined except periods substantially increased commodity pricing maintenance properties administrative expenses partnership increasing relative production properties continue deplete maintenance properties administrative costs percentage production expected continue increase recent accounting pronouncements recent accounting pronouncements affect partnership item 7a item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold lease operating expenses enhanced recovery projects offset drilling activities pursuant farmout arrangements depletion wells since wells deplete time production generally expected decline year well operating costs general administrative costs usually decrease production declines however costs may decrease proportionately net income available distribution limited partners therefore expected fluctuate later years based factors based current conditions management anticipates participating farmout agreement performing workovers next two years enhance production partnership may undergo increase later 1997 possibly 1998 thereafter partnership could possibly experience normal decline 8 10 per year results operations general comparison years ended december 31 1996 1995 following table provides certain information regarding performance factors years ended december 31 1996 1995 year ended percentage december 31 increase 1996 1995 decrease average price per barrel oil 1965 1631 20 average price per mcf gas 239 178 34 oil production barrels 40700 36400 12 gas production mcf 50700 51500 2 income net profits interests 363959 129803 180 partnership distributions 226000 137344 65 limited partner distributions 203400 125844 62 per unit distribution limited partners 1797 1112 62 number limited partner units 11316 revenues partnerships income net profits interests increased 363959 129803 years ended december 31 1996 1995 respectively increase 180 principal factors affecting comparison years ended december 31 1996 1995 follows 1 average price barrel oil received partnership increased year ended december 31 1996 compared year ended december 31 1995 20 334 per barrel resulting increase approximately 121600 income net profits interests oil sales represented 87 total oil gas sales years ended december 31 1996 1995 average price mcf gas received partnership increased period 34 61 per mcf resulting increase approximately 31400 income net profits interests total increase income net profits interests due change prices received oil gas production approximately 153000 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production increased approximately 4300 barrels 12 year ended december 31 1996 compared year ended december 31 1995 resulting increase approximately 84500 income net profits interests gas production decreased approximately 800 mcf 2 period resulting decrease approximately 1900 income net profits interests net total increase income net profits interests due change production approximately 82600 3 subsequent december 31 1996 partnership received 14850 lawsuit settlement scana petroleum oil gas purchaser ethel cornelius lease leases operator alltex exploration concerning pricing 4 lease operating costs production taxes less 1 higher approximately 2300 year ended december 31 1996 compared year ended december 31 1995 costs expenses total costs expenses decreased 170984 198948 years ended december 31 1996 1995 respectively decrease 14 decrease result lower general administrative expense depletion expense 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs decreased 2 approximately 2300 year ended december 31 1996 compared year ended december 31 1995 2 depletion expense decreased 72000 year ended december 31 1996 94000 period 1995 represents decrease 23 depletion calculated using units revenue method amortization based percentage current period gross revenues total future gross oil gas revenues estimated partnerships independent petroleum consultants contributing factor decline depletion expense comparative periods increase price oil gas used determine partnerships reserves january 1 1997 compared 1996 another contributing factor due impact revisions previous estimates reserves revisions previous estimates attributed changes production performance oil gas price production costs impact revision would decreased depletion expense approximately 30000 december 31 1995 b general comparison years ended december 31 1995 1994 following table provides certain information regarding performance factors years ended december 31 1995 1994 year ended percentage december 31 increase 1995 1994 decrease average price per barrel oil 1631 1473 11 average price per mcf gas 178 183 3 oil production barrels 36400 51400 29 gas production mcf 51500 74500 31 income net profits interests 129803 287718 55 partnership distributions 137344 521272 74 limited partner distributions 125844 491282 74 per unit distribution limited partners 1112 4341 74 number limited partner units 11316 revenues partnerships income net profits interests decreased 129803 287718 years ended december 31 1995 1994 respectively decrease 55 principal factors affecting comparison years ended december 31 1995 1994 follows 1 average price barrel oil received partnership increased year ended december 31 1995 compared year ended december 31 1994 11 158 per barrel resulting increase approximately 81200 income net profits interests oil sales represented 87 total oil gas sales year ended december 31 1995 compared 85 year ended december 31 1994 average price mcf gas received partnership decreased period 3 05 per mcf resulting decrease approximately 3700 income net profits interests net total increase income net profits interests due change prices received oil gas production approximately 77500 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future 2 oil production decreased approximately 15000 barrels 29 year ended december 31 1995 compared year ended december 31 1994 resulting decrease approximately 244700 income net profits interests gas production decreased approximately 23000 mcf 31 period resulting decrease approximately 40900 income net profits interests total decrease income net profits interests due change production approximately 285600 decrease result increased downtime due mechanical equipment failures 1995 3 lease operating costs production taxes 8 lower approximately 51000 less year ended december 31 1995 compared year ended december 31 1994 costs expenses total costs expenses decreased 198948 259492 years ended december 31 1995 1994 respectively decrease 23 decline result decrease general administrative expense depletion expense 1 general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs decreased 3 approximately 3200 year ended december 31 1995 compared year ended december 31 1994 2 depletion expense decreased 94000 year ended december 31 1995 146000 period 1994 represents decrease 36 depletion calculated using units revenue method amortization based percentage current period gross revenues total future gross oil gas revenues estimated partnerships independent petroleum consultants consequently depletion fluctuate direct relation oil gas revenues noted oil gas revenues declined due decline gas prices oil gas production year ended december 31 1995 compared period 1994 c revenue distribution comparison partnership income loss years ended december 31 1996 1995 1994 209089 1996 68065 1995 31417 1994 excluding effects depreciation depletion amortization net income would 281089 1996 29625 1995 186417 1994 correspondingly partnership distributions years ended december 31 1996 1995 1994 226000 137344 521272 respectively differences indicative changes oil gas prices production property sales sources 1996 distributions 226000 oil gas operations approximately 185300 property sales approximately 1100 balance available cash hand beginning period sources 1995 distributions 137344 oil gas operations approximately 90200 property sales approximately 55800 resulting excess cash contingencies subsequent distributions sources 1994 distributions 521272 oil gas operations approximately 194700 property sales approximately 334600 offset additions oil gas properties approximately 2200 resulting excess cash contingencies subsequent distributions total distributions year ended december 31 1996 226000 203400 distributed limited partners 22600 general partners per unit distribution limited partners period 1797 total distributions year ended december 31 1995 137344 125844 distributed limited partners 11500 general partners per unit distribution limited partners period 1112 total distributions year ended december 31 1994 521272 491282 distributed limited partners 29990 general partners per unit distribution limited partners period 4341 since inception partnership cumulative monthly cash distributions 2753122 made partners december 31 1996 2526161 22324 per limited partner unit distributed limited partners representing 45 return capital contributed liquidity capital resources primary source cash operations receipt income net profits interests oil gas properties partnership knows material change anticipate change cash flows provided operating activities approximately 185300 1996 compared approximately 90200 1995 approximately 194700 1994 primary source 1996 cash flow operating activities profitable operations cash flows provided investing activities approximately 1100 1996 compared approximately 55800 1995 approximately 332500 1994 principal source 1996 cash flow investing activities sale oil gas properties cash flows used financing activities approximately 226100 1996 compared approximately 137200 1995 approximately 521200 1994 use 1996 financing activities distributions partners december 31 1996 partnership approximately 121300 working capital managing general partner knows unusual contractual commitments believes revenues generated operations adequate meet needs partnership item 8 item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold lease operating expenses enhanced recovery projects offset drilling activities pursuant farmout arrangements depletion wells since wells deplete time production generally expected decline year well operating costs general administrative costs usually decrease production declines however costs may decrease proportionately net income available distribution limited partners therefore expected decline later years based factors critical accounting policies partnership follows full cost method accounting oil gas properties full cost method subjects companies quarterly calculations ceiling limitation amount properties capitalized balance sheet partnerships capitalized costs excess calculated ceiling excess must written expense partnerships discounted present value proved oil natural gas reserves major component ceiling calculation represents component requires subjective judgments estimates reserves forecasts based engineering data projected future rates production timing future expenditures process estimating oil natural gas reserves requires substantial judgment resulting imprecise determinations particularly new discoveries different reserve engineers may make different estimates reserve quantities based data partnerships reserve estimates prepared outside consultants passage time provides qualitative information regarding estimates reserves revisions made prior estimates reflect updated information however assurance significant revisions necessary future significant revisions necessary reduce previously estimated reserve quantities could result full cost property writedown addition impact estimates proved reserves calculation ceiling estimates proved reserves also significant component calculation depletion depreciation amortization dda quantities proved reserves require substantial judgment associated prices oil natural gas reserves included discounted present value reserves require judgment ceiling calculation dictates prices costs effect last day period generally held constant indefinitely ceiling calculation dictates prices effect last day applicable quarter held constant indefinitely resulting value indicative true fair value reserves oil natural gas prices historically cyclical particular day end quarter either substantially higher lower partnerships longterm price forecast barometer true fair value supplemental information following unaudited information intended supplement financial statements included form 10k data readily available statements years ended december 31 2005 2004 2003 oil production 10509 10350 11500 barrels gas production mcf 29455 29819 27900 total boe 15418 15320 16150 average price per barrel 5251 3801 oil 2844 average price per mcf 761 610 500 gas partnership 340000 150759 50406 distributions limited partner 306000 135488 45365 distributions per unit distribution 2704 1197 401 limited partners number limited 11316 partner units operating results following discussion compares results year ended december 31 2005 two previous years references 2005 2004 2003 within section refer respective annual periods income net profits oil gas prices continued climb record levels compared previous two years comparing 2005 2004 oil gas sales net profits interests increased 200800 price variances accounted 197000 increase production variances accounted 3800 increase comparing 2004 2003 oil gas sales increased 108600 price variances accounted 131700 increase production variances accounted 23100 decrease production 2005 boe basis 1 higher 2004 5 lower 2003 increased oil production 2005 due primarily improved production three properties gas production 1 lower 2005 2004 due primarily normal production declines 2005 realized oil price 38 higher 2004 85 higher 2003 realized gas price 25 higher 2004 52 higher 2003 historically markets oil gas volatile likely continue volatile little control prices receive production wellhead since physical marketing arrangements market sensitive oil gas production costs boe basis increased 1962 per boe 2004 1611 per boe 2003 2054 per boe 2005 increase oil gas production costs 2005 primarily due increased production tax costs related higher product prices likely factors continue contribute higher production costs future periods expenses depletion boe basis decreased 13 2004 24 2003 comparing 2005 2004 depletion expense decreased 1600 rate variances accounted 1700 decrease production variances accounted 100 increase comparing 2004 2003 depletion expense decreased 2500 rate variances accounted 1700 decrease production variances accounted 800 decrease depletion rates function net capitalized costs estimated reserve quantities rates 2006 expected similar 2005 rates general administrative ga expenses 5 lower 2004 4 lower 2003 due primarily lower engineering fees lower annual report printing fees liquidity capital resources partnership distributions year ended december 31 2005 340000 306000 distributed limited partners 34000 general partners cumulative cash distributions 3929702 made general limited partners december 31 2005 december 31 2005 3594338 31763 per limited partner unit distributed limited partners representing 64 contributed capital primary source cash operating activities oil gas sales net production costs cash flow provided operating activities 2005 163 higher 2004 due combined effects several drivers positive benefits 35 increase oil gas sales driven primarily higher oil gas prices offset part increases production costs use financing activities distribution partners 126 higher 2004 december 31 2005 partnership approximately 138600 working capital managing general partner knows unusual contractual commitments although partnership held many longlived properties inception restrictions property development imposed partnership agreement partnership cannot develop nonproducing properties without continued development producing reserves continue deplete accordingly partnerships properties matured depleted net cash flows operations partnership steadily declined except periods substantially increased commodity pricing maintenance properties administrative expenses partnership increasing relative production properties continue deplete maintenance properties administrative costs percentage production expected continue increase recent accounting pronouncements december 2004 financial accounting standards board fasb issued statement financial accounting standards 153 exchanges nonmonetary assets amendment apb opinion 29 sfas 153 sfas 153 specifies criteria required record nonmonetary asset exchange using carryover basis sfas 153 effective nonmonetary asset exchanges occurring july 1 2005 partnership adopted statement third quarter 2005 effect financial statements september 2004 securities exchange commission issued staff accounting bulletin 106 sab 106 sab 106 expresses sec staffs views regarding sfas 143 impact fullcost ceiling test calculation depletion expense accordance sab 106 beginning first quarter 2005 undiscounted abandonment costs wells drilled future develop proved reserves included unamortized cost oil gas properties net related salvage value purposes computing depreciation depletion amortization dda implementation sab 106 material impact financial statements item 7a item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold lease operating expenses enhanced recovery projects offset drilling activities pursuant farmout arrangements depletion wells since wells deplete time production generally expected decline year well operating costs general administrative costs usually decrease production declines however costs may decrease proportionately net income available distribution limited partners therefore expected decline later years based factors critical accounting policies partnership follows full cost method accounting oil gas properties full cost method subjects companies quarterly calculations “ceiling” limitation amount properties capitalized balance sheet partnership’s capitalized costs excess calculated ceiling excess must written expense partnership’s discounted present value proved oil natural gas reserves major component ceiling calculation represents component requires subjective judgments estimates reserves forecasts based engineering data projected future rates production timing future expenditures process estimating oil natural gas reserves requires substantial judgment resulting imprecise determinations particularly new discoveries different reserve engineers may make different estimates reserve quantities based data partnership’s reserve estimates prepared outside consultants passage time provides qualitative information regarding estimates reserves revisions made prior estimates reflect updated information however assurance significant revisions necessary future significant revisions necessary reduce previously estimated reserve quantities could result full cost property writedown addition impact estimates proved reserves calculation ceiling estimates proved reserves also significant component calculation depletion depreciation amortization “dda” quantities proved reserves require substantial judgment associated prices oil natural gas reserves included discounted present value reserves require judgment ceiling calculation dictates prices costs effect last day period generally held constant indefinitely ceiling calculation dictates prices effect last day applicable quarter held constant indefinitely resulting value indicative true fair value reserves oil natural gas prices historically cyclical particular day end quarter either substantially higher lower partnership’s longterm price forecast barometer true fair value supplemental information following unaudited information intended supplement financial statements included form 10k data readily available statements operating results following discussion compares results year ended december 31 2007 two previous years references 2007 2006 2005 within section refer respective annual periods income net profits oil gas prices remained high compared previous two years comparing 2007 2006 oil gas sales net profits interests increased 45807 price variances accounted 67538 increase production variances accounted 21731 decrease comparing 2006 2005 oil gas sales net profits interests decreased 17800 price variances accounted 60800 increase production variances accounted 78600 decrease production 2007 boe basis 3 lower 2006 13 lower 2005 oil production 1 lower 2007 2006 gas production 7 lower 2007 2006 due primarily volume declines two fields 2007 realized oil price 9 higher 2006 29 higher 2005 realized gas price 9 higher 2006 3 lower 2005 historically markets oil gas volatile likely continue volatile little control prices receive production wellhead since physical marketing arrangements marketsensitive oil gas production costs boe basis increased 2487 per boe 2006 2054 per boe 2005 2834 per boe 2007 increase oil gas production costs 2007 due primarily settlement salt water disposal dispute involving three wells subsurface repairs tank battery repairs well expenses depletion boe basis increased 47 2006 126 2005 comparing 2007 2006 depletion expense increased 6353 rate variances accounted 6868 increase production variances accounted 515 decrease comparing 2006 2005 depletion expense increased 4200 rate variances accounted 5300 increase production variances accounted 1100 decrease depletion rates function net capitalized costs estimated reserve quantities rates 2008 expected similar 2007 rates general administrative “ga” expenses 2 higher 2007 2006 12 higher 2005 texas margin taxes may 2006 state texas adopted house bill 3 modified state’s franchise tax structure replacing previous tax based capital earned surplus margin tax “texas margin tax” effective franchise tax reports filed january 1 2008 texas margin tax computed applying applicable tax rate 1 partnership’s business profit margin generally determined total revenue less either cost goods sold compensation applicable however partnership believes based interpretation texas margin tax apply partnership since substantially income derived net profits interest liquidity capital resources partnership distributions year ended december 31 2007 230479 207366 distributed limited partners 23113 general partners cumulative cash distributions 4491804 made general limited partners december 31 2007 december 31 2007 4099865 36231 per limited partner unit distributed limited partners representing 72 contributed capital primary source cash operating activities oil gas sales net production costs cash flow provided operating activities 2007 7 lower 2006 due primarily effect increase receivables use financing activities distribution partners 30 lower 2006 december 31 2007 partnership approximately 152100 working capital managing general partner knows unusual contractual commitments although partnership held many longlived properties inception restrictions property development imposed partnership agreement partnership cannot develop nonproducing properties without continued development producing reserves continue deplete accordingly partnership’s properties matured depleted net cash flows operations partnership steadily declined except periods substantially increased commodity pricing maintenance properties administrative expenses partnership increasing relative production properties continue deplete maintenance properties administrative costs percentage production expected continue increase recent accounting pronouncements june 2006 financial accounting standards board “fasb” issued fasb interpretation 48 “accounting uncertainty income taxes” “fin48” clarify manner enterprises account uncertainties provisions income taxes generally standard presented fin 48 “more likely not” standard intended enhance relevancy comparability financial reporting companies fin 48 effective fiscal years beginning december 31 2006 fin 48 impact partnership’s financial statements since adoption january 1 2007 item 7a item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold increases decreases production costs enhanced recovery projects offset drilling activities pursuant farmout arrangements sales properties depletion wells since wells deplete time production generally expected decline year production costs general administrative costs usually decrease production declines however costs may decrease proportionately production volumes revenues net income available distribution partners therefore expected decline later years based factors critical accounting policies partnership follows full cost method accounting oil gas properties full cost method subjects companies quarterly calculations “ceiling” limitation amount properties capitalized balance sheet partnership’s capitalized costs excess calculated ceiling excess must written expense partnership’s discounted present value proved oil natural gas reserves major component ceiling calculation represents component requires subjective judgments estimates reserves forecasts based engineering data projected future rates production timing future expenditures process estimating oil natural gas reserves requires substantial judgment resulting imprecise determinations particularly new discoveries different reserve engineers may make different estimates reserve quantities based data partnership’s reserve estimates prepared outside consultants passage time provides qualitative information regarding estimates reserves revisions made prior estimates reflect updated information however assurance significant revisions necessary future significant revisions necessary reduce previously estimated reserve quantities could result full cost property writedown addition impact estimates proved reserves calculation ceiling estimates proved reserves also significant component calculation depletion depreciation amortization “dda” quantities proved reserves require substantial judgment associated prices oil natural gas reserves included discounted present value reserves require judgment current sec financial accounting reporting standards require pricing parameters arithmetic average firstdayofthemonth price 12month period preceding effective date reserve report ceiling calculation dictates prices held constant ceiling calculation dictates prices costs held constant indefinitely resulting value indicative true fair value reserves oil natural gas prices historically cyclical either substantially higher lower partnership’s longterm price forecast barometer true fair value supplemental information following unaudited information intended supplement financial statements included form 10k data readily available statements operating results following discussion compares results year ended december 31 2010 two previous years references 2010 2009 2008 within section refer respective annual periods revenues oil gas prices increased compared previous year comparing 2010 2009 oil gas sales net profits interests increased 137868 price variances accounted 182390 increase production variances accounted 44522 decrease comparing 2009 2008 oil gas sales net profits interests decreased 563905 price variances accounted 485575 decrease production variances accounted 78330 decrease production 2010 boe basis 8 lower 2009 16 lower 2008 oil production 6 lower 2010 2009 gas production 14 lower 2010 2009 due primarily well ceased producing 2010 realized oil price 34 higher 2009 23 lower 2008 realized gas price 24 higher 2009 45 lower 2008 historically markets oil gas volatile likely continue volatile oil gas production costs boe basis increased 2845 per boe 2009 3578 per boe 2008 6333 per boe 2010 higher oil gas production costs 2010 due primarily cost plug abandon three wells expenses depletion boe basis decreased 19 2009 increased 5 2008 comparing 2010 2009 depletion expense decreased 7170 rate variances accounted 4872 decrease production variances accounted 2298 decrease comparing 2009 2008 depletion expense increased 4507 rate variances accounted 6398 increase production variances accounted 1891 decrease accretion expense decreased 17 due primarily number wells reached estimated plug abandonment date end 2009 general administrative “ga” expenses identical 2010 2009 2008 texas margin taxes may 2006 state texas adopted house bill 3 modified state’s franchise tax structure replacing previous tax based capital earned surplus margin tax “texas margin tax” effective franchise tax reports filed january 1 2008 texas margin tax computed applying applicable tax rate 1 partnership’s business profit margin generally determined total revenue less either cost goods sold compensation applicable however partnership believes based interpretation texas margin tax apply partnership since substantially income derived net profits interest liquidity capital resources partnership distributions year ended december 31 2010 30216 27163 distributed limited partners 3053 general partners cumulative cash distributions 5241982 made general limited partners december 31 2010 december 31 2010 4774277 42191 per limited partner unit distributed limited partners representing 84 contributed capital primary source cash operating activities oil gas sales net production costs cash flow operating activities 2010 128 lower 2009 due combined effects several drivers effect 23 increase oil gas sales driven primarily higher oil gas prices increase accounts payable offset increase production costs use financing activities distribution partners 42 lower 2009 partnership reported deficit partners’ equity 67328 december 31 2010 recently partnership required plug abandon three wells process incurred substantial costs fish collapsed tubing well bores two wells required applicable regulatory agencies income net profits reduced 307384 cost plug abandon wells 331644 offset settlement asset retirement obligations 24260 many partnership’s wells nonproductive must plugged compliance applicable regulations since partnership’s ownership wells structured net profits interest partnership liable asset retirement costs except extent future cash flow costs incurred plug abandon partnership wells cash flow operations reduced eliminated item 7a item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold lease operating expenses enhanced recovery projects offset drilling activities pursuant farmout arrangements depletion wells since wells deplete time production generally expected decline year well operating costs general administrative costs usually decrease production declines however costs may decrease proportionately net income available distribution limited partners therefore expected decline later years based factors critical accounting policies partnership follows full cost method accounting oil gas properties full cost method subjects companies quarterly calculations ceiling limitation amount properties capitalized balance sheet partnerships capitalized costs excess calculated ceiling excess must written expense partnerships discounted present value proved oil natural gas reserves major component ceiling calculation represents component requires subjective judgments estimates reserves forecasts based engineering data projected future rates production timing future expenditures process estimating oil natural gas reserves requires substantial judgment resulting imprecise determinations particularly new discoveries different reserve engineers may make different estimates reserve quantities based data partnerships reserve estimates prepared outside consultants passage time provides qualitative information regarding estimates reserves revisions made prior estimates reflect updated information however assurance significant revisions necessary future significant revisions necessary reduce previously estimated reserve quantities could result full cost property writedown addition impact estimates proved reserves calculation ceiling estimates proved reserves also significant component calculation depletion depreciation amortization dda quantities proved reserves require substantial judgment associated prices oil natural gas reserves included discounted present value reserves require judgment ceiling calculation dictates prices costs effect last day period generally held constant indefinitely ceiling calculation dictates prices effect last day applicable quarter held constant indefinitely resulting value indicative true fair value reserves oil natural gas prices historically cyclical particular day end quarter either substantially higher lower partnerships longterm price forecast barometer true fair value results operations general comparison years ended december 31 2004 2003 following table provides certain information regarding performance factors years ended december 31 2004 2003 year ended percenta ge december 31 increase 2004 2003 decreas e oil production 10350 11500 10 barrels gas production mcf 29819 27900 7 total boe 15320 16150 5 average price per 3801 34 barrel oil 2844 average price per mcf 610 22 gas 500 income net 274552 206441 33 profits interests partnership 150759 50406 199 distributions limited partner 135488 45365 199 distributions per unit distribution 1197 199 limited partners 401 number limited 11316 partner units income net profits partnerships income net profits interests increased 274552 206441 years ended december 31 2004 2003 respectively increase 33 principal factors affecting comparison years ended december 31 2004 2003 follows average price barrel oil received partnership increased year ended december 31 2004 compared year ended december 31 2003 34 957 per barrel resulting increase approximately 99000 income net profits interests oil sales represented 68 total oil gas sales year ended december 31 2004 compared 70 year ended december 31 2003 average price mcf gas received partnership increased period 22 110 per mcf resulting increase approximately 32800 income net profits interests total increase income net profits interests due change prices received oil gas production approximately 131800 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future oil production decreased approximately 1150 barrels 10 year ended december 31 2004 compared year ended december 31 2003 resulting decrease approximately 32700 income net profits interests gas production increased approximately 1919 mcf 7 period resulting increase approximately 9600 income net profits interests total decrease income net profits interests due change production approximately 23000 decrease oil volumes decline one property sale two properties 2004 also contributed decrease lease operating costs production taxes 16 higher approximately 40500 year ended december 31 2004 compared year ended december 31 2003 increase lease operating costs due contract labor saltwater disposal cost increases one property 2004 additional site work done 2004 well plugged abandoned 2003 costs expenses total costs expenses decreased 129914 132887 years ended december 31 2004 2003 respectively decease 2 decrease result lower accretion expense depletion partially offset increase general administrative costs depletion expense decreased 12486 year ended december 31 2004 15000 period 2003 represents decrease 17 contributing factor decrease depletion expense relation boe depletion rate year ended december 31 2004 82 applied 15320 boe compared 93 applied 16150 boe period 2003 lower depletion rate 2004 due upward revision reserve estimates resulting higher oil gas prices accretion expense decreased 10438 year ended december 31 2004 11557 period 2003 represents decrease 10 decrease accretion discontinuing accretion several wells reached projected end life 2004 results operations general comparison years ended december 31 2003 2002 following table provides certain information regarding performance factors years ended december 31 2003 2002 year ended percenta ge december 31 increase 2003 2002 decreas e oil production 11500 12900 11 barrels gas production mcf 27900 29800 6 total boe 16150 17867 10 average price per 2844 22 barrel oil 2339 average price per mcf 500 64 gas 304 income net 206441 107806 91 profits interests partnership 50406 100 distributions limited partner 45365 100 distributions per unit distribution 401 100 limited partners number limited 11316 partner units income net profits partnerships income net profits interests increased 206441 107806 years ended december 31 2003 2002 respectively increase 91 principal factors affecting comparison years ended december 31 2003 2002 follows average price barrel oil received partnership increased year ended december 31 2003 compared year ended december 31 2002 22 505 per barrel resulting increase approximately 58100 income net profits interests oil sales represented 70 total oil gas sales year ended december 31 2003 compared 77 year ended december 31 2002 average price mcf gas received partnership increased period 64 196 per mcf resulting increase approximately 54700 income net profits interests total increase income net profits interests due change prices received oil gas production approximately 112800 market price oil gas extremely volatile past decade management expects certain amount volatility continue foreseeable future oil production decreased approximately 1400 barrels 11 year ended december 31 2003 compared year ended december 31 2002 resulting decrease approximately 32700 income net profits interests gas production decreased approximately 1900 mcf 6 period resulting decrease approximately 5800 income net profits interests total decrease income net profits interests due change production approximately 38500 decrease oil volumes due sale two leases plug abandonment one lease operating costs production taxes 9 lower approximately 24278 less year ended december 31 2003 compared year ended december 31 2002 decrease lease operating costs due sale two leases costs expenses total costs expenses increased 132887 108297 years ended december 31 2003 2002 respectively increase 23 increase result addition accretion expense higher general administrative costs depletion expense general administrative costs consists independent accounting engineering fees computer services postage managing general partner personnel costs general administrative costs increased 10 approximately 10000 year ended december 31 2003 compared year ended december 31 2002 depletion expense increased 15000 year ended december 31 2003 12000 period 2002 represents increase 25 contributing factor decrease depletion expense relation boe depletion rate year ended december 31 2003 93 applied 16150 boe compared 67 applied 17867 boe period 2002 cumulative effect change accounting principle sfas 143 january 1 2003 partnership adopted statement financial accounting standards 143 accounting asset retirement obligations sfas 143 adoption sfas 143 required companies fiscal years beginning june 15 2002 new standard requires partnership recognize liability present value legal obligations associated retirement tangible longlived assets capitalize equal amount cost asset depreciate additional cost estimated useful life asset january 1 2003 partnership recorded additional costs net accumulated depreciation approximately 167102 long term liability approximately 149466 gain approximately 17635 cumulative effect depreciation additional costs accretion expense liability related expected abandonment costs oil natural gas producing properties december 31 2003 asset retirement obligation 149098 decrease balance january 1 2003 due sale oil gas properties decreased asset retirement obligation 8938 plug abandonment lease 2987 offset accretion expense 11557 pro forma amount asset retirement obligation december 31 2002 approximately 149466 pro forma amounts asset retirement obligation measured using information assumptions interest rates adoption date january 1 2003 revenue distribution comparison partnership income loss years ended december 31 2004 2003 2002 145577 103735 273 respectively partnership distributions years ended december 31 2004 2003 2002 150759 50406 0 respectively differences indicative changes oil gas prices production property sources 2004 distributions 150759 oil gas operations approximately 135400 balance available cash hand beginning period sources 2003 distributions 50406 oil gas operations approximately 104800 change oil gas properties approximately 400 resulting excess cash contingencies subsequent distributions 2002 total distributions year ended december 31 2004 150759 135488 1197 per unit distributed limited partners 15271 general partners total distributions year ended december 31 2003 50406 45365 401 per unit distributed limited partners 5041 general partners distributions due decrease revenues result decline oil gas production well decrease gas prices year ended december 31 2002 cumulative cash distributions 3589702 made general limited partners december 31 2004 december 31 2004 3288338 29059 per limited partner unit distributed limited partners representing 58 contributed capital liquidity capital resources primary source cash operations receipt income net profits interests oil gas properties partnership knows material change anticipate change cash flows provided operating activities approximately 135400 2004 compared 104800 2003 approximately 3200 2002 cash flows used investing activities 2004 cash flows provided investing activities approximately 400 2003 cash flows used investing activities 2002 cash flows provided used financing activities approximately 150800 2004 51000 2003 300 2002 use financing activities distributions partners december 31 2004 partnership approximately 127900 working capital managing general partner knows unusual contractual commitments although partnership held many longlived properties inception restrictions property development imposed partnership agreement partnership cannot develop non producing properties without continued development producing reserves continue deplete accordingly partnerships properties matured depleted net cash flows operations partnership steadily declined except periods substantially increased commodity pricing maintenance properties administrative expenses partnership increasing relative production properties continue deplete maintenance properties administrative costs percentage production expected continue increase recent accounting pronouncements december 2004 financial accounting standards board fasb issued statement financial accounting standards 153 exchanges nonmonetary assets amendment apb opinion 29 sfas 153 sfas 153 specifies criteria required record nonmonetary asset exchange using carryover basis sfas 153 effective nonmonetary asset exchanges occurring july 1 2005 partnership adopt statement third quarter 2005 expected material effect financial statements adopted september 2004 securities exchange commission issued staff accounting bulletin 106 sab 106 sab 106 expresses sec staffs views regarding sfas 143 impact fullcost ceiling test calculation depletion expense accordance sab 106 beginning first quarter 2005 undiscounted abandonment costs wells drilled future develop proved reserves included unamortized cost oil gas properties net related salvage value purposes computing depreciation depletion amortization dda effect including undiscounted abandonment costs future wells undiscounted cost oil gas properties may increase dda expense future periods however partnership currently believe sab 106 material impact financial statements item 7a item 7 managements discussion analysis financial condition results operations general partnership formed acquire nonoperating interests producing oil gas properties produce market crude oil natural gas produced properties distribute net proceeds operations general limited partners net revenues producing oil gas properties reinvested revenue producing assets except extent producing facilities wells reworked methods employed improve enable efficient recovery oil gas reserves economic life partnership thus depends period partnerships oil gas reserves economically recoverable increases decreases partnership revenues therefore distributions partners depend primarily changes prices received production changes volumes production sold increases decreases production costs enhanced recovery projects offset drilling activities pursuant farmout arrangements sales properties depletion wells since wells deplete time production generally expected decline year production costs general administrative costs usually decrease production declines however costs may decrease proportionately production volumes revenues net income available distribution partners therefore expected decline later years based factors critical accounting policies partnership follows full cost method accounting oil gas properties full cost method subjects companies quarterly calculations “ceiling” limitation amount properties capitalized balance sheet partnership’s capitalized costs excess calculated ceiling excess must written expense partnership’s discounted present value proved oil natural gas reserves major component ceiling calculation represents component requires subjective judgments estimates reserves forecasts based engineering data projected future rates production timing future expenditures process estimating oil natural gas reserves requires substantial judgment resulting imprecise determinations particularly new discoveries different reserve engineers may make different estimates reserve quantities based data partnership’s reserve estimates prepared outside consultants passage time provides qualitative information regarding estimates reserves revisions made prior estimates reflect updated information however assurance significant revisions necessary future significant revisions necessary reduce previously estimated reserve quantities could result full cost property writedown addition impact estimates proved reserves calculation ceiling estimates proved reserves also significant component calculation depletion depreciation amortization “dda” quantities proved reserves require substantial judgment associated prices oil natural gas reserves included discounted present value reserves require judgment current sec financial accounting reporting standards require pricing parameters arithmetic average firstdayofthemonth price 12month period preceding effective date reserve report ceiling calculation dictates prices held constant ceiling calculation dictates prices costs held constant indefinitely resulting value indicative true fair value reserves oil natural gas prices historically cyclical either substantially higher lower partnership’s longterm price forecast barometer true fair value supplemental information following unaudited information intended supplement financial statements included form 10k data readily available statements operating results following discussion compares results year ended december 31 2009 two previous years references 2009 2008 2007 within section refer respective annual periods revenues oil gas prices declined compared previous two years comparing 2009 2008 oil gas sales net profits interests decreased 563905 price variances accounted 485575 decrease production variances accounted 78330 decrease comparing 2008 2007 oil gas sales net profits interests increased 357676 price variances accounted 335545 increase production variances accounted 22131 increase production 2009 boe basis 8 lower 2008 7 lower 2007 oil production 4 lower 2009 2008 gas production 19 lower 2009 2008 due primarily gas well ceased producing early 2009 realized oil price 43 lower 2008 18 lower 2007 realized gas price 56 lower 2008 42 lower 2007 historically markets oil gas volatile likely continue volatile oil gas production costs boe basis decreased 3578 per boe 2008 increased 2834 per boe 2007 2845 per boe 2009 higher oil gas production costs 2008 due primarily cost plug abandon oil well remove remediate pit also contributing decrease lower production taxes resulting lower commodity prices expenses depletion boe basis increased 30 2008 38 2007 comparing 2009 2008 depletion expense increased 4507 rate variances accounted 6398 increase production variances accounted 1891 decrease comparing 2008 2007 depletion expense increased 1544 rate variances accounted 1328 increase production variances accounted 216 increase depletion rates function net capitalized costs estimated reserve quantities accretion expense increased 23 due primarily changes asset retirement obligations general administrative “ga” expenses identical 2009 2008 1 lower 2007 texas margin taxes may 2006 state texas adopted house bill 3 modified state’s franchise tax structure replacing previous tax based capital earned surplus margin tax “texas margin tax” effective franchise tax reports filed january 1 2008 texas margin tax computed applying applicable tax rate 1 partnership’s business profit margin generally determined total revenue less either cost goods sold compensation applicable however partnership believes based interpretation texas margin tax apply partnership since substantially income derived net profits interest liquidity capital resources partnership distributions year ended december 31 2009 52548 46931 distributed limited partners 5617 general partners cumulative cash distributions 5211766 made general limited partners december 31 2009 december 31 2009 4747114 41950 per limited partner unit distributed limited partners representing 84 contributed capital primary source cash operating activities oil gas sales net production costs cash flow provided operating activities 2009 93 lower 2008 due combined effects several drivers effect 49 decrease oil gas sales driven primarily lower oil gas prices partially offset decrease oil gas production costs use financing activities distribution partners 92 lower 2008 december 31 2009 partnership approximately 102400 working capital managing general partner knows unusual contractual commitments although partnership held many longlived properties inception restrictions property development imposed partnership agreement partnership cannot develop nonproducing properties without continued development producing reserves continue deplete accordingly partnership’s properties matured depleted net cash flows operations partnership steadily declined except periods substantially increased commodity pricing maintenance properties administrative expenses partnership increasing relative production properties continue deplete maintenance properties administrative costs percentage production expected continue increase recent accounting pronouncements effective july 1 2009 partnership adopted sfas 168 “the financial accounting standards board “fasb” accounting standards codification hierarchy generally accepted accounting principles replacement fasb statement 162” “sfas 168” superseded topic 105105 fasb accounting standards codification “asc” sfas 168 establishes asc source authoritative accounting principles recognized fasb applied nongovernmental entities preparation financial statements conformity gaap manner new accounting guidance referenced adoption material impact financial statements effective april 1 2009 partnership adopted sfas 165 “subsequent events” “sfas 165” superseded asc topic 855105 establishes principles requirements disclosure subsequent events establishes period balance sheet date events transactions evaluated potential disclosure also establishes circumstances entity shall recognize events transactions occurring balance sheet date adoption sfas 165 material impact disclosure subsequent events december 2008 sec released final rule “modernization oil gas reporting” new disclosure requirements include provisions permit use new technologies determine proved reserves technologies demonstrated empirically lead reliable conclusions reserves volumes new requirements also allow companies disclose probable possible reserves investors addition new disclosure requirements require companies 1 report independence qualifications reserves preparer auditor 2 file reports third party relied upon prepare reserves estimates conducts reserves audit 3 report oil gas reserves using average price based upon prior 12month period rather yearend prices rule changes became effective december 31 2009 adopted changes conformed reserve estimation disclosure practices accordance guidance contained releases item 7a item 7a quantitative qualitative disclosures market risk partnership party derivative embedded derivative instruments item 8 item 7a quantitative qualitative disclosures market risk partnership party derivative embedded derivative instruments item 8 item 7a quantitative qualitative disclosures market risk partnership party derivative embedded derivative instruments item 8 item 7a quantitative qualitative disclosures market risk partnership party derivative embedded derivative instruments item 8 item 7a quantitative qualitative disclosures market risk partnership party derivative embedded derivative instruments item 8 item 7a quantitative qualitative disclosures market risk partnership party derivative embedded derivative instruments item 8 item 7a quantitative qualitative disclosures market risk partnership party derivative embedded derivative instruments item 8 item 7a quantitative qualitative disclosures market risk partnership party derivative embedded derivative instruments item 8 item 7a quantitative qualitative disclosures market risk partnership financial condition results operations capital resources highly dependent upon prevailing market prices demand oil natural gas commodity prices subject wide fluctuations market uncertainties due variety factors beyond control factors include level global demand petroleum products foreign supply oil gas establishment compliance production quotas oilexporting countries trading activities commodities future markets weather conditions price availability alternative fuels overall economic conditions foreign domestic partnership cannot predict future oil gas prices degree certainty sustained weakness oil gas prices may adversely affect financial condition results operations cash distributions partners partnership party derivative embedded derivative instruments item 8 item 7a quantitative qualitative disclosures market risk partnership party derivative embedded derivative instruments item 8 item 7a quantitative qualitative disclosures market risk partnership financial condition results operations capital resources highly dependent upon prevailing market prices demand oil natural gas commodity prices subject wide fluctuations market uncertainties due variety factors beyond control factors include level global demand petroleum products foreign supply oil gas establishment compliance production quotas oilexporting countries trading activities commodities future markets weather conditions price availability alternative fuels overall economic conditions foreign domestic partnership cannot predict future oil gas prices degree certainty sustained weakness oil gas prices may adversely affect financial condition results operations cash distributions partners partnership party derivative embedded derivative instruments item 8 item 8 financial statements supplementary data page independent auditors reports 22 balance sheets 24 statements operations 25 statement changes partners equity 26 statements cash flows 27 notes financial statements 29 independent auditors report partners southwest royalties institutional income fund xa lp delaware limited partnership audited accompanying balance sheets southwest royalties institutional income fund xa lp partnership december 31 1998 1997 related statements operations changes partners equity cash flows years ended financial statements responsibility partnerships management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 1998 1997 results operations cash flows years ended conformity generally accepted accounting principles kpmg llp midland texas march 18 1999 report independent accountants partners southwest royalties institutional income fund xa lp midland texas audited accompanying statements operations changes partners equity cash flows southwest royalties institutional income fund xa lp year ended december 31 1996 financial statements responsibility partnerships management responsibility express opinion financial statements based audit conducted audit accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether statements operations changes partners equity cash flows free material misstatement audit includes examining test basis evidence supporting amounts disclosures statements operations changes partners equity cash flows audit also includes assessing accounting principles used significant estimates made management well evaluating overall presentation statements operations changes partners equity cash flows believe audit statements operations changes partners equity cash flows provides reasonable basis opinion statements operations changes partners equity cash flows referred present fairly material respects results operations cash flows southwest royalties institutional income fund xa lp year ended december 31 1996 conformity generally accepted accounting principles joseph decosimo company tennessee registered limited liability partnership chattanooga tennessee march 14 1997 southwest royalties institutional income fund xa lp delaware limited partnership balance sheets december 31 1998 1997 1998 1997 assets current assets cash equivalents 10631 6301 receivable managing general partner 57891 total current assets 10631 64192 oil gas properties using full cost method accounting 4284356 4384642 less accumulated depreciation depletion amortization 4033143 3872000 net oil gas properties 251213 512642 261844 576834 liabilities partners equity current liabilities distribution payable 290 291 payable managing general partner 18078 total current liabilities 18368 291 partners equity general partner 22491 5299 limited partners 265967 581842 total partners equity 243476 576543 261844 576834 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements operations years ended december 31 1998 1997 1996 1998 1997 1996 revenues income net profits interests 14752 258854 363959 interest 104 1735 1264 miscellaneous income 7653 14850 14648 268242 380073 expenses general administrative 107276 98162 98984 depreciation depletion amortization 125000 83000 72000 provision impairment oil gas properties 36143 268419 181162 170984 net income loss 283067 87080 209089 net income loss allocated managing general partner 10973 15307 25298 general partner 1219 1701 2811 limited partners 270875 70072 180980 per limited partner unit 2394 619 1599 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statement changes partners equity years ended december 31 1998 1997 1996 general limited partners total balance december 31 1995 4816 741190 736374 net income 28109 180980 209089 distributions 22600 203400226000 balance december 31 1996 693 718770 719463 net income 17008 70072 87080 distributions 23000 207000230000 balance december 31 1997 5299 581842 576543 net income loss 12192 270875283067 distributions 5000 45000 50000 balance december 31 1998 22491 265967 243476 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows years ended december 31 1998 1997 1996 1998 1997 1996 cash flows operating activities cash received net profits interests 54952 323343 283044 cash paid managing general partner administrative fees general administrative overhead 101011 9816298984 interest received 104 1735 1264 net cash provided operating activities 45955 226916 185324 cash flows investing activities sale oil gas properties 100286 2500 1091 cash flows used financing activities distributions partners 50001 229851226131 net increase decrease cash equivalents 4330 435 39716 beginning year 6301 6736 46452 end year 10631 6301 6736 continued accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows continued years ended december 31 1998 1997 1996 1998 1997 1996 reconciliation net income loss net cash provided operating activities net income loss 283067 87080 209089 adjustments reconcile net income loss net cash provided operating activities depreciation depletion amortization 125000 83000 72000 provision impairment oil gas properties 36143 decrease increase receivables 69704 56836 95765 increase payables 6265 net cash provided operating activities 45955 226916 185324 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 1 organization southwest oil gas income fund xb lp organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc serves managing general partner h wommack iii individual general partner revenues costs expenses allocated follows limited general partners interest income capital contributions 100 oil gas sales 90 10 revenues 90 10 organization offering costs 1 100 amortization organization costs 100 property acquisition costs 100 gainloss property disposition 90 10 operating administrative costs 2 90 10 depreciation depletion amortization oil gas properties 100 costs 90 10 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies oil gas properties oil gas properties accounted cost fullcost method productive nonproductive costs incurred connection acquisition exploration development oil gas reserves capitalized gain loss sale oil gas properties recognized unless significant oil gas reserves involved partnerships policy depreciation depletion amortization oil gas properties computed units revenue method units revenue method depreciation depletion amortization computed basis current gross revenues production relation future gross revenues based current prices estimated production proved oil gas reserves units revenue method partnership computes provision multiplying total unamortized cost oil gas properties overall rate determined dividing oil gas revenues period b total future gross oil gas revenues estimated partnerships independent petroleum consultants reasonably possible estimates anticipated future gross revenues remaining estimated economic life product could changed significantly near term due potential fluctuation oil gas prices production depletion estimate would also affected change net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense december 31 1998 net capitalized cost exceeded estimated present value oil gas reserves thus adjustment 36143 made financial statement december 31 1997 1996 net capitalized costs exceed estimated present value oil gas reserves partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated gas balancing partnership utilizes sales method accounting gas balancing arrangements method partnership recognizes sales revenue gas sold december 31 1998 1997 1996 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners accordance requirements statement financial accounting standards 109 accounting income taxes partnerships tax basis net oil gas properties december 31 1998 1997 961127 895238 respectively shown accompanying balance sheets accordance generally accepted accounting principles southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution number limited partner units december 31 1998 1997 1996 11316 limited partner units outstanding held 585 partners concentrations credit risk partnership subject credit risk trade receivables although substantial portion debtors ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments net income loss per limited partnership unit net income loss per limited partnership unit calculated using number outstanding limited partnership units 3 liquidity managing general partner managing general partner highly leveraged capital structure 210 million interest payments due 1999 debt obligations due severely depressed commodity prices managing general partner experiencing difficulty generating sufficient cash flow meet obligations sustain operations managing general partner currently process renegotiating terms various obligations creditors andor attempting seek new lenders equity investors additionally managing general partner would consider disposing certain assets order meet obligations assurance managing general partners debt restructuring efforts successful lenders agree course action consistent managing general partners requirements restructuring obligations even agreement reached may require approval additional lenders assured furthermore assurance sales assets successfully accomplished terms acceptable managing general partner current circumstances managing general partners ability continue going concern depends upon ability 1 successfully restructure obligations obtain additional financing may required 2 maintain compliance debt covenants 3 generate sufficient cash flow meet obligations timely basis 4 achieve satisfactory levels future earnings managing general partner unsuccessful efforts may unable meet obligations making necessary undertake actions may appropriate preserve asset values southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 4 commitments contingent liabilities managing general partner right obligation purchase limited partnership units investor desire sell value unit determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves discounting future net revenues rate excess prime rate charged nationsbank na midland texas plus one percent 1 value shall reduced risk factor discount one third 13 determined managing general partner sole absolute discretion partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations december 31 1998 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon capital expenditures earnings competitive position oil gas industry however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 5 related party transactions significant portion oil gas properties partnership interest operated purchased managing general partner usual industry provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts southwest royalties inc operator approximating 77400 69000 71000 years ended december 31 1998 1997 1996 respectively addition managing general partner certain officers employees may interest properties partnership also participates certain subsidiaries affiliates managing general partner perform various oilfield services properties partnership owns interest services aggregated approximately 6800 1600 600 years ended december 31 1998 1997 1996 respectively managing general partner believes costs comparable similar charges paid partnership unrelated third parties southwest royalties inc managing general partner paid 90000 1998 1997 1996 administrative fee indirect general administrative overhead expenses receivables payable southwest royalties inc managing general partner approximately 18078 57891 oil gas production net lease operating costs production taxes december 31 1998 1997 respectively addition director officer managing general partner law firm providing legal services partnership legal services provided year ending december 31 1998 1997 approximately 20 year ended december 31 1996 6 major customers material portion partnerships business dependent single purchaser purchasers loss one would material adverse impact partnership three purchasers accounted 57 partnerships total oil gas production 1998 scurlock permian corporation 28 navajo refining company inc 18 eaglewing trading inc 11 three purchasers accounted 56 partnerships total oil gas production 1997 scurlock permian corporation 29 navajo refining company inc 16 mobil corporation 11 four purchasers accounted 75 partnerships total oil gas production 1996 scurlock permian corporation 32 anadarko petroleum corporation 20 navajo refining company inc 13 mobil corporation 10 purchasers partnerships oil gas production unrelated third parties event either purchasers discontinue purchasing partnerships production managing general partner believes substitute purchaser purchasers could located without undue delay purchaser accounted amount equal greater 10 partnerships sales oil gas production southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 estimated oil gas reserves unaudited partnerships interest proved oil gas reserves follows oil bbls gas mcf proved developed undeveloped reserves january 1 1996 238000 374000 revisions previous estimates 142000 98000 production 41000 51000 december 31 1996 339000 421000 revisions previous estimates 112000 7000 production 29000 50000 december 31 1997 198000 378000 sales reserves place 7000 19000 revisions previous estimates 121000 98000 production 24000 38000 december 31 1998 46000 223000 proved developed reserves december 31 1996 339000 415600 december 31 1997 198000 373000 december 31 1998 45000 215000 partnerships reserves located within continental united states ryder scott company petroleum engineers prepared reserve present value data 964 partnerships existing properties january 1 1999 another independent petroleum engineer prepared remaining 36 partnerships properties reserve estimates made accordance guidelines established securities exchange commission pursuant rule 410a regulation sx guidelines require oil gas reserve reports prepared existing economic operating conditions provisions price cost escalation except contractual arrangements new york mercantile exchange price december 31 1998 1205 used beginning basis oil price oil price adjustments 1205 per barrel made individual evaluations reflect oil quality gathering transportation costs results average price received lease 942 per barrel preparation reserve report january 1 1999 determination gas price new york mercantile exchange price december 31 1998 195 used beginning basis gas price adjustments 195 per mcf made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage results average price received lease 167 per mcf preparation reserve report january 1 1999 southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 estimated oil gas reserves unaudited continued evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes pertinent information gathered year may include actual production decline rates production offset wells drilled geologic formation increased decreased water production workovers changes lifting costs among others accordingly reserve estimates often different quantities oil gas ultimately recovered partnership reserves classified proved developed producing proved developed nonproducing proved undeveloped proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout receives cash southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 estimated oil gas reserves unaudited continued standardized measure discounted future net cash flows relating proved oil gas reserves december 31 1998 1997 1996 presented 1998 1997 1996 future cash inflows net production development costs 374000 1653000 4690000 10 annual discount estimated timing cash flows 123000 601000 1863000 standardized measure discounted future net cash flows 251000 1052000 2827000 principal sources change standardized measure discounted future net cash flows years ended december 31 1998 1997 1996 follows 1998 1997 1996 sales oil gas produced net production costs 15000 259000 674000 changes prices production costs 5350001312000 1408000 changes production rates timing others 66000 42000 23000 sales minerals place 38000 revisions previous quantities estimates 414000 445000 636000 accretion discount 105000 283000 208000 discounted future net cash flows beginning year 1052000 2827000 1226000 end year 251000 1052000 2827000 future net cash flows computed using yearend prices costs related existing proved oil gas reserves partnership mineral interests item 9 item 8 financial statements supplementary data page independent auditors reports 20 balance sheets 22 statements operations 23 statement changes partners equity 24 statements cash flows 25 notes financial statements 27 independent auditors report partners southwest royalties institutional income fund xa lp delaware limited partnership audited accompanying balance sheet southwest royalties institutional income fund xa lp partnership december 31 1997 related statement operations changes partners equity cash flows year ended financial statements responsibility partnerships management responsibility express opinion financial statements based audit conducted audit accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 1997 results operations cash flows year ended conformity generally accepted accounting principles kpmg peat marwick llp midland texas march 18 1998 report independent accountants partners southwest royalties institutional income fund xa lp midland texas audited accompanying balance sheet southwest royalties institutional income fund xa lp december 31 1996 related statements operations changes partners equity cash flows years ended december 31 1996 1995 financial statements responsibility partnerships management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 1996 results operations cash flows years ended december 31 1996 1995 conformity generally accepted accounting principles joseph decosimo company tennessee registered limited liability partnership chattanooga tennessee march 14 1997 southwest royalties institutional income fund xa lp delaware limited partnership balance sheets december 31 1997 1996 1997 1996 assets current assets cash equivalents 6301 6736 receivable managing general partner 57891 99877 receivable 14850 total current assets 64192 121463 oil gas properties using full cost method accounting 4384642 4387142 less accumulated depreciation depletion amortization 3872000 3789000 net oil gas properties 512642 598142 576834 719605 liabilities partners equity current liability distribution payable 291 142 partners equity general partner 5299 693 limited partners 581842 718770 total partners equity 576543 719463 576834 719605 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements operations years ended december 31 1997 1996 1995 1997 1996 1995 revenues income net profits interests 258854 363959 129803 interest 1735 1264 1080 miscellaneous income 7653 14850 268242 380073 130883 expenses general administrative 98162 98984 101258 depreciation depletion amortization 83000 72000 97690 181162 170984 198948 net income loss 87080 209089 68065 net income loss allocated managing general partner 15307 25298 2666 general partner 1701 2811 296 limited partners 70072 180980 71027 per limited partner unit 619 1599 628 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statement changes partners equity years ended december 31 1997 1996 1995 general limited partners total balance december 31 1994 3722 938061 941783 net income loss 2962 71027 68065 distributions 11500 125844137344 balance december 31 1995 4816 741190 736374 net income 28109 180980 209089 distributions 22600 203400226000 balance december 31 1996 693 718770 719463 net income 17008 70072 87080 distributions 23000 207000230000 balance december 31 1997 5299 581842 576543 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows years ended december 31 1997 1996 1995 1997 1996 1995 cash flows operating activities cash received net profits interests 323343 283044 191066 cash paid managing general partner administrative fees general administrative overhead 98162 98984101902 interest received 1735 1264 1080 net cash provided operating activities 226916 185324 90244 cash flows investing activities sale oil gas properties 2500 1091 55748 cash flows used financing activities distributions partners 229851 226131137221 net increase decrease cash equivalents 435 39716 8771 beginning year 6736 46452 37681 end year 6301 6736 46452 continued accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows continued years ended december 31 1997 1996 1995 1997 1996 1995 reconciliation net income loss net cash provided operating activities net income loss 87080 209089 68065 adjustments reconcile net income loss net cash provided operating activities depreciation depletion amortization 83000 72000 97690 increase decrease receivables 56836 95765 61263 decrease payables 644 net cash provided operating activities 226916 185324 90244 supplemental schedule noncash investing financing activities sale oil gas properties included receivable managing general partner accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 1 organization southwest oil gas income fund xb lp organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc serves managing general partner h wommack iii individual general partner revenues costs expenses allocated follows limited general partners interest income capital contributions 100 oil gas sales 90 10 revenues 90 10 organization offering costs 1 100 amortization organization costs 100 property acquisition costs 100 gainloss property disposition 90 10 operating administrative costs 2 90 10 depreciation depletion amortization oil gas properties 100 costs 90 10 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies oil gas properties oil gas properties accounted cost fullcost method productive nonproductive costs incurred connection acquisition exploration development oil gas reserves capitalized gain loss sale oil gas properties recognized unless significant oil gas reserves involved partnerships policy depreciation depletion amortization oil gas properties computed units revenue method units revenue method depreciation depletion amortization computed basis current gross revenues production relation future gross revenues based current prices estimated production proved oil gas reserves units revenue method partnership computes provision multiplying total unamortized cost oil gas properties overall rate determined dividing oil gas revenues period b total future gross oil gas revenues estimated partnerships independent petroleum consultants reasonably possible estimates anticipated future gross revenues remaining estimated economic life product could changed significantly near term due potential fluctuation oil gas prices production depletion estimate would also affected change net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense december 31 1997 1996 1995 net capitalized costs exceed estimated present value oil gas reserves partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated gas balancing partnership utilizes sales method accounting gas balancing arrangements method partnership recognizes sales revenue gas sold december 31 1997 1996 1995 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners accordance requirements statement financial accounting standards 109 accounting income taxes partnerships tax basis net oil gas properties december 31 1997 1996 895238 1000499 respectively shown accompanying balance sheets accordance generally accepted accounting principles southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution number limited partner units december 31 1997 1996 1995 11316 limited partner units outstanding held 585 partners concentrations credit risk partnership subject credit risk trade receivables although substantial portion debtors ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments recent accounting pronouncements june 1997 fasb issued reporting comprehensive income sfas 130 establishes standards reporting display comprehensive income components full set general purpose financial statements specifically statements requires enterprise classify items comprehensive income nature financial statement ii display accumulated balance comprehensive income separately retained earnings additional paidin capital equity section statement financial position statement effective fiscal years beginning december 15 1997 partnership anticipates adoption sfas 130 year ended december 31 1998 financial statements comprehensive income consists change equity business enterprise period transactions events circumstances nonowner sources specifically includes net income comprehensive income made certain changes assets liabilities reported statement operations included balances within separate component equity statement financial position changes include limited unrealized gains marketable securities futures contracts foreign currency translation adjustments minimum pension liability adjustments net income loss per limited partnership unit net income loss per limited partnership unit calculated using number outstanding limited partnership units southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 3 commitments contingent liabilities managing general partner right obligation purchase limited partnership units investor desire sell value unit determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves discounting future net revenues rate excess prime rate charged nationsbank na midland texas plus one percent 1 value shall reduced risk factor discount one third 13 determined managing general partner sole absolute discretion partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations december 31 1997 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon capital expenditures earnings competitive position oil gas industry however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 4 related party transactions significant portion oil gas properties partnership interest operated purchased managing general partner usual industry provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts southwest royalties inc operator approximating 69000 71000 69000 years ended december 31 1997 1996 1995 respectively addition managing general partner certain officers employees may interest properties partnership also participates certain subsidiaries affiliates managing general partner perform various oilfield services properties partnership owns interest services aggregated approximately 1600 600 4000 years ended december 31 1997 1996 1995 respectively managing general partner believes costs comparable similar charges paid partnership unrelated third parties southwest royalties inc managing general partner paid 90000 1997 1996 1995 administrative fee indirect general administrative overhead expenses receivables southwest royalties inc managing general partner approximately 57891 99877 oil gas production net lease operating costs production taxes december 31 1997 1996 respectively addition director officer managing general partner law firm providing legal services partnership legal services provided year ending december 31 1997 approximately 20 year ended december 31 1996 legal services provided year ended december 31 1995 5 major customers material portion partnerships business dependent single purchaser purchasers loss one would material adverse impact partnership three purchasers accounted 56 partnerships total oil gas production 1997 scurlock permian corporation 29 navajo refining company inc 16 mobil corporation 11 four purchasers accounted 75 partnerships total oil gas production 1996 scurlock permian corporation 32 anadarko petroleum corporation 20 navajo refining company inc 13 mobil corporation 10 three purchasers accounted 66 partnerships total oil gas production 1995 scurlock permian corporation navajo refining company inc mobil corporation purchased 40 14 12 respectively purchasers partnerships oil gas production unrelated third parties event either purchasers discontinue purchasing partnerships production managing general partner believes substitute purchaser purchasers could located without undue delay purchaser accounted amount equal greater 10 partnerships sales oil gas production southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 estimated oil gas reserves unaudited partnerships interest proved oil gas reserves follows oil bbls gas mcf proved developed undeveloped reserves january 1 1995 265000 402000 revisions previous estimates 26000 33000 production 36000 51000 sale minerals place 17000 10000 december 31 1995 238000 374000 revisions previous estimates 142000 98000 production 41000 51000 december 31 1996 339000 421000 revisions previous estimates 112000 7000 production 29000 50000 december 31 1997 198000 378000 proved developed reserves december 31 1995 237000 367000 december 31 1996 339000 415600 december 31 1997 198000 373000 partnerships reserves located within continental united states reserve estimates prepared january 1 1998 donald r creamer pe independent registered petroleum engineer reserve estimates made accordance guidelines established securities exchange commission pursuant rule 410a regulation sx guidelines require oil gas reserve reports prepared existing economic operating conditions provisions price cost escalation except contractual arrangements new york mercantile exchange price december 31 1997 1764 used beginning basis oil price oil price adjustments 1764 per barrel made individual evaluations reflect oil quality gathering transportation costs results average price received lease 1560 per barrel preparation reserve report january 1 1998 determination gas price new york mercantile exchange price december 31 1997 226 used beginning basis gas price adjustments 226 per mcf made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage results average price received lease 253 per mcf preparation reserve report january 1 1998 southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 estimated oil gas reserves unaudited continued evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes pertinent information gathered year may include actual production decline rates production offset wells drilled geologic formation increased decreased water production workovers changes lifting costs among others accordingly reserve estimates often different quantities oil gas ultimately recovered partnership reserves classified proved developed producing proved developed nonproducing proved undeveloped proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout receives cash southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 estimated oil gas reserves unaudited continued standardized measure discounted future net cash flows relating proved oil gas reserves december 31 1997 1996 1995 presented 1997 1996 1995 future cash inflows net production development costs 1653000 4690000 2055000 10 annual discount estimated timing cash flows 601000 1863000 829000 standardized measure discounted future net cash flows 1052000 2827000 1226000 principal sources change standardized measure discounted future net cash flows years ended december 31 1997 1996 1995 follows 1997 1996 1995 sales oil gas produced net production costs 259000 674000 379000 changes prices production costs 1312000 1408000 207000 changes production rates timing others 42000 23000 107000 sales minerals place 84000 revisions previous quantities estimates 445000 636000 149000 accretion discount 283000 208000 113000 discounted future net cash flows beginning year 2827000 1226000 1327000 end year 1052000 2827000 1226000 future net cash flows computed using yearend prices costs related existing proved oil gas reserves partnership mineral interests item 9 item 8 financial statements supplementary data page independent auditors report 20 balance sheets 21 statements operations 22 statement changes partners equity 23 statements cash flows 24 notes financial statements 26 independent auditors report partners southwest royalties institutional income fund xa lp delaware limited partnership audited accompanying balance sheets southwest royalties institutional income fund xa lp partnership december 31 2000 1999 related statements operations changes partners equity cash flows years threeyear period ended december 31 2000 financial statements responsibility partnerships management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 2000 1999 results operations cash flows years threeyear period ended december 31 2000 conformity accounting principles generally accepted united states america kpmg llp midland texas march 21 2001 southwest royalties institutional income fund xa lp delaware limited partnership balance sheets december 31 2000 1999 2000 1999 assets current assets cash equivalents 61502 32212 receivable managing general partner 84202 42987 total current assets 145704 75199 oil gas properties using full cost method accounting 4239490 4239485 less accumulated depreciation depletion amortization 4058143 4046143 net oil gas properties 181347 193342 327051 268541 liabilities partners equity current liabilities distribution payable 119 429 payable managing general partner total current liabilities 119 429 partners equity general partner 2195 18727 limited partners 329127 286839 total partners equity 326932 268112 327051 268541 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements operations years ended december 31 2000 1999 1998 2000 1999 1998 revenues income net profits interests 317883 133177 14752 interest 650 94 104 miscellaneous income 1935 320468 133271 14648 expenses general administrative 94326 95635 107276 depreciation depletion amortization 12000 13000 125000 provision impairment oil gas properties 36143 106326 108635 268419 net income loss 214142 24636283067 net income loss allocated managing general partner 20353 3388 10973 general partner 2261 376 1219 limited partners 191528 20872270875 per limited partner unit 1693 184 2394 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statement changes partners equity years ended december 31 2000 1999 1998 general limited partners total balance december 31 1997 5299 581842 576543 net loss 12192 270875283067 distributions 5000 45000 50000 balance december 31 1998 22491 265967 243476 net income 3764 20872 24636 distributions balance december 31 1999 18727 286839 268112 net income 22614 191528 214142 distributions 6082 149240155322 balance december 31 2000 2195 329127 326932 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows years ended december 31 2000 1999 1998 2000 1999 1998 cash flows operating activities cash received net profits interests 279138 72643 54952 cash paid managing general partner administrative fees general administrative overhead 94861 96166101011 interest received 650 94 104 net cash provided used operating activities 184927 23429 45955 cash flows investing activities sale oil gas properties 44871 100286 additions oil gas properties 5 net cash used provided investing activities 5 44871 100286 cash flows used provided financing activities distributions partners 155632 139 50001 net increase cash equivalents 29290 21581 4330 beginning year 32212 10631 6301 end year 61502 32212 10631 continued accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows continued years ended december 31 2000 1999 1998 2000 1999 1998 reconciliation net income loss net cash provided used operating activities net income loss 214142 24636283067 adjustments reconcile net income loss net cash provided used operating activities depreciation depletion amortization 12000 13000 125000 provision impairment oil gas properties 36143 increase decrease receivables 40680 60534 69704 decrease increase payables 535 531 6265 net cash provided used operating activities 184927 23429 45955 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 1 organization southwest royalties institutional income fund xa lpwas organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc serves managing general partner h wommack iii individual general partner revenues costs expenses allocated follows limited general partners interest income capital contributions 100 oil gas sales 90 10 revenues 90 10 organization offering costs 1 100 amortization organization costs 100 property acquisition costs 100 gainloss property disposition 90 10 operating administrative costs 2 90 10 depreciation depletion amortization oil gas properties 100 costs 90 10 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies oil gas properties oil gas properties accounted cost fullcost method productive nonproductive costs incurred connection acquisition exploration development oil gas reserves capitalized gain loss sale oil gas properties recognized unless significant oil gas reserves involved partnerships policy depreciation depletion amortization oil gas properties computed units revenue method units revenue method depreciation depletion amortization computed basis current gross revenues production relation future gross revenues based current prices estimated production proved oil gas reserves units revenue method partnership computes provision multiplying total unamortized cost oil gas properties overall rate determined dividing oil gas revenues period b total future gross oil gas revenues estimated partnerships independent petroleum consultants reasonably possible estimates anticipated future gross revenues remaining estimated economic life product could changed significantly near term due potential fluctuation oil gas prices production depletion estimate would also affected change net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense december 31 2000 1999 net capitalized costs exceed estimated present value oil gas reserves december 31 1998 net capitalized cost exceeded estimated present value oil gas reserves thus adjustment 36143 made financial statement partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated gas balancing partnership utilizes sales method accounting gas balancing arrangements method partnership recognizes sales revenue gas sold december 31 2000 1999 1998 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners accordance requirements statement financial accounting standards 109 accounting income taxes partnerships tax basis net oil gas properties december 31 2000 1999 559264 601951 respectively shown accompanying balance sheets accordance generally accepted accounting principles southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution number limited partner units december 31 2000 1999 1998 11316 limited partner units outstanding held 580 585 partners concentrations credit risk partnership subject credit risk trade receivables although substantial portion debtors ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments net income loss per limited partnership unit net income loss per limited partnership unit calculated using number outstanding limited partnership units southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 3 commitments contingent liabilities managing general partner right obligation purchase limited partnership units investor desire sell value unit determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves discounting future net revenues rate excess prime rate charged nationsbank na midland texas plus one percent 1 value shall reduced risk factor discount one third 13 determined managing general partner sole absolute discretion partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations december 31 2000 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon capital expenditures earnings competitive position oil gas industry however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 4 related party transactions significant portion oil gas properties partnership interest operated purchased managing general partner usual industry provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts southwest royalties inc operator approximating 48400 60300 77400 years ended december 31 2000 1999 1998 respectively addition managing general partner certain officers employees may interest properties partnership also participates certain subsidiaries affiliates managing general partner perform various oilfield services properties partnership owns interest services aggregated approximately 18300 8900 6800 years ended december 31 2000 1999 1998 respectively managing general partner believes costs comparable similar charges paid partnership unrelated third parties southwest royalties inc managing general partner paid 90000 2000 1999 1998 administrative fee indirect general administrative overhead expenses receivables southwest royalties inc managing general partner approximately 84200 43000 oil gas production net lease operating costs production taxes december 31 2000 1999 respectively addition director officer managing general partner law firm providing legal services partnership approximately 100 year ended december 31 2000 legal services provided year ending december 31 1999 1998 5 major customers material portion partnerships business dependent single purchaser purchasers loss one would material adverse impact partnership four purchasers accounted 72 partnerships total oil gas production 2000 plains marketing lp 25 eaglewing trading inc 18 navajo refining company inc 17 phillip 66 12 four purchasers accounted 69 partnerships total oil gas production 1999 scurlock permian corporation 24 navajo refining company inc 20 eaglewing trading inc 15 phillips 66 10 three purchasers accounted 57 partnerships total oil gas production 1998 scurlock permian corporation 28 navajo refining company inc 18 eaglewing trading inc 11 purchasers partnerships oil gas production unrelated third parties event either purchasers discontinue purchasing partnerships production managing general partner believes substitute purchaser purchasers could located without undue delay purchaser accounted amount equal greater 10 partnerships sales oil gas production southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 estimated oil gas reserves unaudited partnerships interest proved oil gas reserves follows oil bbls gas mcf proved developed undeveloped reserves january 1 1998 198000 378000 sales reserves place 7000 19000 revisions previous estimates 121000 98000 production 24000 38000 december 31 1998 46000 223000 revisions previous estimates 185000 94000 production 17000 39000 december 31 1999 214000 278000 revisions previous estimates 19000 87000 production 15000 33000 december 31 2000 218000 332000 proved developed reserves december 31 1998 45000 215000 december 31 1999 213000 270000 december 31 2000 205000 311000 partnerships reserves located within continental united states ryder scott petroleum engineers prepared reserve present value data partnerships existing properties january 1 2001 reserve estimates made accordance guidelines established securities exchange commission pursuant rule 410a regulation sx guidelines require oil gas reserve reports prepared existing economic operating conditions provisions price cost escalation except contractual arrangements new york mercantile exchange price december 31 2000 2680 used beginning basis oil price oil price adjustments 2680 per barrel made individual evaluations reflect oil quality gathering transportation costs results average price received lease 2479 per barrel preparation reserve report january 1 2001 determination gas price new york mercantile exchange price december 31 2000 978 used beginning basis gas price adjustments 978 per mcf made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage results average price received lease 974 per mcf preparation reserve report january 1 2001 southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 estimated oil gas reserves unaudited continued evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes pertinent information gathered year may include actual production decline rates production offset wells drilled geologic formation increased decreased water production workovers changes lifting costs among others accordingly reserve estimates often different quantities oil gas ultimately recovered partnership reserves classified proved developed producing proved developed nonproducing proved undeveloped proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout receives cash southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 estimated oil gas reserves unaudited continued standardized measure discounted future net cash flows relating proved oil gas reserves december 31 2000 1999 1998 presented 2000 1999 1998 future cash inflows net production development costs 5503000 3095000 374000 10 annual discount estimated timing cash flows 2679000 1435000 123000 standardized measure discounted future net cash flows 2824000 1660000 251000 principal sources change standardized measure discounted future net cash flows years ended december 31 2000 1999 1998 follows 2000 1999 1998 sales oil gas produced net production costs 318000 133000 15000 changes prices production costs 1058000 307000 535000 changes production rates timing others 88000 69000 66000 sales minerals place 38000 revisions previous quantities estimates 346000 1279000 414000 accretion discount 166000 25000 105000 discounted future net cash flows beginning year 1660000 251000 1052000 end year 2824000 1660000 251000 future net cash flows computed using yearend prices costs related existing proved oil gas reserves partnership mineral interests southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 selected quarterly financial results unaudited quarter first second third fourth 2000 total revenues 67654 66976 81523 104315 total expenses 28064 24827 27807 25628 net income 39590 42149 53716 78687 net income per limited partners unit 311 334 424 623 1999 total revenues 1443 38079 33323 60426 total expenses 31546 29672 23204 24213 net income loss 30103 8407 10119 36213 net income loss per limited partners unit 246 62 80 287 item 9 item 8 financial statements supplementary data page report independent registered public accounting firm balance sheets statements operations statements changes partners equity deficit statements cash flows notes financial statements report independent registered public accounting firm partners southwest royalties institutional income fund xa lp delaware limited partnership audited accompanying balance sheets southwest royalties institutional income fund xa lp “partnership” december 31 2006 2005 related statements operations changes partners’ equity deficit cash flows years threeyear period ended december 31 2006 financial statements responsibility partnership’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 2006 2005 results operations cash flows years threeyear period ended december 31 2006 conformity us generally accepted accounting principles kpmg llp dallas texas april 5 southwest royalties institutional income fund xa lp delaware limited partnership balance sheets accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements operations accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements changes partners equity deficit years ended december 31 2006 2005 2004 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 1 organization southwest royalties institutional income fund xa lp organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc wholly owned subsidiary clayton williams energy inc serves managing general partner revenues costs expenses allocated follows limited general partners interest income capital contributions 100 oil gas sales 90 10 revenues 90 10 organization offering costs 1 100 amortization organization costs 100 property acquisition costs 100 gainloss property disposition 90 10 operating administrative costs 2 90 10 depreciation depletion amortization oil gas properties 100 costs 90 10 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution 2 summary significant accounting policies oil gas properties oil gas properties accounted cost fullcost method productive nonproductive costs incurred connection acquisition exploration development oil gas reserves capitalized gain loss sale oil gas properties recognized unless significant oil gas reserves involved net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense december 31 2006 2005 2004 net capitalized costs exceed estimated present value oil gas reserves partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property partnership recognizes income net profits interest oil gas property accrual basis quarterly cash distributions net profits interest based calculation actual cash received oil gas sales net expenses incurred quarterly period net profits interest calculation results expenses incurred exceeding oil gas income received quarter cash distribution due partnerships net profits interest deficit recovered future net profits partnership accrues quarterly loss net profits interest provided cumulative net amount due accrued revenue balance sheet date december 31 2006 timing differences resulted deficit net profit interest southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period partnership’s depletion calculation fullcost ceiling test oil gas properties uses oil gas reserves estimates inherently imprecise actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated revenue recognition partnership recognizes oil gas sales delivery purchaser occurred title transferred occurs production delivered pipeline transport vehicle gas balancing partnership utilizes sales method accounting gasbalancing arrangements method partnership recognizes sales revenue gas sold december 31 2006 2005 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners accordance requirements statement financial accounting standards 109 “accounting income taxes” partnerships tax basis net oil gas properties december 31 2006 2005 21456 less 225446 respectively shown accompanying balance sheets accordance generally accepted accounting principles cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution number limited partner units december 31 2006 2005 2004 11316 limited partner units outstanding held 533 548 564 partners concentrations credit risk partnership subject credit risk amounts due customers although substantial portion debtors’ ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments net income per limited partnership unit net income per limited partnership unit calculated using number outstanding limited partnership units recent accounting pronouncements june 2006 financial accounting standards board “fasb” issued fasb interpretation 48 “accounting uncertainty income taxes” “fin48” clarify manner enterprises account uncertainties provisions income taxes generally standard presented fin 48 “more likely not” standard intended enhance relevancy comparability financial reporting companies fin 48 effective fiscal years beginning december 31 2006 adoption fin 48 expected impact partnership’s financial statements 3 abandonment obligations partnership follows provisions statement financial accounting standards 143 “accounting asset retirement obligations” “sfas 143” amended sfas 143 requires partnership recognize liability present value legal obligations associated retirement tangible longlived assets capitalize equal amount cost asset cost associated abandonment obligations along estimated salvage value included computation depreciation depletion amortization changes abandonment obligations 2006 2005 follows southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 4 commitments contingent liabilities managing general partner right obligation purchase limited partnership units investor desire sell value unit determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves discounting future net revenues rate excess prime rate charged bank one division jp morgan chase bank na plus one percent 1 value shall reduced risk factor discount onethird 13 determined managing general partner sole absolute discretion partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations december 31 2006 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon partnership’s financial condition operations however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties may 2006 state texas adopted house bill 3 modified state’s franchise tax structure replacing previous tax based capital earned surplus margin tax “texas margin tax” effective franchise tax reports filed january 1 2008 texas margin tax computed applying applicable tax rate 1 partnership’s business profit margin generally determined total revenue less either cost goods sold compensation applicable however partnership believes based interpretation texas margin tax apply partnership since substantially income derived net profits interest 5 related party transactions significant portion oil gas properties partnership interest purchased operated managing general partner provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts southwest royalties inc operator approximating 47100 43300 39500 years ended december 31 2006 2005 2004 respectively amounts administrative overhead attributable operating partnership properties deducted gross oil gas revenues determination net profit interest addition managing general partner certain officers employees may interest properties partnership also participates southwest royalties inc managing general partner paid 90000 2006 2005 2004 administrative fee indirect general administrative overhead expenses administrative fees included general administrative expense statement operations receivables southwest royalties inc managing general partner approximately 55000 59300 oil gas production net lease operating costs production taxes december 31 2006 2005 respectively southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 oil gas reserves information unaudited estimates proved oil gas reserves utilized preparation financial statements prepared independent petroleum engineers estimates accordance guidelines established securities exchange commission financial accounting standards board require reserve reports prepared economic operating conditions existing registrants year end provision price cost escalations except contractual arrangements future cash inflows computed applying yearend prices yearend quantities proved reserves future development abandonment production costs computed estimating expenditures incurred developing producing abandoning proved oil gas reserves end year based yearend costs partnerships reserves located united states information partnership’s results operations oil gas producing activities see accompanying statements operations partnerships interest proved oil gas reserves follows net revisions 56000 boe 2006 consisted approximately 18000 boe downward revisions attributable effects lower product prices estimated quantities proved reserves downward revisions approximately 38000 boe attributable well performance primarily properties petrox field west texas net revisions 52000 boe 2005 consisted approximately 29000 boe upward revisions attributable effects higher product prices estimated quantities proved reserves upward revisions approximately 23000 boe attributable well performance primarily properties anita field west texas oil price adjustments made individual evaluations reflect oil quality gathering transportation costs standardized measure december 31 2006 2005 2004 reflects average oil price 5323 5664 3999 per barrel gas price adjustments made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage standardized measure december 31 2006 2005 2004 reflects average natural gas price 523 1098 571 per mcf southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 oil gas reserves information unaudited continued evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes pertinent information gathered year may include actual production decline rates production offset wells drilled geologic formation increased decreased water production workovers changes lifting costs among others accordingly reserve estimates often different quantities oil gas ultimately recovered partnership reserves classified proved developed proved undeveloped proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout standardized measure discounted future net cash flows relating proved oil gas reserves december 31 2006 2005 2004 presented changes standardized measure discounted future net cash flows relating proved reserves years ended december 31 2006 2005 2004 follows southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 selected quarterly financial results unaudited item 9 item 8 financial statements supplementary data page independent auditors report 20 balance sheets 21 statements operations 22 statement changes partners equity 23 statements cash flows 24 notes financial statements 26 independent auditors report partners southwest royalties institutional income fund xa lp delaware limited partnership audited accompanying balance sheets southwest royalties institutional income fund xa lp partnership december 31 1999 1998 related statements operations changes partners equity cash flows years threeyear period ended december 31 1999 financial statements responsibility partnerships management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 1999 1998 results operations cash flows years threeyear period ended december 31 1999 conformity generally accepted accounting principles kpmg llp midland texas march 10 2000 southwest royalties institutional income fund xa lp delaware limited partnership balance sheets december 31 1999 1998 1999 1998 assets current assets cash equivalents 32212 10631 receivable managing general partner 42987 total current assets 75199 10631 oil gas properties using full cost method accounting 4239485 4284356 less accumulated depreciation depletion amortization 4046143 4033143 net oil gas properties 193342 251213 268541 261844 liabilities partners equity current liabilities distribution payable 429 290 payable managing general partner 18078 total current liabilities 429 18368 partners equity general partner 18727 22491 limited partners 286839 265967 total partners equity 268112 243476 268541 261844 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements operations years ended december 31 1999 1998 1997 1999 1998 1997 revenues income net profits interests 133177 14752 258854 interest 94 104 1735 miscellaneous income 7653 133271 14648 268242 expenses general administrative 95635 107276 98162 depreciation depletion amortization 13000 125000 83000 provision impairment oil gas properties 36143 108635 268419 181162 net income loss 24636 283067 87080 net income loss allocated managing general partner 3388 10973 15307 general partner 376 1219 1701 limited partners 20872 270875 70072 per limited partner unit 184 2394 619 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statement changes partners equity years ended december 31 1999 1998 1997 general limited partners total balance december 31 1996 693 718770 719463 net income 17008 70072 87080 distributions 23000 207000230000 balance december 31 1997 5299 581842 576543 net income loss 12192 270875283067 distributions 5000 45000 50000 balance december 31 1998 22491 265967 243476 net income 3764 20872 24636 distributions balance december 31 1999 18727 286839 268112 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows years ended december 31 1999 1998 1997 1999 1998 1997 cash flows operating activities cash received net profits interests 72643 54952 323343 cash paid managing general partner administrative fees general administrative overhead 96166 10101198162 interest received 94 104 1735 net cash used provided operating activities 23429 45955 226916 cash flows investing activities sale oil gas properties 44871 100286 2500 cash flows provided used financing activities distributions partners 139 50001229851 net increase decrease cash equivalents 21581 4330 435 beginning year 10631 6301 6736 end year 32212 10631 6301 continued accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows continued years ended december 31 1999 1998 1997 1999 1998 1997 reconciliation net income loss net cash used provided operating activities net income loss 24636 283067 87080 adjustments reconcile net income loss net cash used provided operating activities depreciation depletion amortization 13000 125000 83000 provision impairment oil gas properties 36143 decrease increase receivables 60534 69704 56836 decreaseincrease payables 531 6265 net cash used provided operating activities 23429 45955 226916 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 1 organization southwest oil gas income fund xb lp organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc serves managing general partner h wommack iii individual general partner revenues costs expenses allocated follows limited general partners interest income capital contributions 100 oil gas sales 90 10 revenues 90 10 organization offering costs 1 100 amortization organization costs 100 property acquisition costs 100 gainloss property disposition 90 10 operating administrative costs 2 90 10 depreciation depletion amortization oil gas properties 100 costs 90 10 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies oil gas properties oil gas properties accounted cost fullcost method productive nonproductive costs incurred connection acquisition exploration development oil gas reserves capitalized gain loss sale oil gas properties recognized unless significant oil gas reserves involved partnerships policy depreciation depletion amortization oil gas properties computed units revenue method units revenue method depreciation depletion amortization computed basis current gross revenues production relation future gross revenues based current prices estimated production proved oil gas reserves units revenue method partnership computes provision multiplying total unamortized cost oil gas properties overall rate determined dividing oil gas revenues period b total future gross oil gas revenues estimated partnerships independent petroleum consultants reasonably possible estimates anticipated future gross revenues remaining estimated economic life product could changed significantly near term due potential fluctuation oil gas prices production depletion estimate would also affected change net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense december 31 1999 1997 net capitalized costs exceed estimated present value oil gas reserves december 31 1998 net capitalized cost exceeded estimated present value oil gas reserves thus adjustment 36143 made financial statement partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated gas balancing partnership utilizes sales method accounting gas balancing arrangements method partnership recognizes sales revenue gas sold december 31 1999 1998 1997 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners accordance requirements statement financial accounting standards 109 accounting income taxes partnerships tax basis net oil gas properties december 31 1999 1998 601951 961127 respectively shown accompanying balance sheets accordance generally accepted accounting principles southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution number limited partner units december 31 1999 1998 1997 11316 limited partner units outstanding held 580 585 partners concentrations credit risk partnership subject credit risk trade receivables although substantial portion debtors ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments net income loss per limited partnership unit net income loss per limited partnership unit calculated using number outstanding limited partnership units 3 liquidity managing general partner managing general partner highly leveraged capital structure 351 million principal 175 million interest payments due 2000 debt obligations due severely depressed commodity prices experienced last quarter 1997 throughout 1998 continuing second quarter 1999 managing general partner experiencing difficulty generating sufficient cash flow meet obligations sustain operations managing general partner currently process renegotiating terms various obligations creditors andor attempting seek new lenders equity investors additionally managing general partner would consider disposing certain assets order meet obligations assurance managing general partners debt restructuring efforts successful lenders agree course action consistent managing general partners requirements restructuring obligations even agreement reached may require approval additional lenders assured furthermore assurance sales assets successfully accomplished terms acceptable managing general partner current circumstances managing general partners ability continue going concern depends upon ability 1 successfully restructure obligations obtain additional financing may required 2 maintain compliance debt covenants 3 generate sufficient cash flow meet obligations timely basis 4 achieve satisfactory levels future earnings managing general partner unsuccessful efforts may unable meet obligations making necessary undertake actions may appropriate preserve asset values southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 4 commitments contingent liabilities managing general partner right obligation purchase limited partnership units investor desire sell value unit determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves discounting future net revenues rate excess prime rate charged nationsbank na midland texas plus one percent 1 value shall reduced risk factor discount one third 13 determined managing general partner sole absolute discretion partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations december 31 1999 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon capital expenditures earnings competitive position oil gas industry however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 5 related party transactions significant portion oil gas properties partnership interest operated purchased managing general partner usual industry provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts southwest royalties inc operator approximating 60300 77400 69000 years ended december 31 1999 1998 1997 respectively addition managing general partner certain officers employees may interest properties partnership also participates certain subsidiaries affiliates managing general partner perform various oilfield services properties partnership owns interest services aggregated approximately 8900 6800 1600 years ended december 31 1999 1998 1997 respectively managing general partner believes costs comparable similar charges paid partnership unrelated third parties southwest royalties inc managing general partner paid 90000 1999 1998 1997 administrative fee indirect general administrative overhead expenses receivables payable southwest royalties inc managing general partner approximately 42987 18078 oil gas production net lease operating costs production taxes december 31 1999 1998 respectively addition director officer managing general partner law firm providing legal services partnership legal services provided year ending december 31 1999 1998 1997 6 major customers material portion partnerships business dependent single purchaser purchasers loss one would material adverse impact partnership four purchasers accounted 69 partnerships total oil gas production 1999 scurlock permian corporation 24 navajo refining company inc 20 eaglewing trading inc 15 phillips 66 10 three purchasers accounted 57 partnerships total oil gas production 1998 scurlock permian corporation 28 navajo refining company inc 18 eaglewing trading inc 11 three purchasers accounted 56 partnerships total oil gas production 1997 scurlock permian corporation 29 navajo refining company inc 16 mobil corporation 11 purchasers partnerships oil gas production unrelated third parties event either purchasers discontinue purchasing partnerships production managing general partner believes substitute purchaser purchasers could located without undue delay purchaser accounted amount equal greater 10 partnerships sales oil gas production southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 estimated oil gas reserves unaudited partnerships interest proved oil gas reserves follows oil bbls gas mcf proved developed undeveloped reserves january 1 1997 339000 421000 revisions previous estimates 112000 7000 production 29000 50000 december 31 1997 198000 378000 sales reserves place 7000 19000 revisions previous estimates 121000 98000 production 24000 38000 december 31 1998 46000 223000 revisions previous estimates 185000 94000 production 17000 39000 december 31 1999 214000 278000 proved developed reserves december 31 1997 198000 373000 december 31 1998 45000 215000 december 31 1999 213000 270000 partnerships reserves located within continental united states donald r creamer pe independent registered petroleum engineer prepared reserve present value data partnerships existing properties january 1 2000 reserve estimates made accordance guidelines established securities exchange commission pursuant rule 410a regulation sx guidelines require oil gas reserve reports prepared existing economic operating conditions provisions price cost escalation except contractual arrangements new york mercantile exchange price december 31 1999 2560 used beginning basis oil price oil price adjustments 2560 per barrel made individual evaluations reflect oil quality gathering transportation costs results average price received lease 2285 per barrel preparation reserve report january 1 2000 determination gas price new york mercantile exchange price december 31 1999 233 used beginning basis gas price adjustments 233 per mcf made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage results average price received lease 218 per mcf preparation reserve report january 1 2000 southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 estimated oil gas reserves unaudited continued evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes pertinent information gathered year may include actual production decline rates production offset wells drilled geologic formation increased decreased water production workovers changes lifting costs among others accordingly reserve estimates often different quantities oil gas ultimately recovered partnership reserves classified proved developed producing proved developed nonproducing proved undeveloped proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout receives cash southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 estimated oil gas reserves unaudited continued standardized measure discounted future net cash flows relating proved oil gas reserves december 31 1999 1998 1997 presented 1999 1998 1997 future cash inflows net production development costs 3095000 374000 1653000 10 annual discount estimated timing cash flows 1435000 123000 601000 standardized measure discounted future net cash flows 1660000 251000 1052000 principal sources change standardized measure discounted future net cash flows years ended december 31 1999 1998 1997 follows 1999 1998 1997 sales oil gas produced net production costs 133000 15000 259000 changes prices production costs 307000 535000 1312000 changes production rates timing others 69000 66000 42000 sales minerals place 38000 revisions previous quantities estimates 1279000 414000 445000 accretion discount 25000 105000 283000 discounted future net cash flows beginning year 251000 1052000 2827000 end year 1660000 251000 1052000 future net cash flows computed using yearend prices costs related existing proved oil gas reserves partnership mineral interests item 9 item 8 financial statements supplementary data page independent auditors report 19 balance sheets 20 statements operations 21 statement changes partners equity 22 statements cash flows 23 notes financial statements 25 independent auditors report partners southwest royalties institutional income fund xa lp delaware limited partnership audited accompanying balance sheets southwest royalties institutional income fund xa lp partnership december 31 2001 2000 related statements operations changes partners equity cash flows years three year period ended december 31 2001 financial statements responsibility partnerships management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 2001 2000 results operations cash flows years three year period ended december 31 2001 conformity accounting principles generally accepted united states america kpmg llp midland texas march 10 2002 southwest royalties institutional income fund xa lp delaware limited partnership balance sheets december 31 2001 2000 2001 2000 assets current assets cash equivalents 13299 61502 receivable managing general partner 27388 84202 total current assets 40687 145704 oil gas properties using full cost method accounting 4239490 less accumulated depreciation depletion amortization 4076143 4058143 net oil gas properties 163347 181347 204034 327051 liabilities partners equity current liability distribution payable 421 119 partners equity general partner 12727 2195 limited partners 216340 329127 total partners equity 203613 326932 204034 327051 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements operations years ended december 31 2001 2000 1999 2001 2000 1999 revenues income net profits interests 189907 317883 133177 interest 492 650 94 miscellaneous income 1935 190399 320468 133271 expenses general administrative 95625 94326 95635 depreciation depletion amortization 18000 12000 13000 113625 106326 108635 net income 76774 214142 24636 net income allocated managing general partner 8530 20353 3388 general partner 947 2261 376 limited partners 67297 191528 20872 per limited partner unit 595 1693 184 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statement changes partners equity years ended december 31 2001 2000 1999 general limited partners total balance december 31 1998 22491 265967 243476 net income 3764 20872 24636 distributions balance december 31 1999 18727 286839 268112 net income 22614 191528 214142 distributions 6082 149240155322 balance december 31 2000 2195 329127 326932 net income 9477 67297 76774 distributions 20009 180084200093 balance december 31 2001 12727 216340 203613 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows years ended december 31 2001 2000 1999 2001 2000 1999 cash flows operating activities cash received net profits interests 246980 279138 72643 cash paid managing general partner administrative fees general administrative overhead 95884 9486196166 interest received 492 650 94 net cash provided used operating activities 151588 184927 23429 cash flows investing activities sale oil gas properties 44871 additions oil gas properties 5 net cash used provided investing activities 5 44871 cash flows used provided financing activities distributions partners 199791 155632 139 net decrease increase cash equivalents 48203 29290 21581 beginning year 61502 32212 10631 end year 13299 61502 32212 continued accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows continued years ended december 31 2001 2000 1999 2001 2000 1999 reconciliation net income net cash provided used operating activities net income 76774 214142 24636 adjustments reconcile net income net cash provided used operating activities depreciation depletion amortization 18000 12000 13000 decrease increase receivables 57073 40680 60534 decrease payables 259 535 531 net cash provided used operating activities 151588 184927 23429 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 1 organization southwest royalties institutional income fund xa lpwas organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc serves managing general partner h wommack iii individual general partner revenues costs expenses allocated follows limited general partners interest income capital contributions 100 oil gas sales 90 10 revenues 90 10 organization offering costs 1 100 amortization organization costs 100 property acquisition costs 100 gainloss property disposition 90 10 operating administrative costs 2 90 10 depreciation depletion amortization oil gas properties 100 costs 90 10 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution 2 summary significant accounting policies oil gas properties oil gas properties accounted cost fullcost method productive nonproductive costs incurred connection acquisition exploration development oil gas reserves capitalized gain loss sale oil gas properties recognized unless significant oil gas reserves involved partnerships policy depreciation depletion amortization oil gas properties computed units revenue method units revenue method depreciation depletion amortization computed basis current gross revenues production relation future gross revenues based current prices estimated production proved oil gas reserves units revenue method partnership computes provision multiplying total unamortized cost oil gas properties overall rate determined dividing oil gas revenues period b total future gross oil gas revenues estimated partnerships independent petroleum consultants reasonably possible estimates anticipated future gross revenues remaining estimated economic life product could changed significantly near term due potential fluctuation oil gas prices production depletion estimate would also affected change southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued oil gas properties continued net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense december 31 2001 2000 1999 net capitalized costs exceed estimated present value oil gas reserves partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period partnerships depletion calculation fullcost ceiling test oil gas properties uses oil gas reserves estimates inherently imprecise actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated gas balancing partnership utilizes sales method accounting gas balancing arrangements method partnership recognizes sales revenue gas sold december 31 2001 2000 1999 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners accordance requirements statement financial accounting standards 109 accounting income taxes partnerships tax basis net oil gas properties december 31 2001 2000 518992 559264 respectively shown accompanying balance sheets accordance generally accepted accounting principles southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution number limited partner units december 31 2001 2000 1999 11316 limited partner units outstanding held 580 partners concentrations credit risk partnership subject credit risk trade receivables although substantial portion debtors ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments net income loss per limited partnership unit net income loss per limited partnership unit calculated using number outstanding limited partnership units recent accounting pronouncements june 1998 financial accounting standards board fasb issued statement financial accounting standards sfas no133 accounting derivative instruments hedging activities sfas 133 amended sfas 138 establishes accounting reporting standards derivative instruments including certain derivative instruments embedded contracts hedging activities assessment managing general partner revealed pronouncement impact partnerships fasb issued statement 143 accounting asset retirement obligations establishes requirements accounting removaltype costs associated asset retirements standard effective fiscal years beginning june 15 2002 earlier application encouraged managing general partner currently assessing impact partnerships financial statements october 3 2001 fasb issued statements 144 accounting impairment disposal longlived assets pronouncement supercedes fas 121 accounting impairment longlived assets longlived assets disposed eliminates requirement statement 121 allocate goodwill longlived assets tested impairment provisions statement effective financial statements issued fiscal years beginning december 15 2001 interim periods within fiscal years managing general partner currently assessing impact partnerships financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 3 liquidity managing general partner managing general partner highly leveraged capital structure 500 million 1237 million principal due august 2003 october 2004 respectively managing general partner incur approximately 176 million interest payments 2002 debt obligations due depressed commodity prices experienced last quarter 2001 managing general partner experiencing difficulty generating sufficient cash flow meet obligations sustain operations managing general partner currently process renegotiating terms various obligations creditors andor attempting seek new lenders equity investors additionally managing general partner would consider disposing certain assets order meet obligations assurance managing general partners debt restructuring efforts successful lenders agree course action consistent managing general partners requirements restructuring obligations even agreement reached may require approval additional lenders assured furthermore assurance sales assets successfully accomplished terms acceptable managing general partner current circumstances managing general partners ability continue going concern depends upon ability 1 successfully restructure obligations obtain additional financing may required 2 maintain compliance debt covenants 3 generate sufficient cash flow meet obligations timely basis 4 achieve satisfactory levels future earnings managing general partner unsuccessful efforts may unable meet obligations making necessary undertake actions may appropriate preserve asset values upon occurrence event dissolution managing general partner holders majority limited partnership interests may written agreement elect continue business partnership partnerships name partnership property reconstituted partnership terms partnership agreement designate successor managing general partner 4 commitments contingent liabilities managing general partner right obligation purchase limited partnership units investor desire sell value unit determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves discounting future net revenues rate excess prime rate charged nationsbank na midland texas plus one percent 1 value shall reduced risk factor discount one third 13 determined managing general partner sole absolute discretion partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 4 commitments contingent liabilities continued december 31 2001 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon capital expenditures earnings competitive position oil gas industry however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties 5 related party transactions significant portion oil gas properties partnership interest operated purchased managing general partner provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts southwest royalties inc operator approximating 43000 48400 60300 years ended december 31 2001 2000 1999 respectively addition managing general partner certain officers employees may interest properties partnership also participates certain subsidiaries affiliates managing general partner perform various oilfield services properties partnership owns interest services aggregated approximately 18400 18300 8900 years ended december 31 2001 2000 1999 respectively southwest royalties inc managing general partner paid 90000 2001 2000 1999 administrative fee indirect general administrative overhead expenses receivables southwest royalties inc managing general partner approximately 27400 84200 oil gas production net lease operating costs production taxes december 31 2001 2000 respectively addition director officer managing general partner law firm providing legal services partnership legal services year 2001 approximately 100 year ended december 31 2000 legal services provided year ending december 31 1999 southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 major customers material portion partnerships business dependent single purchaser purchasers loss one would material adverse impact partnership two purchasers accounted 59 partnerships total oil gas production 2001 plains marketing lp 42 navajo refining company inc 17 four purchasers accounted 72 partnerships total oil gas production 2000 plains marketing lp 25 eaglewing trading inc 18 navajo refining company inc 17 phillip 66 12 four purchasers accounted 69 partnerships total oil gas production 1999 scurlock permian corporation 24 navajo refining company inc 20 eaglewing trading inc 15 phillips 66 10 purchasers partnerships oil gas production unrelated third parties event either purchasers discontinue purchasing partnerships production managing general partner believes substitute purchaser purchasers could located without undue delay purchaser accounted amount equal greater 10 partnerships sales oil gas production 7 estimated oil gas reserves unaudited partnerships interest proved oil gas reserves follows oil bbls gas mcf proved developed undeveloped reserves january 1 1999 46000 223000 revisions previous estimates 185000 94000 production 17000 39000 december 31 1999 214000 278000 revisions previous estimates 19000 87000 production 15000 33000 december 31 2000 218000 332000 revisions previous estimates 16000 78000 production 15000 33000 december 31 2001 187000 221000 proved developed reserves december 31 1999 213000 270000 december 31 2000 205000 311000 december 31 2001 184000 209000 partnerships reserves located within continental united states ryder scott petroleum engineers prepared reserve present value data partnerships existing properties january 1 2002 reserve estimates made accordance guidelines established securities exchange commission pursuant rule 410a regulation sx guidelines require oil gas reserve reports prepared existing economic operating conditions provisions price cost escalation except contractual arrangements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 estimated oil gas reserves unaudited continued oil price adjustments made individual evaluations reflect oil quality gathering transportation costs results reserve report january 1 2002 average price 1688 per barrel gas price adjustments made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage results reserve report january 1 2002 average price 233 per mcf evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes pertinent information gathered year may include actual production decline rates production offset wells drilled geologic formation increased decreased water production workovers changes lifting costs among others accordingly reserve estimates often different quantities oil gas ultimately recovered partnership reserves classified proved developed producing proved developed nonproducing proved undeveloped proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout receives cash southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 estimated oil gas reserves unaudited continued standardized measure discounted future net cash flows relating proved oil gas reserves december 31 2001 2000 1999 presented 2001 2000 1999 future cash inflows net production development costs 2042000 5503000 3095000 10 annual discount estimated timing cash flows 947000 2679000 1435000 standardized measure discounted future net cash flows 1095000 2824000 1660000 principal sources change standardized measure discounted future net cash flows years ended december 31 2001 2000 1999 follows 2001 2000 1999 sales oil gas produced net production costs 190000 318000 133000 changes prices production costs 1612000 1058000 307000 changes production rates timing others 68000 88000 69000 revisions previous quantities estimates 141000 346000 1279000 accretion discount 282000 166000 25000 discounted future net cash flows beginning year 2824000 1660000 251000 end year 1095000 2824000 1660000 future net cash flows computed using yearend prices costs related existing proved oil gas reserves partnership mineral interests southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 selected quarterly financial results unaudited quarter first second third fourth 2001 total revenues 91036 49502 25880 23981 total expenses 28794 27112 29635 28084 net income loss 62242 22390 3755 4103 net income loss per limited partners unit 491 175 35 36 2000 total revenues 67654 66976 81523 104315 total expenses 28064 24827 27807 25628 net income 39590 42149 53716 78687 net income per limited partners unit 311 334 424 623 item 9 item 8 financial statements supplementary data page independent auditors report 18 balance sheets 19 statements operations 20 statement changes partners equity 21 statements cash flows 22 notes financial statements 23 independent auditors report partners southwest royalties institutional income fund xa lp delaware limited partnership audited accompanying balance sheets southwest royalties institutional income fund xa lp partnership december 31 2002 2001 related statements operations changes partners equity cash flows years three year period ended december 31 2002 financial statements responsibility partnerships management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 2002 2001 results operations cash flows years three year period ended december 31 2002 conformity accounting principles generally accepted united states america kpmg llp midland texas march 14 2003 southwest royalties institutional income fund xa lp delaware limited partnership balance sheets december 31 2002 2001 2002 2001 assets current assets cash equivalents 16807 13299 receivable managing 37898 27388 general partner total current assets 54705 40687 oil gas properties using full cost method accounting 423949 0 less accumulated depreciation depletion 408714 407614 amortization 3 net oil gas 152347 163347 properties 207052 204034 liabilities partners equity current liability 712 421 distribution payable partners equity general partner 11354 12727 limited partners 217694 216340 total partners equity 206340 203613 207052 204034 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements operations years ended december 31 2002 2001 2000 2002 2001 2000 revenues income net profits 107806 189907 317883 interests interest 17 492 650 miscellaneous income 2201 1935 110024 190399 320468 expenses general administrative 96297 95625 94326 depreciation depletion 11000 18000 12000 amortization 107297 113625 106326 net income 2727 76774 214142 net income allocated managing general partner 1236 8530 20353 general partner 137 947 2261 limited partners 1354 67297 191528 per limited partner unit 12 595 1693 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statement changes partners equity years ended december 31 2002 2001 2000 general limited partners total balance december 31 1999 18727 286839 268112 net income 22614 191528 214142 distributions 6082 149240 155322 balance december 31 2000 2195 329127 326932 net income 9477 67297 76774 distributions 20009 180084 200093 balance december 31 2001 12727 216340 203613 net income 1373 1354 2727 distributions balance december 31 2002 11354 217694 206340 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows years ended december 31 2002 2001 2000 2002 2001 2000 cash flows operating activities cash received net profits 96998 246980 279138 interests cash paid managing general partner administrative fees general administrative overhead 96000 95884 94861 interest received 17 492 650 miscellaneous settlement 2201 net cash provided operating 3216 151588 184927 activities cash flow used investing activities addition oil gas 5 properties cash flows provided used financing activities distributions partners 292 199791 155632 net decrease increase cash 3508 48203 29290 cash equivalents beginning year 13299 61502 32212 end year 16807 13299 61502 reconciliation net income net cash provided operating activities net income 2727 76774 214142 adjustments reconcile net income net cash provided operating activities depreciation depletion 11000 18000 12000 amortization increase decrease 10808 57073 40680 receivables increase decrease payables 297 259 535 net cash provided operating 3216 151588 184927 activities accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 1 organization southwest royalties institutional income fund xa lp organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc serves managing general partner h wommack iii individual general partner revenues costs expenses allocated follows limited general partners interest income capital 100 contributions oil gas sales 90 10 revenues 90 10 organization offering 100 costs 1 amortization organization 100 costs property acquisition costs 100 gainloss property 90 10 disposition operating administrative 90 10 costs 2 depreciation depletion amortization oil gas properties 100 costs 90 10 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution 2 summary significant accounting policies oil gas properties oil gas properties accounted cost fullcost method productive nonproductive costs incurred connection acquisition exploration development oil gas reserves capitalized gain loss sale oil gas properties recognized unless significant oil gas reserves involved prior october 1 2002 partnership calculated depletion oil gas properties units revenue method partnership changed methods estimating depletion effective october 1 2002 units production method units production method predominantly used throughout oil gas industry allow partnership closely align peers change estimate impact depletion expense fourth quarter southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued oil gas properties continued net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense applying units revenue method years ended december 31 2001 2000 nine months ended september 30 2002 excluded royalty net profit interest payments gross revenues royalty net profit interests purchased capitalized depletion basis proved oil gas properties december 31 2002 2001 2000 net capitalized costs exceed estimated present value oil gas reserves partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property partnership recognizes income net profits interest oil gas property accrual basis quarterly cash distributions net profits interest based calculation actual cash received oil gas sales net expenses incurred quarterly period net profits interest calculated revenue interest burdens underlying working interest property net profits interest owner responsible actual development production expenses incurred accordingly net profits interest calculation results expenses incurred exceeding oil gas income received quarter cash distribution due partnerships net profits interest deficit recovered future net profits partnership accrues quarterly loss net profits interest provided cumulative net amount due accrued revenue balance sheet date december 31 2002 timing differences resulted deficit net profit interest estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period partnerships depletion calculation fullcost ceiling test oil gas properties uses oil gas reserves estimates inherently imprecise actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated revenue recognition recognize oil gas sales delivery purchaser occurred title transferred occurs production delivered pipeline transport vehicle southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued gas balancing partnership utilizes sales method accounting gas balancing arrangements method partnership recognizes sales revenue gas sold december 31 2002 2001 2000 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners accordance requirements statement financial accounting standards 109 accounting income taxes partnerships tax basis net oil gas properties december 31 2002 2001 475992 518992 respectively shown accompanying balance sheets accordance generally accepted accounting principles cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution number limited partner units december 31 2002 2001 2000 11316 limited partner units outstanding held 580 partners concentrations credit risk partnership subject credit risk trade receivables although substantial portion debtors ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments net income loss per limited partnership unit net income loss per limited partnership unit calculated using number outstanding limited partnership units recent accounting pronouncements fasb issued statement 143 accounting asset retirement obligations establishes requirements accounting removaltype costs associated asset retirements standard effective fiscal years beginning june 15 2002 earlier application encouraged managing general partner currently assessing impact partnerships financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 3 liquidity managing general partner managing general partner highly leveraged capital structure approximately 1240 million principal due december 31 2002 december 31 2004 managing general partner constantly monitoring cash position ability meet financial obligations become due effort continually exploring various strategies addressing current future liquidity needs managing general partner regularly pursues evaluates recapitalization strategies acquisition opportunities including opportunities engage mergers consolidations business combinations given time may various stages evaluating opportunities based current production commodity prices cash flow operations managing general partner adequate cash flow fund debt service developmental projects day operations sufficient build cash balance would allow managing general partner meet debt principal maturities scheduled 2004 therefore managing general partner must renegotiate terms various obligations seek new lenders equity investors order meet financial obligations specifically maturing 2004 managing general partner would also consider disposing certain assets order meet obligations assurance managing general partners debt restructuring efforts successful debt holders agree course action consistent managing general partners requirements restructurings obligations furthermore assurance sales assets successfully accomplished terms acceptable managing general partner 4 commitments contingent liabilities managing general partner right obligation purchase limited partnership units investor desire sell value unit determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves discounting future net revenues rate excess prime rate charged nationsbank na midland texas plus one percent 1 value shall reduced risk factor discount one third 13 determined managing general partner sole absolute discretion southwest managing general partner evaluated several liquidity alternatives partnerships 2001 2002 southwest specifically pursued possible rollup merger twentyone 21 partnerships general partner complexities conflicts interest transaction managing general partner make formal repurchase offer 2002 responded limited partners desiring sell units partnerships requested basis southwest anticipates maintain policy 2003 aforementioned transaction ongoing partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 4 commitments contingent liabilities continued december 31 2002 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon capital expenditures earnings competitive position oil gas industry however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties 5 related party transactions significant portion oil gas properties partnership interest operated purchased managing general partner provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts southwest royalties inc operator approximating 43900 43000 48400 years ended december 31 2002 2001 2000 respectively amounts administrative overhead attributable operating partnership properties deducted gross oil gas revenues determination net profit interest addition managing general partner certain officers employees may interest properties partnership also participates certain subsidiaries affiliates managing general partner perform various oilfield services properties partnership owns interest services aggregated approximately 24500 18400 18300 years ended december 31 2002 2001 2000 respectively amounts oilfield services performed partnership affiliates managing general partner deducted gross oil gas revenues determination net profit interest southwest royalties inc managing general partner paid 90000 2002 2001 2000 administrative fee indirect general administrative overhead expenses administrative fees included general administrative expense statement operations receivables southwest royalties inc managing general partner approximately 37900 27400 oil gas production net lease operating costs production taxes december 31 2002 2001 respectively 6 major customers material portion partnerships business dependent single purchaser purchasers loss one would material adverse impact partnership two purchasers accounted 63 partnerships total oil gas production 2002 plains marketing lp 43 navajo refining company inc 20 two purchasers accounted 59 partnerships total oil gas production 2001 plains marketing lp 42 navajo refining company inc 17 four purchasers accounted 72 partnerships total oil gas production 2000 plains marketing lp 25 eaglewing trading inc 18 navajo refining company inc 17 phillip 66 12 purchasers partnerships oil gas production unrelated third parties event either purchasers discontinue purchasing partnerships production managing general partner believes substitute purchaser purchasers could located without undue delay purchaser accounted amount equal greater 10 partnerships sales oil gas production southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 estimated oil gas reserves unaudited partnerships interest proved oil gas reserves follows oil gas bbls mcf proved developed undeveloped reserves january 1 2000 214000 278000 revisions previous 19000 87000 estimates production 15000 33000 december 31 2000 218000 332000 revisions previous 16000 78000 estimates production 15000 33000 december 31 2001 187000 221000 revisions previous 55000 41000 estimates production 13000 30000 december 31 2002 119000 232000 proved developed reserves december 31 2000 205000 311000 december 31 2001 184000 209000 december 31 2002 116000 219000 partnerships reserves located within continental united states ryder scott company lp prepared reserve present value data partnerships existing properties january 1 2003 reserve estimates made accordance guidelines established securities exchange commission pursuant rule 410a regulation sx guidelines require oil gas reserve reports prepared existing economic operating conditions provisions price cost escalation except contractual arrangements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 estimated oil gas reserves unaudited continued oil price adjustments made individual evaluations reflect oil quality gathering transportation costs results reserve report january 1 2003 average price 2845 per barrel gas price adjustments made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage results reserve report january 1 2003 average price 471 per mcf evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes pertinent information gathered year may include actual production decline rates production offset wells drilled geologic formation increased decreased water production workovers changes lifting costs among others accordingly reserve estimates often different quantities oil gas ultimately recovered partnership reserves classified proved developed producing proved developed nonproducing proved undeveloped proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout receives cash southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 estimated oil gas reserves unaudited continued standardized measure discounted future net cash flows relating proved oil gas reserves december 31 2002 2001 2000 presented 2002 2001 2000 future cash inflows net production development 239600 204200 550300 costs 0 10 annual discount estimated timing cash 107800 947000 267900 flows 0 standardized measure discounted future net cash flows 131800 109500 282400 0 principal sources change standardized measure discounted future net cash flows years ended december 31 2002 2001 2000 follows 2002 2001 2000 sales oil gas produced net production costs 108000 190000 318000 changes prices 631000 16120 105800 production costs 00 0 changes production rates timing others 8000 68000 88000 revisions previous quantities estimates 402000 141000 346000 accretion discount 110000 282000 166000 discounted future net cash flows beginning year 109500 282400 166000 0 end year 131800 109500 282400 0 future net cash flows computed using yearend prices costs related existing proved oil gas reserves partnership mineral interests southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 8 selected quarterly financial results unaudited quarter first second third fourth 2002 total revenues 17381 37810 15933 38900 total expenses 25946 26762 26770 27819 net income loss 8565 11048 10837 11081 net income loss per limited partners unit 70 85 88 2001 total revenues 91036 49502 25880 23981 total expenses 28794 27112 29635 28084 net income loss 62242 22390 3755 4103 net income loss per limited partners unit 491 175 35 36 item 9 item 8 financial statements supplementary data page independent auditors report 22 balance sheets 23 statements operations 24 statement changes partners equity 25 statements cash flows 26 notes financial statements 27 independent auditors report partners southwest royalties institutional income fund xa lp delaware limited partnership audited accompanying balance sheets southwest royalties institutional income fund xa lp partnership december 31 2003 2002 related statements operations changes partners equity cash flows years three year period ended december 31 2003 financial statements responsibility partnerships management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 2003 2002 results operations cash flows years three year period ended december 31 2003 conformity accounting principles generally accepted united states america discussed note 4 financial statements partnership changed method computing depletion 2002 also discussed note 3 financial statements partnership changed method accounting asset retirement obligations january 1 2003 kpmg llp midland texas march 19 2004 except note 9 may 3 2004 southwest royalties institutional income fund xa lp delaware limited partnership balance sheets december 31 2003 2002 2003 2002 assets current assets cash equivalents 71018 16807 receivable managing 42765 37898 general partner total current assets 113783 54705 oil gas properties using full cost method accounting 428966 423949 5 0 less accumulated depreciation depletion 399756 409014 amortization 6 3 net oil gas 292099 149347 properties 405882 204052 liabilities partners equity current liability 115 712 distribution payable asset retirement obligation 149098 partners equity general partner 4522 11354 limited partners 261191 214694 total partners equity 256669 203340 405882 204052 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements operations years ended december 31 2003 2002 2001 2003 2002 2001 revenues income net profits 206441 107806 189907 interests interest 17 492 income 12546 2201 218987 110024 190399 expenses general administrative 106330 96297 95625 accretion asset retirement 11557 obligation depreciation depletion 15000 12000 18000 amortization 132887 108297 113625 net income cumulative effects accounting changes 86100 1727 76774 cumulative effect change 17635 accounting principle sfas 143 see note 3 cumulative effect change accounting principle change depletion method 2000 see note 4 net income loss 103735 273 76774 net income loss allocated managing general partner 10686 1236 8530 general partner 1187 137 947 limited partners 91862 1646 67297 per limited partner unit 672 03 cumulative effect 595 cumulative effects per 140 18 limited partner unit per limited partner unit 812 15 595 pro forma amounts assuming changes applied retroactively see notes 3 4 details net income loss 9274 69583 cumulative effect per limited partner unit 113160 units 84 540 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statement changes partners equity years ended december 31 2003 2002 2001 general limited partners total balance december 31 2000 2195 329127 326932 net income 9477 67297 76774 distributions 20009 180084 200093 balance december 31 2001 12727 216340 203613 net income loss 1373 1646 273 distributions balance december 31 2002 11354 214694 203340 net income 11873 91862 103735 distributions 5041 45365 50406 balance december 31 2003 4522 261191 256669 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows years ended december 31 2003 2002 2001 2003 2002 2001 cash flows operating activities cash received net profits 459785 96998 246980 interests cash paid managing general partner administrative fees general administrative overhead 367529 96000 95884 interest received 17 492 miscellaneous settlement 12546 2201 net cash provided operating 104802 3216 151588 activities cash flow provided investing activities sale oil gas properties 412 cash flows provided used financing activities distributions partners 51003 292 199791 net increase decrease cash 54211 3508 48203 cash equivalents beginning year 16807 13299 61502 end year 71018 16807 13299 reconciliation net income loss net cash provided operating activities net income loss 103735 273 76774 adjustments reconcile net income loss net cash provided operating activities depreciation depletion 15000 12000 18000 amortization accretion asset retirement 11557 obligation cumulative effect change 17635 2000 accounting principle increase decrease 9770 10808 57073 receivables increase decrease payables 1915 297 259 net cash provided operating 104802 3216 151588 activities noncash investing financing activities increase oil gas properties adoption sfas 143 167102 decrease oil gas properties sfas 143 sale properties 8938 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 1 organization southwest royalties institutional income fund xa lp organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc serves managing general partner h wommack iii individual general partner revenues costs expenses allocated follows limited general partners interest income capital 100 contributions oil gas sales 90 10 revenues 90 10 organization offering 100 costs 1 amortization organization 100 costs property acquisition costs 100 gainloss property 90 10 disposition operating administrative 90 10 costs 2 depreciation depletion amortization oil gas properties 100 costs 90 10 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution 2 summary significant accounting policies oil gas properties oil gas properties accounted cost fullcost method productive nonproductive costs incurred connection acquisition exploration development oil gas reserves capitalized gain loss sale oil gas properties recognized unless significant oil gas reserves involved net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense applying unitsofrevenue method year ended december 31 2001 excluded royalty net profit interest payments gross revenues royalty net profit interests purchased capitalized depletion basis proved oil gas properties december 31 2003 2002 2001 net capitalized costs exceed estimated present value oil gas reserves partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued oil gas properties continued partnership recognizes income net profits interest oil gas property accrual basis quarterly cash distributions net profits interest based calculation actual cash received oil gas sales net expenses incurred quarterly period net profits interest calculation results expenses incurred exceeding oil gas income received quarter cash distribution due partnerships net profits interest deficit recovered future net profits partnership accrues quarterly loss net profits interest provided cumulative net amount due accrued revenue balance sheet date december 31 2003 timing differences resulted deficit net profit interest estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period partnerships depletion calculation fullcost ceiling test oil gas properties uses oil gas reserves estimates inherently imprecise actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated revenue recognition recognize oil gas sales delivery purchaser occurred title transferred occurs production delivered pipeline transport vehicle gas balancing partnership utilizes sales method accounting gas balancing arrangements method partnership recognizes sales revenue gas sold december 31 2003 2002 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners accordance requirements statement financial accounting standards 109 accounting income taxes partnerships tax basis net oil gas properties december 31 2003 2002 286827 475992 respectively shown accompanying balance sheets accordance generally accepted accounting principles southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution number limited partner units december 31 2003 2002 2001 11316 limited partner units outstanding held 565 580 partners concentrations credit risk partnership subject credit risk trade receivables although substantial portion debtors ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments net income loss per limited partnership unit net income loss per limited partnership unit calculated using number outstanding limited partnership units recent accounting pronouncements eitf considering two issues related reporting oil gas mineral rights issue 03o whether mineral rights tangible intangible assets whether mineral rights intangible assets pursuant sfas 141 business combinations issue 03s application sfas 142 goodwill intangible assets oil gas companies oil gas drilling rights intangible assets whether assets subject classification disclosure provisions sfas 142 partnership classifies cost oil gas mineral rights properties equipment believes consistent oil gas accounting industry practice disclosures required sfas nos 141 142 would made notes financial statements would effect statement income cash flows intangible assets related oil gas mineral rights would continue amortized full cost method accounting depletion policy 2002 partnership changed methods accounting depletion capitalized costs unitsofrevenue method unitsof production method see note 4 3 cumulative effect change accounting principle sfas 143 january 1 2003 partnership adopted statement financial accounting standards 143 accounting asset retirement obligations sfas 143 adoption sfas 143 required companies fiscal years beginning june 15 2002 new standard requires partnership recognize liability present value legal obligations associated retirement tangible longlived assets capitalize equal amount cost asset depreciate additional cost estimated useful life asset january 1 2003 partnership recorded additional costs net accumulated depreciation approximately 167102 long term liability approximately 149466 gain approximately 17635 cumulative effect depreciation additional costs accretion expense liability related expected abandonment costs oil natural gas producing properties december 31 2003 asset retirement obligation 149098 decrease balance january 1 2003 due sale oil gas properties decreased asset retirement obligation 8938 plug abandonment lease 2987 offset accretion expense 11557 pro forma amounts asset retirement obligation december 31 2002 2001 2000 approximately 149466 138465 128274 respectively pro forma amounts asset retirement obligation measured using information assumptions interest rates adoption date january 1 2003 pro forma amounts years ended december 31 2002 2001 presented reflect effect retroactive application sfas 143 southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 3 cumulative effect change accounting principle sfas 143 continued 2002 2001 pro forma amounts assuming change applied retroactively net income loss cumulative effect change depletion 9274 66583 method per limited partner unit 84 113160 units 514 net income loss 11274 66583 per limited partner unit 102 514 113160 units 4 cumulative effect change accounting principle change depletion method 2002 partnership changed methods accounting depletion capitalized costs unitsofrevenue method unitsof production method newly adopted accounting principle preferable circumstances unitsofproduction method results better matching costs oil gas production related revenue received periods volatile prices production experienced recent periods additionally unitsofproduction method predominant method used full cost companies oil gas industry accordingly change improves comparability partnerships financial statements peer group partnership adopted unitsofproduction method recording cumulative effect change accounting principle amount 2000 effective january 1 2002 partnerships depletion years ended 2003 2002 calculated using unitsofproduction method 2001 restated pro forma amounts 2001 presented reflect effect retroactive application unitsofproduction method see note 11 effects change depletion method individual quarters 2002 pro forma amounts assuming change applied retroactively net income 79774 per limited partner unit 621 113160 units southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 5 liquidity managing general partner december 31 2003 managing general partner violation several covenants pertaining amended restated revolving credit agreement due june 1 2006 senior second lien secured credit agreement due october 15 2008 due covenant violations managing general partner default amended restated revolving credit agreement senior second lien secured credit agreement amounts due agreements classified current liability managing general partners balance sheet december 31 2003 significant working capital deficit debt default december 31 2003 raise substantial doubt managing general partners ability continue going concern subsequent december 31 2003 board directors managing general partner announced decision explore merger sale stock transaction involving managing general partner board formed special committee independent directors oversee sales process special committee retained independent financial legal advisors work closely management managing general partner implement sales process assurance sale managing general partner consummated terms consummated sale 6 commitments contingent liabilities managing general partner right obligation purchase limited partnership units investor desire sell value unit determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves discounting future net revenues rate excess prime rate charged nationsbank na midland texas plus one percent 1 value shall reduced risk factor discount one third 13 determined managing general partner sole absolute discretion partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations december 31 2003 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon capital expenditures earnings competitive position oil gas industry however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 related party transactions significant portion oil gas properties partnership interest operated purchased managing general partner provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts southwest royalties inc operator approximating 41200 43900 43000 years ended december 31 2003 2002 2001 respectively amounts administrative overhead attributable operating partnership properties deducted gross oil gas revenues determination net profit interest addition managing general partner certain officers employees may interest properties partnership also participates southwest royalties inc managing general partner paid 90000 2003 2002 2001 administrative fee indirect general administrative overhead expenses administrative fees included general administrative expense statement operations receivables southwest royalties inc managing general partner approximately 42800 37900 oil gas production net lease operating costs production taxes december 31 2003 2002 respectively 8 major customers material portion partnerships business dependent single purchaser purchasers loss one would material adverse impact partnership two purchasers accounted 61 partnerships total oil gas production 2003 plains marketing lp 42 navajo refining company inc 19 two purchasers accounted 63 partnerships total oil gas production 2002 plains marketing lp 43 navajo refining company inc 20 two purchasers accounted 59 partnerships total oil gas production 2001 plains marketing lp 42 navajo refining company inc 17 purchasers partnerships oil gas production unrelated third parties event either purchasers discontinue purchasing partnerships production managing general partner believes substitute purchaser purchasers could located without undue delay purchaser accounted amount equal greater 10 partnerships sales oil gas production southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 9 subsequent event subsequent december 31 2003 managing general partner announced board directors decided explore merger sale stock company board formed special committee independent directors oversee sale process special committee retained independent financial legal advisors work closely management implement sale process may 3 2004 managing general partner entered cash merger agreement sell stock clayton williams energy inc cash merger price negotiated expected approximately 45 per share transaction subject approval managing general partners shareholders expected close later may 21 2004 10 estimated oil gas reserves unaudited partnerships interest proved oil gas reserves follows oil gas bbls mcf total proved january 1 2001 218000 332000 revisions previous 16000 78000 estimates production 15000 33000 december 31 2001 187000 221000 revisions previous 55000 41000 estimates production 13000 30000 december 31 2002 119000 232000 revisions previous 10000 51000 estimates production 12000 28000 december 31 2003 117000 255000 proved developed reserves december 31 2001 184000 209000 december 31 2002 116000 219000 december 31 2003 117000 255000 partnerships reserves located within continental united states southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 10 estimated oil gas reserves unaudited continued ryder scott company lp prepared reserve present value data partnerships existing properties january 1 2004 reserve estimates made accordance guidelines established securities exchange commission pursuant rule 410a regulation sx guidelines require oil gas reserve reports prepared existing economic operating conditions provisions price cost escalation except contractual arrangements oil price adjustments made individual evaluations reflect oil quality gathering transportation costs results reserve report january 1 2004 2003 2002 average price 3006 2845 1688 per barrel gas price adjustments made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage results reserve report january 1 2004 2003 2002 average price 573 471 233 per mcf evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes pertinent information gathered year may include actual production decline rates production offset wells drilled geologic formation increased decreased water production workovers changes lifting costs among others accordingly reserve estimates often different quantities oil gas ultimately recovered partnership reserves classified proved developed proved undeveloped proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 10 estimated oil gas reserves unaudited continued standardized measure discounted future net cash flows relating proved oil gas reserves december 31 2003 2002 2001 presented 2003 2002 2001 future cash inflows 498200 445900 367800 0 production development abandonment costs 224800 206300 163600 0 future net cash flows 273400 239600 204200 0 10 annual discount estimated timing cash 134100 107800 947000 flows 0 standardized measure discounted future net cash flows 139300 131800 109500 0 principal sources change standardized measure discounted future net cash flows years ended december 31 2003 2002 2001 follows 2003 2002 2001 sales oil gas produced net production costs 203000 108000 190000 changes prices 118000 631000 16120 production costs 00 changes production rates timing others 134000 8000 68000 revisions previous quantities estimates 162000 402000 141000 accretion discount 132000 110000 282000 discounted future net cash flows beginning year 131800 109500 282400 0 end year 139300 131800 109500 0 future net cash flows computed using yearend prices costs related existing proved oil gas reserves partnership mineral interests southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 11 selected quarterly financial results unaudited quarter first second third fourth 2003 total revenues 72094 46085 55728 45080 total expenses 31011 39993 33730 28153 net income 41083 6092 21998 16927 cumulative effect cumulative effect sfas 17635 143 net income 58718 6092 21998 16927 per limited partner unit amounts net income cumulative effect change 323 45 accounting principle 171 133 cumulative effect sfas 140 143 net income 463 45 171 133 discussed note 4 2002 partnership changed methods accounting depletion capitalized costs unitsof revenue method unitsofproduction method 2002 quarterly financial results presented reflect change depletion method effective january 1 2002 quarter first second third fourth 2002 total revenues 17381 37810 15933 38900 total expenses 26946 26762 26770 27819 income loss cumulative effect change accounting 9565 11048 10837 11081 principle cumulative effect prior years december 31 2001 changing different depletion 2000 method net income loss 11565 11048 10837 11081 per limited partner unit amounts income loss cumulative effect change accounting 79 85 principle 88 cumulative effect prior years december 31 2001 changing different depletion 18 method net income loss 97 85 88 item 9 item 8 financial statements supplementary data page report independent registered public accounting firm balance sheets statements operations statements changes partners equity deficit statements cash flows notes financial statements report independent registered public accounting firm partners southwest royalties institutional income fund xa lp delaware limited partnership audited accompanying balance sheets southwest royalties institutional income fund xa lp “partnership” december 31 2008 2007 related statements operations changes partners’ equity deficit cash flows years threeyear period ended december 31 2008 financial statements responsibility partnership’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 2008 2007 results operations cash flows years threeyear period ended december 31 2008 conformity us generally accepted accounting principles kpmg llp dallas texas march 27 southwest royalties institutional income fund xa lp delaware limited partnership balance sheets accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements operations accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements changes partners equity deficit years ended december 31 2008 2007 2006 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 1 organization southwest royalties institutional income fund xa lp organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc wholly owned subsidiary clayton williams energy inc serves managing general partner revenues costs expenses allocated follows 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution 2 summary significant accounting policies oil gas properties partnership uses full cost method accounting oil gas producing activities accordingly costs associated acquisition exploration development oil gas reserves capitalized depletion provided using unitof production method based upon estimates proved oil gas reserves amortizable base includes estimated future development costs dismantlement restoration abandonment costs net estimated salvage value partnership’s oil gas properties located within united states gain loss sale oil gas properties recognized unless significant oil gas reserves sold net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense december 31 2008 2007 2006 net capitalized costs exceed estimated present value oil gas reserves partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued partnership recognizes income net profits interest oil gas property accrual basis quarterly cash distributions net profits interest based calculation actual cash received oil gas sales net expenses incurred quarterly period net profits interest calculation results expenses incurred exceeding oil gas income received quarter cash distribution due partnerships net profits interest deficit recovered future net profits partnership accrues quarterly loss net profits interest provided cumulative net amount due accrued revenue balance sheet date december 31 2008 timing differences resulted deficit net profit interest estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period partnership’s depletion calculation fullcost ceiling test oil gas properties uses oil gas reserves estimates inherently imprecise actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated revenue recognition partnership recognizes oil gas sales delivery purchaser occurred title transferred occurs production delivered pipeline transport vehicle gas balancing partnership utilizes sales method accounting gasbalancing arrangements method partnership recognizes sales revenue gas sold december 31 2008 2007 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners accordance requirements statement financial accounting standards 109 “accounting income taxes” partnerships tax basis net oil gas properties december 31 2008 2007 7067 10167 respectively less shown accompanying balance sheets accordance generally accepted accounting principles cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued number limited partner units december 31 2008 2007 2006 11316 limited partner units outstanding held 503 522 533 partners concentrations credit risk partnership subject credit risk amounts due customers although substantial portion debtors’ ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments net income per limited partnership unit net income per limited partnership unit calculated using number outstanding limited partnership units recent accounting pronouncements recent accounting pronouncements affect partnership 3 abandonment obligations partnership follows provisions statement financial accounting standards 143 “accounting asset retirement obligations” “sfas 143” amended sfas 143 requires partnership recognize liability present value legal obligations associated retirement tangible longlived assets capitalize equal amount cost asset cost associated abandonment obligations along estimated salvage value included computation depreciation depletion amortization changes abandonment obligations 2008 2007 follows southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 4 commitments contingent liabilities partnership agreement provides limited partner must notify managing general partner writing representation warranty covenant limited partner made connection investment partnership becomes untrue limited partner becomes unqualified hold interests federal oil gas leases event managing general partner right obligation purchase limited partners’ units partnership value determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves present value future net revenues determined applying discount rate excess prime rate charged jp morgan chase bank na plus one percent 1 value shall reduced risk factor discount onethird 13 determined managing general partner sole absolute discretion partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations december 31 2008 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon partnership’s financial condition operations however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties may 2006 state texas adopted house bill 3 modified state’s franchise tax structure replacing previous tax based capital earned surplus margin tax “texas margin tax” effective franchise tax reports filed january 1 2008 texas margin tax computed applying applicable tax rate 1 partnership’s business profit margin generally determined total revenue less either cost goods sold compensation applicable however partnership believes based interpretation texas margin tax apply partnership since substantially income derived net profits interest 5 related party transactions significant portion oil gas properties partnership interest purchased operated managing general partner provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts payable southwest royalties inc operator approximating 45300 41000 47100 years ended december 31 2008 2007 2006 respectively amounts administrative overhead attributable operating partnership properties deducted gross oil gas revenues determination net profit interest addition managing general partner certain officers employees may interest properties partnership also participates southwest royalties inc managing general partner paid 90000 2008 2007 2006 administrative fee indirect general administrative overhead expenses administrative fees included general administrative expense statement operations receivables payable southwest royalties inc managing general partner approximately 38300 91000 oil gas production net lease operating costs production taxes december 31 2008 2007 respectively southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 oil gas reserves information unaudited estimates proved oil gas reserves utilized preparation financial statements prepared independent petroleum engineers estimates accordance guidelines established securities exchange commission financial accounting standards board require reserve reports prepared economic operating conditions existing registrants year end provision price cost escalations except contractual arrangements future cash inflows computed applying yearend prices yearend quantities proved reserves future development abandonment production costs computed estimating expenditures incurred developing producing abandoning proved oil gas reserves end year based yearend costs partnerships reserves located united states information partnership’s results operations oil gas producing activities see accompanying statements operations partnerships interest proved oil gas reserves follows net revisions 46000 boe 2008 consisted approximately 36000 boe downward revisions attributable effects lower product prices estimated quantities proved reserves downward revisions approximately 10000 boe attributable well performance primarily properties big spring field west texas net revisions 30000 boe 2007 consisted approximately 6000 boe upward revisions attributable effects higher product prices estimated quantities proved reserves upward revisions approximately 24000 boe attributable well performance primarily properties big spring field west texas oil price adjustments made individual evaluations reflect oil quality gathering transportation costs standardized measure december 31 2008 2007 2006 reflects average oil price 4169 9024 5323 per barrel gas price adjustments made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage standardized measure december 31 2008 2007 2006 reflects average natural gas price 690 770 523 per mcf southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 oil gas reserves information unaudited continued evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes pertinent information gathered year may include actual production decline rates production offset wells drilled geologic formation increased decreased water production workovers changes lifting costs among others accordingly reserve estimates often different quantities oil gas ultimately recovered partnership reserves classified proved developed proved undeveloped proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout standardized measure discounted future net cash flows relating proved oil gas reserves december 31 2008 2007 2006 presented changes standardized measure discounted future net cash flows relating proved reserves years ended december 31 2008 2007 2006 follows southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 selected quarterly financial results unaudited item 9 item 8 financial statements supplementary data page report independent accountants 20 balance sheets 21 statements operations 22 statement changes partners equity 23 statements cash flows 24 notes financial statements 26 report independent accountants partners southwest royalties institutional income fund xa lp midland texas audited accompanying balance sheets southwest royalties institutional income fund xa lp december 31 1996 1995 related statements operations changes partners equity cash flows three years period ended december 31 1996 financial statements responsibility partnerships management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 1996 1995 results operations cash flows three years period ended december 31 1996 conformity generally accepted accounting principles joseph decosimo company tennessee registered limited liability partnership chattanooga tennessee march 14 1997 southwest royalties institutional income fund xa lp delaware limited partnership balance sheets december 31 1996 1995 1996 1995 assets current assets cash equivalents 6736 46452 receivable managing general partner 99877 19003 receivable 14850 total current assets 121463 65455 oil gas properties using fullcost method accounting 4387142 4388192 less accumulated depreciation depletion amortization 3789000 3717000 net oil gas properties 598142 671192 719605 736647 liabilities partners equity current liability distribution payable 142 273 partners equity general partner 693 4816 limited partners 718770 741190 total partners equity 719463 736374 719605 736647 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements operations years ended december 31 1996 1995 1994 1996 1995 1994 revenues income net profits interests 363959 129803 287718 interest 1264 1080 3191 miscellaneous income 14850 380073 130883 290909 expenses general administrative 98984 101258 104492 depreciation depletion amortization 72000 97690 155000 170984 198948 259492 net income loss 209089 68065 31417 net income loss allocated managing general partner 25298 2666 16778 general partner 2811 296 1864 limited partners 180980 71027 12775 per limited partner unit 1599 628 113 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statement changes partners equity years ended december 31 1996 1995 1994 general limited partners total balance december 31 1993 15070 1416568 1431638 net income 18642 12775 31417 distributions 29990 491282 521272 balance december 31 1994 3722 938061 941783 net income loss 2962 71027 68065 distributions 11500 125844 137344 balance december 31 1995 4816 741190 736374 net income 28109 180980 209089 distributions 22600 203400 226000 balance december 31 1996 693 718770 719463 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows years ended december 31 1996 1995 1994 1996 1995 1994 cash flows operating activities cash received net profits interests 283044 191066 295962 cash paid suppliers 98984 101902 104493 interest received 1264 1080 3191 net cash provided operating activities 185324 90244 194660 cash flows investing activities additions oil gas properties 2169 sale oil gas properties 1091 55748 334632 net cash provided investing activities 1091 55748 332463 cash flows used financing activities distributions partners 226131 137221 521189 net increase decrease cash equivalents 39716 8771 5934 beginning year 46452 37681 31747 end year 6736 46452 37681 continued accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows continued years ended december 31 1996 1995 1994 1996 1995 1994 reconciliation net income loss net cash provided operating activities net income loss 209089 68065 31417 adjustments reconcile net income loss net cash provided operating activities depreciation depletion amortization 72000 97690 155000 increase decrease receivables 95765 61263 8244 decrease payables 644 1 net cash provided operating activities 185324 90244 194660 supplemental schedule noncash investing financing activities sale oil gas properties included receivable managing general partner 41 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 1 summary significant accounting policies oil gas properties oil gas properties accounted cost fullcost method productive nonproductive costs incurred connection acquisition exploration development oil gas reserves capitalized gain loss sale oil gas properties recognized unless significant oil gas reserves involved partnerships policy depreciation depletion amortization oil gas properties computed units revenue method units revenue method depreciation depletion amortization computed basis current gross revenues production relation future gross revenues based current prices estimated production proved oil gas reserves units revenue method partnership computes provision multiplying total unamortized cost oil gas properties overall rate determined dividing oil gas revenues period b total future gross oil gas revenues estimated partnerships independent petroleum consultants reasonably possible estimates anticipated future gross revenues remaining estimated economic life product could changed significantly near term due potential fluctuation oil gas prices production depletion estimate would also affected change net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense december 31 1996 1995 1994 net capitalized costs exceed estimated present value oil gas reserves partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period actual results could differ estimates organization costs organization costs stated cost amortized sixty months using straightline method syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated gas balancing partnership utilizes sales method accounting gas balancing arrangements method partnership recognizes sales revenue gas sold december 31 1996 1995 1994 significant amounts imbalance terms units value southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners accordance requirements statement financial accounting standards 109 accounting income taxes partnerships tax basis net oil gas properties december 31 1996 1995 1000499 1127062 respectively shown accompanying balance sheets accordance generally accepted accounting principles cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution number limited partner units december 31 1996 1995 1994 11316 limited partner units outstanding southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 organization southwest royalties institutional income fund xa lp organized laws state delaware january 29 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc serves managing general partner h wommack iii individual general partner revenues costs expenses allocated follows limited general partners interest income capital contributions 100 oil gas sales 90 10 revenues 90 10 organization offering costs 1 100 amortization organization costs 100 property acquisition costs 100 gainloss property disposition 90 10 operating administrative costs 2 90 10 depreciation depletion amortization oil gas properties 100 costs 90 10 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 3 oil gas properties costs incurred connection partnerships oil gas producing activities years ended december 31 1996 1995 1994 follows 1996 1995 1994 depreciation depletion amortization 72000 94000 146000 partnerships properties proved acquired 4 commitments contingent liabilities partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations december 31 1996 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon capital expenditures earnings competitive position oil gas industry however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 5 related party transactions significant portion oil gas properties partnership interest operated purchased managing general partner usual industry provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts southwest royalties inc operator approximating 71000 69000 79000 years ended december 31 1996 1995 1994 respectively addition managing general partner certain officers employees may interest properties partnership also participates certain subsidiaries managing general partner perform various oilfield services properties partnership owns interest services aggregated approximately 600 4000 7000 years ended december 31 1996 1995 1994 respectively managing general partner believes costs comparable similar charges paid partnership unrelated third parties southwest royalties inc managing general partner paid 90000 1996 1995 1994 indirect general administrative overhead expenses receivables southwest royalties inc managing general partner approximately 99877 19003 oil gas production net lease operating costs production taxes december 31 1996 1995 respectively addition director officer managing general partner law firm providing legal services partnership approximating 20 year ended december 31 1996 legal services provided year ended december 31 1995 approximately 200 year ended december 31 1994 6 major customers significant leases 1996 four customers purchased 32 20 13 10 partnerships oil gas production 1995 three customers purchased 40 14 12 partnerships oil gas production 1994 three customers purchased 37 12 11 partnerships oil gas production 1996 one lease accounted 20 partnershipss gross revenues southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 estimated oil gas reserves unaudited partnerships interest proved oil gas reserves follows oil bbls gas mcf proved developed undeveloped reserves january 1 1994 311000 416000 revisions previous estimates 46000 61000 production 53000 75000 sale minerals place 39000 december 31 1994 265000 402000 revisions previous estimates 26000 33000 production 36000 51000 sale minerals place 17000 10000 december 31 1995 238000 374000 revisions previous estimates 142000 98000 production 41000 51000 december 31 1996 339000 421000 proved developed reserves december 31 1994 263000 370000 december 31 1995 237000 367000 december 31 1996 339000 415600 partnerships reserves located within continental united states southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 estimated oil gas reserves unaudited continued standardized measure discounted future net cash flows relating proved oil gas reserves december 31 1996 1995 1994 presented 1996 1995 1994 future cash inflows net production development costs 4690000 2055000 2045000 10 annual discount estimated timing cash flows 1863000 829000 718000 standardized measure discounted future net cash flows 2827000 1226000 1327000 principal sources change standardized measure discounted future net cash flows years ended december 31 1996 1995 1994 follows 1996 1995 1994 sales oil gas produced net production costs 674000 379000 537000 changes price 1408000 207000 623000 revisions estimated production costs 23000 107000 9000 sales minerals place 84000 177000 revisions previous quantities estimates 636000 149000 4000 accretion discount 208000 113000 129000 discounted future net cash flows beginning year 1226000 1327000 1302000 end year 2827000 1226000 1327000 future net cash flows computed using yearend prices costs related existing proved oil gas reserves partnership mineral interests southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 8 subsequent events partnership carried project ballard grayburg san andres unit drill five infill producers evaluation prepared independent certified petroleum engineer proposed infill drilling determine fair arrangement partnership participate resulted farmout agreement southwest royalties inc managing general partner pay partnerships costs proposed drilling return working interest equal 90 partnerships combined working interest ballard grayburg san andres unit effective january 1 1997 item 9 item 8 financial statements supplementary data page report independent registered public accounting firm 17 balance sheets 18 statements operations 19 statement changes partners equity 20 statements cash flows 21 notes financial statements 23 report independent registered public accounting firm partners southwest royalties institutional income fund xa lp delaware limited partnership audited accompanying balance sheets southwest royalties institutional income fund xa lp partnership december 31 2005 2004 related statements operations partners equity cash flows years threeyear period ended december 31 2005 financial statements responsibility partnerships management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 2005 2004 results operations cash flows years threeyear period ended december 31 2005 conformity us generally accepted accounting principles discussed note 3 financial statements partnership changed method accounting asset retirement obligations january 1 2003 kpmg llp dallas texas march 30 2006 southwest royalties institutional income fund xa lp delaware limited partnership balance sheets december 31 2005 2004 2005 2004 assets current assets cash equivalents 71661 55686 receivable managing 59321 72374 general partner 7642 total current assets 138624 128060 oil gas properties using full cost method accounting 429968 428970 0 1 less accumulated depreciation depletion 402096 401005 amortization 7 2 net oil gas 278713 279649 properties 417337 407709 liabilities partners equity current liability 115 distribution payable asset retirement obligation 171063 156107 partners equity deficit general partner 3416 3986 limited partners 249690 255473 total partners equity 246274 251487 417337 407709 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements operations years ended december 31 2005 2004 2003 2005 2004 2003 revenues income net profits 459406 274552 206441 interests 939 12546 459406 275491 218987 expenses depreciation depletion 10915 12486 15000 amortization accretion expense 11749 10438 11557 general administrative 101955 106990 106330 124619 129914 132887 net income cumulative effect accounting change 334787 145577 86100 cumulative effect change accounting principle sfas 143 17635 see note 3 net income 334787 145577 103735 net income allocated managing general partner 31113 14226 10686 general partner 3457 1581 1187 limited partners 300217 129770 91862 per limited partner unit 2653 1147 cumulative effect 672 cumulative effect per 140 limited partner unit per limited partner unit 2653 1147 812 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statement changes partners equity years ended december 31 2005 2004 2003 general limited partners total balance december 31 2002 11354 214694 203340 net income 11873 91862 103735 distributions 5041 45365 50406 balance december 31 2003 4522 261191 256669 net income 15807 129770 145577 distributions 15271 135488 150759 balance december 31 2004 3986 255473 251487 net income 34570 300217 334787 distributions 34000 306000 340000 balance december 31 2005 3416 249690 246274 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows years ended december 31 2005 2004 2003 2005 2004 2003 cash flows operating activities cash received net profits 458045 241478 198586 interests cash paid administrative fees general administrative overhead 101955 106990 106330 939 12546 net cash provided operating 356090 135427 104802 activities cash flows investing activities sale oil gas properties 412 cash flows financing activities distributions partners 340000 150759 50406 decrease distributions 115 597 payable net cash used financing 340115 150759 51003 activities net increase decrease cash 15975 15332 54211 cash equivalents beginning year 55686 71018 16807 end year 71661 55686 71018 continu ed southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows years ended december 31 2005 2004 2003 2005 2004 2003 reconciliation net income net cash provided operating activities net income 334787 145577 103735 adjustments reconcile net income net cash provided operating activities depreciation depletion 10915 12486 15000 amortization accretion expense 11749 10438 11557 cumulative effect change 17635 accounting principle settlement aro pa wells 6772 3465 decrease increase 5411 29609 7855 receivables net cash provided operating 356090 135427 104802 activities noncash investing financing activities increase oil gas properties adoption sfas 143 167102 increase decrease oil gas properties sfas 143 9979 36 8938 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 1 organization southwest royalties institutional income fund xa lp organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc wholly owned subsidiary clayton williams energy inc serves managing general partner revenues costs expenses allocated follows limited general partners interest income capital 100 contributions oil gas sales 90 10 revenues 90 10 organization offering 100 costs 1 amortization organization 100 costs property acquisition costs 100 gainloss property 90 10 disposition operating administrative 90 10 costs 2 depreciation depletion amortization oil gas properties 100 costs 90 10 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution 2 summary significant accounting policies oil gas properties oil gas properties accounted cost fullcost method productive nonproductive costs incurred connection acquisition exploration development oil gas reserves capitalized gain loss sale oil gas properties recognized unless significant oil gas reserves involved net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense december 31 2005 2004 2003 net capitalized costs exceed estimated present value oil gas reserves partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property partnership recognizes income net profits interest oil gas property accrual basis quarterly cash distributions net profits interest based calculation actual cash received oil gas sales net expenses incurred quarterly period net profits interest calculation results expenses incurred exceeding oil gas income received quarter cash distribution due partnerships net profits interest deficit recovered future net profits partnership accrues quarterly loss net profits interest provided cumulative net amount due accrued revenue balance sheet date december 31 2005 timing differences resulted deficit net profit interest southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period partnerships depletion calculation fullcost ceiling test oil gas properties uses oil gas reserves estimates inherently imprecise actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated revenue recognition partnership recognizes oil gas sales delivery purchaser occurred title transferred occurs production delivered pipeline transport vehicle gas balancing partnership utilizes sales method accounting gas balancing arrangements method partnership recognizes sales revenue gas sold december 31 2005 2004 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners accordance requirements statement financial accounting standards 109 accounting income taxes partnerships tax basis net oil gas properties december 31 2005 2004 225446 260913 respectively shown accompanying balance sheets accordance generally accepted accounting principles cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution number limited partner units december 31 2005 2004 2003 11316 limited partner units outstanding held 548 564 565 partners concentrations credit risk partnership subject credit risk trade receivables although substantial portion debtors ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments net income per limited partnership unit net income per limited partnership unit calculated using number outstanding limited partnership units recent accounting pronouncements december 2004 financial accounting standards board fasb issued statement financial accounting standards 153 exchanges nonmonetary assets amendment apb opinion 29 sfas 153 sfas 153 specifies criteria required record nonmonetary asset exchange using carryover basis sfas 153 effective nonmonetary asset exchanges occurring july 1 2005 partnership adopted statement third quarter 2005 effect financial statements september 2004 securities exchange commission issued staff accounting bulletin 106 sab 106 sab 106 expresses sec staffs views regarding sfas 143 impact full cost ceiling test calculation depletion expense accordance sab 106 beginning first quarter 2005 undiscounted abandonment costs wells drilled future develop proved reserves included unamortized cost oil gas properties net related salvage value purposes computing depreciation depletion amortization dda implementation sab 106 material impact financial statements 3 asset retirement obligations january 1 2003 partnership adopted statement financial accounting standards 143 accounting asset retirement obligations sfas 143 standard requires partnership recognize liability present value legal obligations associated retirement tangible longlived assets capitalize equal amount cost asset depreciate additional cost estimated useful life asset january 1 2003 partnership recorded additional costs net accumulated depreciation 167102 long term liability 149466 gain 17635 cumulative effect depreciation additional costs accretion expense liability related expected abandonment costs oil natural gas producing properties changes abandonment obligations 2005 2004 follows 2005 2004 beginning year 156107 149098 additional abandonment obligations 36 new wells reduction obligations due 6772 3465 wells plugged abandoned accretion expense 11749 10438 revisions previous estimates 9979 end year 171063 156107 southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 4 commitments contingent liabilities managing general partner right obligation purchase limited partnership units investor desire sell value unit determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves discounting future net revenues rate excess prime rate charged bank one division jp morgan chase bank na plus one percent 1 value shall reduced risk factor discount onethird 13 determined managing general partner sole absolute discretion partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations december 31 2005 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon capital expenditures earnings competitive position oil gas industry however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties 5 related party transactions significant portion oil gas properties partnership interest purchased operated managing general partner provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts southwest royalties inc operator approximating 43300 39500 41200 years ended december 31 2005 2004 2003 respectively amounts administrative overhead attributable operating partnership properties deducted gross oil gas revenues determination net profit interest addition managing general partner certain officers employees may interest properties partnership also participates southwest royalties inc managing general partner paid 90000 2005 2004 2003 administrative fee indirect general administrative overhead expenses administrative fees included general administrative expense statement operations receivables southwest royalties inc managing general partner approximately 59300 72400 oil gas production net lease operating costs production taxes december 31 2005 2004 respectively southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 oil gas reserves information unaudited estimates proved oil gas reserves utilized preparation financial statements prepared independent petroleum engineers estimates accordance guidelines established securities exchange commission financial accounting standards board require reserve reports prepared economic operating conditions existing registrants year end provision price cost escalations except contractual arrangements future cash inflows computed applying yearend prices yearend quantities proved reserves future development abandonment production costs computed estimating expenditures incurred developing producing abandoning proved oil gas reserves end year based yearend costs partnerships reserves located united states information partnerships results operations oil gas producing activities see accompanying statements operations partnerships interest proved oil gas reserves follows oil gas bbls mcf total proved january 1 2003 119000 232000 revisions previous 10000 51000 estimates production 12000 28000 december 31 2003 117000 255000 revisions previous 1000 85000 estimates production 10000 30000 december 31 2004 108000 310000 revisions previous 58000 34000 estimates production 11000 29000 december 31 2005 155000 247000 proved developed reserves december 31 2003 117000 255000 december 31 2004 108000 310000 december 31 2005 155000 247000 net revisions 52000 boe 2005 consisted approximately 29000 boe upward revisions attributable effects higher product prices estimated quantities proved reserves upward revisions approximately 23000 boe attributable well performance primarily properties anita field west texas net revisions 15000 boe 2004 consisted upward revisions attributable well performance primarily properties lovington ne field new mexico net revisions 19000 boe 2003 consisted approximately 14000 boe upward revisions attributable effects higher product prices estimated quantities proved reserves upward revisions approximately 5000 boe attributable well performance primarily properties jalmat field new mexico southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 oil gas reserves information unaudited continued oil price adjustments made individual evaluations reflect oil quality gathering transportation costs standardized measure december 31 2005 2004 2003 reflects average oil price 5664 3999 3006 per barrel gas price adjustments made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage standardized measure december 31 2005 2004 2003 reflects average natural gas price 1098 571 573 per mcf evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes pertinent information gathered year may include actual production decline rates production offset wells drilled geologic formation increased decreased water production workovers changes lifting costs among others accordingly reserve estimates often different quantities oil gas ultimately recovered partnership reserves classified proved developed proved undeveloped proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 oil gas reserves information unaudited continued standardized measure discounted future net cash flows relating proved oil gas reserves december 31 2005 2004 2003 presented 2005 2004 2003 future cash inflows 115400 606800 498200 00 0 production development abandonment costs 474400 295000 224800 0 future net cash flows 679600 311800 273400 0 10 annual discount estimated timing cash 353200 159600 134100 flows 0 standardized measure discounted future net cash 326400 152200 139300 flows 0 changes standardized measure discounted future net cash flows relating proved reserves years ended december 31 2005 2004 2003 follows 2005 2004 2003 sales oil gas produced net production costs 459000 275000 203000 changes prices 112700 178000 118000 production costs 0 changes production rates timing others 51000 58000 134000 revisions previous quantities estimates 871000 145000 162000 accretion discount 152000 139000 132000 discounted future net cash flows beginning year 152200 139300 131800 0 end year 326400 152200 139300 0 southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 selected quarterly financial results unaudited quarter first second third fourth 2005 total revenues 82014 107511 133615 136266 total expenses 31823 32682 29672 30442 net income 50191 74829 103943 105824 net income per limited 397 partners unit 593 824 839 quarter first second third fourth 2004 total revenues 65430 54255 69977 85829 total expenses 32381 34569 33299 29665 net income 33049 19686 36678 56164 net income per limited 260 partners unit 154 289 444 item 9 item 8 financial statements supplementary data page report independent registered public accounting firm balance sheets statements operations statements changes partners equity deficit statements cash flows notes financial statements report independent registered public accounting firm partners southwest royalties institutional income fund xa lp delaware limited partnership audited accompanying balance sheets southwest royalties institutional income fund xa lp “partnership” december 31 2007 2006 related statements operations changes partners’ equity deficit cash flows years threeyear period ended december 31 2007 financial statements responsibility partnership’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 2007 2006 results operations cash flows years threeyear period ended december 31 2007 conformity us generally accepted accounting principles kpmg llp dallas texas march 28 southwest royalties institutional income fund xa lp delaware limited partnership balance sheets accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements operations accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements changes partners equity deficit years ended december 31 2007 2006 2005 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 1 organization southwest royalties institutional income fund xa lp organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc wholly owned subsidiary clayton williams energy inc serves managing general partner revenues costs expenses allocated follows 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution 2 summary significant accounting policies oil gas properties oil gas properties accounted cost fullcost method productive nonproductive costs incurred connection acquisition exploration development oil gas reserves capitalized gain loss sale oil gas properties recognized unless significant oil gas reserves involved net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense december 31 2007 2006 2005 net capitalized costs exceed estimated present value oil gas reserves partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property partnership recognizes income net profits interest oil gas property accrual basis quarterly cash distributions net profits interest based calculation actual cash received oil gas sales net expenses incurred quarterly period net profits interest calculation results expenses incurred exceeding oil gas income received quarter cash distribution due partnerships net profits interest deficit recovered future net profits partnership accrues quarterly loss net profits interest provided cumulative net amount due accrued revenue balance sheet date december 31 2007 timing differences resulted deficit net profit interest southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period partnership’s depletion calculation fullcost ceiling test oil gas properties uses oil gas reserves estimates inherently imprecise actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated revenue recognition partnership recognizes oil gas sales delivery purchaser occurred title transferred occurs production delivered pipeline transport vehicle gas balancing partnership utilizes sales method accounting gasbalancing arrangements method partnership recognizes sales revenue gas sold december 31 2007 2006 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners accordance requirements statement financial accounting standards 109 “accounting income taxes” partnerships tax basis net oil gas properties december 31 2007 2006 10167 21456 less respectively shown accompanying balance sheets accordance generally accepted accounting principles cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution number limited partner units december 31 2007 2006 2005 11316 limited partner units outstanding held 522 533 548 partners concentrations credit risk partnership subject credit risk amounts due customers although substantial portion debtors’ ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments net income per limited partnership unit net income per limited partnership unit calculated using number outstanding limited partnership units recent accounting pronouncements june 2006 financial accounting standards board “fasb” issued fasb interpretation 48 “accounting uncertainty income taxes” “fin48” clarify manner enterprises account uncertainties provisions income taxes generally standard presented fin 48 “more likely not” standard intended enhance relevancy comparability financial reporting companies fin 48 effective fiscal years beginning december 31 2006 fin 48 impact partnership’s financial statements since adoption january 1 2007 3 abandonment obligations partnership follows provisions statement financial accounting standards 143 “accounting asset retirement obligations” “sfas 143” amended sfas 143 requires partnership recognize liability present value legal obligations associated retirement tangible longlived assets capitalize equal amount cost asset cost associated abandonment obligations along estimated salvage value included computation depreciation depletion amortization changes abandonment obligations 2007 2006 follows southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 4 commitments contingent liabilities managing general partner right obligation purchase limited partnership units investor desire sell value unit determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves discounting future net revenues rate excess prime rate charged bank one division jp morgan chase bank na plus one percent 1 value shall reduced risk factor discount onethird 13 determined managing general partner sole absolute discretion partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations december 31 2007 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon partnership’s financial condition operations however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties may 2006 state texas adopted house bill 3 modified state’s franchise tax structure replacing previous tax based capital earned surplus margin tax “texas margin tax” effective franchise tax reports filed january 1 2008 texas margin tax computed applying applicable tax rate 1 partnership’s business profit margin generally determined total revenue less either cost goods sold compensation applicable however partnership believes based interpretation texas margin tax apply partnership since substantially income derived net profits interest 5 related party transactions significant portion oil gas properties partnership interest purchased operated managing general partner provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts southwest royalties inc operator approximating 41000 47100 43300 years ended december 31 2007 2006 2005 respectively amounts administrative overhead attributable operating partnership properties deducted gross oil gas revenues determination net profit interest addition managing general partner certain officers employees may interest properties partnership also participates southwest royalties inc managing general partner paid 90000 2007 2006 2005 administrative fee indirect general administrative overhead expenses administrative fees included general administrative expense statement operations receivables southwest royalties inc managing general partner approximately 91000 55000 oil gas production net lease operating costs production taxes december 31 2007 2006 respectively southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 oil gas reserves information unaudited estimates proved oil gas reserves utilized preparation financial statements prepared independent petroleum engineers estimates accordance guidelines established securities exchange commission financial accounting standards board require reserve reports prepared economic operating conditions existing registrants year end provision price cost escalations except contractual arrangements future cash inflows computed applying yearend prices yearend quantities proved reserves future development abandonment production costs computed estimating expenditures incurred developing producing abandoning proved oil gas reserves end year based yearend costs partnerships reserves located united states information partnership’s results operations oil gas producing activities see accompanying statements operations partnerships interest proved oil gas reserves follows net revisions 30000 boe 2007 consisted approximately 6000 boe upward revisions attributable effects higher product prices estimated quantities proved reserves upward revisions approximately 24000 boe attributable well performance primarily properties big spring field west texas net revisions 56000 boe 2006 consisted approximately 18000 boe downward revisions attributable effects lower product prices estimated quantities proved reserves downward revisions approximately 38000 boe attributable well performance primarily properties petrox field west texas oil price adjustments made individual evaluations reflect oil quality gathering transportation costs standardized measure december 31 2007 2006 2005 reflects average oil price 9024 5323 5664 per barrel gas price adjustments made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage standardized measure december 31 2007 2006 2005 reflects average natural gas price 770 523 1098 per mcf southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 6 oil gas reserves information unaudited continued evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes pertinent information gathered year may include actual production decline rates production offset wells drilled geologic formation increased decreased water production workovers changes lifting costs among others accordingly reserve estimates often different quantities oil gas ultimately recovered partnership reserves classified proved developed proved undeveloped proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout standardized measure discounted future net cash flows relating proved oil gas reserves december 31 2007 2006 2005 presented changes standardized measure discounted future net cash flows relating proved reserves years ended december 31 2007 2006 2005 follows southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 selected quarterly financial results unaudited item 9 item 8 financial statements supplementary data page report independent registered public accounting firm balance sheets statements operations statements changes partners deficit equity statements cash flows notes financial statements report independent registered public accounting firm partners southwest royalties institutional fund xa lp delaware limited partnership audited accompanying balance sheets southwest royalties institutional fund xa lp partnership december 31 2010 2009 related statements operations changes partner’s equity deficit cash flows years threeyear period ended december 31 2010 financial statements responsibility partnership’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement partnership required engaged perform audit internal control financial reporting audit included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness partnership’s internal control financial reporting accordingly express opinion audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional fund xa lp december 31 2010 2009 results operations cash flows years threeyear period ended december 31 2010 conformity us generally accepted accounting principles kpmg llp dallas texas march 29 2011 southwest royalties institutional income fund xa lp balance sheets accompanying notes integral part financial statements southwest royalties institutional income fund xa lp statements operations accompanying notes integral part financial statements southwest royalties institutional income fund xa lp statements changes partners deficit equity years ended december 31 2010 2009 2008 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp statements cash flows accompanying notes integral part financial statements southwest royalties institutional income fund xa lp notes financial statements 1 organization southwest royalties institutional income fund xa lp organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc wholly owned subsidiary clayton williams energy inc serves managing general partner revenues costs expenses allocated follows 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution 2 summary significant accounting policies oil gas properties partnership uses full cost method accounting oil gas producing activities accordingly costs associated acquisition exploration development oil gas reserves capitalized depletion provided using unitof production method based upon estimates proved oil gas reserves amortizable base includes estimated future development costs dismantlement restoration abandonment costs net estimated salvage value partnership’s oil gas properties located within united states gain loss sale oil gas properties recognized unless significant oil gas reserves sold net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense december 31 2010 2009 2008 net capitalized costs exceed estimated present value oil gas reserves partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property southwest royalties institutional income fund xa lp notes financial statements 2 summary significant accounting policies continued partnership recognizes income net profits interest oil gas property accrual basis quarterly cash distributions net profits interest based calculation actual cash received oil gas sales net expenses incurred quarterly period net profits interest calculation results expenses incurred exceeding oil gas income received quarter cash distribution due partnerships net profits interest deficit recovered future net profits partnership accrues quarterly loss net profits interest provided cumulative net amount due accrued revenue balance sheet date december 31 2010 balance due managing general partner 101363 estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period partnership’s depletion calculation fullcost ceiling test oil gas properties uses oil gas reserves estimates inherently imprecise actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated revenue recognition partnership recognizes oil gas sales delivery purchaser occurred title transferred occurs production delivered pipeline transport vehicle gas balancing partnership utilizes sales method accounting gasbalancing arrangements method partnership recognizes sales revenue gas sold december 31 2010 2009 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution southwest royalties institutional income fund xa lp notes financial statements 2 summary significant accounting policies continued number limited partner units december 31 2010 2009 2008 11316 limited partner units outstanding held 491 522 503 partners concentrations credit risk partnership subject credit risk amounts due customers although substantial portion debtors’ ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments net loss income per limited partnership unit net loss income per limited partnership unit calculated using number outstanding limited partnership units 3 abandonment obligations partnership follows provisions asc topic 41020 formerly sfas 143 “accounting asset retirement obligations” “sfas 143” asc topic 41020 requires partnership recognize liability present value legal obligations associated retirement tangible longlived assets capitalize equal amount cost asset cost associated abandonment obligations along estimated salvage value included computation depreciation depletion amortization asset retirement obligation measured using primarily level 3 inputs significant unobservable inputs fair value measurement include estimates plugging abandonment remediation costs inflation rate well life inputs calculated based historical data well current estimated costs changes abandonment obligations 2010 2009 follows 4 commitments contingent liabilities partnership agreement provides limited partner must notify managing general partner writing representation warranty covenant limited partner made connection investment partnership becomes untrue limited partner becomes unqualified hold interests federal oil gas leases event managing general partner right obligation purchase limited partners’ units partnership value determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves present value future net revenues determined applying discount rate excess prime rate charged jp morgan chase bank na plus one percent 1 value shall reduced risk factor discount onethird 13 determined managing general partner sole absolute discretion southwest royalties institutional income fund xa lp notes financial statements 4 commitments contingent liabilities continued partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations december 31 2010 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon partnership’s financial condition operations however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties may 2006 state texas adopted house bill 3 modified state’s franchise tax structure replacing previous tax based capital earned surplus margin tax “texas margin tax” effective franchise tax reports filed january 1 2008 texas margin tax computed applying applicable tax rate 1 partnership’s business profit margin generally determined total revenue less either cost goods sold compensation applicable however partnership believes based interpretation texas margin tax apply partnership since substantially income derived net profits interest partnership reported deficit partners’ equity 67328 december 31 2010 recently partnership required plug abandon three wells process incurred substantial costs fish collapsed tubing well bores two wells required applicable regulatory agencies income net profits reduced 307384 cost plug abandon wells 331644 offset settlement asset retirement obligations 24260 many partnership’s wells nonproductive must plugged compliance applicable regulations since partnership’s ownership wells structured net profits interest partnership liable asset retirement costs except extent future cash flow costs incurred plug abandon partnership wells cash flow operations reduced eliminated 5 related party transactions significant portion oil gas properties partnership interest purchased operated managing general partner provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts payable southwest royalties inc operator approximating 53900 51100 45300 years ended december 31 2010 2009 2008 respectively amounts administrative overhead attributable operating partnership properties deducted gross oil gas revenues determination net profit interest addition managing general partner certain officers employees managing general partner may interest properties partnership also participates southwest royalties inc managing general partner paid 86900 87200 90000 years 2010 2009 2008 respectively administrative fee indirect general administrative overhead expenses administrative fees included general administrative expense statement operations payable receivables southwest royalties inc managing general partner approximately 101400 46800 oil gas production net lease operating costs production taxes december 31 2010 2009 respectively southwest royalties institutional income fund xa lp notes financial statements 6 oil gas reserves information unaudited estimates proved oil gas reserves utilized preparation financial statements prepared independent petroleum engineers estimates accordance guidelines established securities exchange commission financial accounting standards board partnerships reserves located united states information partnership’s results operations oil gas producing activities see accompanying statements operations 2009 sec issued final rule modernization oil gas reporting financial accounting standards board “fasb” adopted conforming changes accounting standards codification “asc” topic 932 “extractive industries” align fasb’s reserves requirements sec final rule effect companies fiscal years ending december 31 2009 affects partnership’s reserve estimates disclosures final rule · amends definition proved reserves require use average commodity prices based upon prior 12month period rather yearend prices · expands type technologies available establish reserve estimates categories · modifies certain definitions used estimating proved reserves · permits disclosure probable possible reserves · permits disclosure reserves based different price cost criteria futures prices management forecasts emphasize reserve estimates inherently imprecise accordingly estimates expected change current information becomes available addition portion proved reserves classified proved developed nonproducing proved undeveloped increases imprecision inherent estimating reserves may ultimately produced partnerships interest proved oil gas reserves follows southwest royalties institutional income fund xa lp notes financial statements 6 oil gas reserves information unaudited continued net revisions 3000 boe 2010 consisted approximately 27000 boe upward revisions attributable effects higher product prices estimated quantities proved reserves offset downward revisions approximately 24000 boe attributable well performance primarily properties anita field west texas net revisions 27000 boe 2009 consisted approximately 5000 boe upward revisions attributable effects higher product prices estimated quantities proved reserves upward revisions approximately 22000 boe attributable well performance primarily properties big spring field west texas oil price adjustments made individual evaluations reflect oil quality gathering transportation costs standardized measure december 31 2010 2009 2008 reflects average oil price 7372 5493 4169 per barrel average prices december 31 2010 december 31 2009 based 12month unweighted arithmetic average firstdayofthemonth price period january 2010 december 2010 january 2009 december 2009 gas price adjustments made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage standardized measure december 31 2010 2009 2008 reflects average natural gas price 498 382 690 per mcf average prices december 31 2010 december 31 2009 based 12month unweighted arithmetic average firstdayofthemonth price period january 2010 december 2010 january 2009 december 2009 evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes partnership reserves classified proved developed proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout southwest royalties institutional income fund xa lp notes financial statements 6 oil gas reserves information unaudited continued standardized measure discounted future net cash flows relating proved oil gas reserves december 31 2010 2009 2008 presented changes standardized measure discounted future net cash flows relating proved reserves years ended december 31 2010 2009 2008 follows 7 selected quarterly financial results unaudited item 9 item 8 financial statements supplementary data page report independent registered public accounting firm 20 balance sheets 21 statements operations 22 statement changes partners equity 23 statements cash flows 24 notes financial statements 26 report independent registered public accounting firm partners southwest royalties institutional income fund xa lp delaware limited partnership audited accompanying balance sheets southwest royalties institutional income fund xa lp partnership december 31 2004 2003 related statements operations partners equity cash flows years threeyear period ended december 31 2004 financial statements responsibility partnerships management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional income fund xa lp december 31 2004 2003 results operations cash flows years threeyear period ended december 31 2004 conformity us generally accepted accounting principles discussed note 4 financial statements partnership changed method computing depletion 2002 also discussed note 3 financial statements partnership changed method accounting asset retirement obligations january 1 2003 kpmg llp dallas texas march 26 2005 southwest royalties institutional income fund xa lp delaware limited partnership balance sheets december 31 2004 2003 2004 2003 assets current assets cash equivalents 55686 71018 receivable managing 72374 42765 general partner total current assets 128060 113783 oil gas properties using full cost method accounting 428970 428966 1 5 less accumulated depreciation depletion 401005 399756 amortization 2 6 net oil gas 279649 292099 properties 407709 405882 liabilities partners equity current liability 115 distribution payable asset retirement obligation 156107 149098 partners equity deficit general partner 3986 4522 limited partners 255473 261191 total partners equity 251487 256669 407709 405882 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements operations years ended december 31 2004 2003 2002 2004 2003 2002 revenues income net profits 274552 206441 107806 interests interest operations 17 939 12546 2201 275491 218987 110024 expenses depreciation depletion 12486 15000 12000 amortization accretion expense 10438 11557 general administrative 106990 106330 96297 129914 132887 108297 net income cumulative effects accounting changes 145577 86100 1727 cumulative effect change accounting principle sfas 143 17635 see note 3 cumulative effect change accounting principle change depletion method 2000 see note 4 net income loss 145577 103735 273 net income loss allocated managing general partner 14226 10686 1236 general partner 1581 1187 137 limited partners 129770 91862 1646 per limited partner unit 1147 03 cumulative effect 672 cumulative effects per 140 18 limited partner unit per limited partner unit 1147 15 812 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statement changes partners equity years ended december 31 2004 2003 2002 general limited partners total balance december 31 2001 12727 216340 203613 net income loss 1373 1646 273 distributions balance december 31 2002 11354 214694 203340 net income 11873 91862 103735 distributions 5041 45365 50406 balance december 31 2003 4522 261191 256669 net income 15807 129770 145577 distributions 15271 135488 150759 balance december 31 2004 3987 255474 251487 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows years ended december 31 2004 2003 2002 2004 2003 2002 cash flows operating activities cash received net profits 240055 196671 96998 interests cash paid administrative fees general administrative overhead 105567 104415 96000 interest received 17 939 12546 2201 net cash provided operating 135427 104802 3216 activities cash flow provided investing activities sale oil gas properties 412 cash flows used provided financing activities distributions partners 150759 51003 292 net decrease increase cash 15332 54211 3508 cash equivalents beginning year 71018 16807 13299 end year 55686 71018 16807 continu ed southwest royalties institutional income fund xa lp delaware limited partnership statements cash flows years ended december 31 2004 2003 2002 2004 2003 2002 reconciliation net income loss net cash provided operating activities net income loss 145577 103735 273 adjustments reconcile net income loss net cash provided operating activities depreciation depletion 12486 15000 12000 amortization accretion expense 10438 11557 cumulative effect change 17635 2000 accounting principle increase receivables 34497 9770 10808 increase payables 1423 1915 297 net cash provided operating 135427 104802 3216 activities noncash investing financing activities increase oil gas properties adoption sfas 143 167102 increase oil gas properties sfas 143 add new well 36 decrease oil gas properties sfas 143 sale properties 8938 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 1 organization southwest royalties institutional income fund xa lp organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc wholly owned subsidiary clayton williams energy inc serves managing general partner revenues costs expenses allocated follows limited general partners interest income capital 100 contributions oil gas sales 90 10 revenues 90 10 organization offering 100 costs 1 amortization organization 100 costs property acquisition costs 100 gainloss property 90 10 disposition operating administrative 90 10 costs 2 depreciation depletion amortization oil gas properties 100 costs 90 10 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution 2 summary significant accounting policies oil gas properties oil gas properties accounted cost fullcost method productive nonproductive costs incurred connection acquisition exploration development oil gas reserves capitalized gain loss sale oil gas properties recognized unless significant oil gas reserves involved net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense december 31 2004 2003 2002 net capitalized costs exceed estimated present value oil gas reserves partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued oil gas properties continued partnership recognizes income net profits interest oil gas property accrual basis quarterly cash distributions net profits interest based calculation actual cash received oil gas sales net expenses incurred quarterly period net profits interest calculation results expenses incurred exceeding oil gas income received quarter cash distribution due partnerships net profits interest deficit recovered future net profits partnership accrues quarterly loss net profits interest provided cumulative net amount due accrued revenue balance sheet date december 31 2004 timing differences resulted deficit net profit interest estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period partnerships depletion calculation fullcost ceiling test oil gas properties uses oil gas reserves estimates inherently imprecise actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated revenue recognition recognize oil gas sales delivery purchaser occurred title transferred occurs production delivered pipeline transport vehicle gas balancing partnership utilizes sales method accounting gas balancing arrangements method partnership recognizes sales revenue gas sold december 31 2004 2003 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners accordance requirements statement financial accounting standards 109 accounting income taxes partnerships tax basis net oil gas properties december 31 2004 2003 260913 286827 respectively shown accompanying balance sheets accordance generally accepted accounting principles southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 2 summary significant accounting policies continued cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution number limited partner units december 31 2004 2003 2002 11316 limited partner units outstanding held 564 565 580 partners concentrations credit risk partnership subject credit risk trade receivables although substantial portion debtors ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments net income loss per limited partnership unit net income loss per limited partnership unit calculated using number outstanding limited partnership units recent accounting pronouncements december 2004 financial accounting standards board fasb issued statement financial accounting standards 153 exchanges nonmonetary assets amendment apb opinion 29 sfas 153 sfas 153 specifies criteria required record nonmonetary asset exchange using carryover basis sfas 153 effective nonmonetary asset exchanges occurring july 1 2005 partnership adopt statement third quarter 2005 expected material effect financial statements adopted september 2004 securities exchange commission issued staff accounting bulletin 106 sab 106 sab 106 expresses sec staffs views regarding sfas 143 impact full cost ceiling test calculation depletion expense accordance sab 106 beginning first quarter 2005 undiscounted abandonment costs wells drilled future develop proved reserves included unamortized cost oil gas properties net related salvage value purposes computing depreciation depletion amortization dda effect including undiscounted abandonment costs future wells undiscounted cost oil gas properties may increase dda expense future periods however partnership currently believe sab 106 material impact financial statements depletion policy 2002 partnership changed methods accounting depletion capitalized costs unitsofrevenue method unitsof production method see note 4 southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 3 cumulative effect change accounting principle sfas 143 january 1 2003 partnership adopted statement financial accounting standards 143 accounting asset retirement obligations sfas 143 adoption sfas 143 required companies fiscal years beginning june 15 2002 new standard requires partnership recognize liability present value legal obligations associated retirement tangible longlived assets capitalize equal amount cost asset depreciate additional cost estimated useful life asset january 1 2003 partnership recorded additional costs net accumulated depreciation approximately 167102 long term liability approximately 149466 gain approximately 17635 cumulative effect depreciation additional costs accretion expense liability related expected abandonment costs oil natural gas producing properties december 31 2004 asset retirement obligation 156107 increase balance january 1 2004 due accretion expense 10438 plus 36 addition new well less 3465 plug abandonment wells pro forma amount asset retirement obligation december 31 2002 approximately 149466 pro forma amounts asset retirement obligation measured using information assumptions interest rates adoption date january 1 2003 pro forma amounts year ended december 31 2002 presented reflect effect retroactive application sfas 143 pro forma amounts assuming change applied retroactively net income loss cumulative effect change depletion 9274 method per limited partner unit 84 113160 units net income loss 11274 per limited partner unit 102 113160 units 4 cumulative effect change accounting principle change depletion method 2002 partnership changed methods accounting depletion capitalized costs unitsofrevenue method unitsof production method newly adopted accounting principle preferable circumstances unitsofproduction method results better matching costs oil gas production related revenue received periods volatile prices production experienced recent periods additionally unitsofproduction method predominant method used full cost companies oil gas industry accordingly change improves comparability partnerships financial statements peer group partnership adopted unitsofproduction method recording cumulative effect change accounting principle amount 2000 effective january 1 2002 partnerships depletion years subsequent 2001 calculated using unitsofproduction southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 5 commitments contingent liabilities managing general partner right obligation purchase limited partnership units investor desire sell value unit determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves discounting future net revenues rate excess prime rate charged bank one division jp morgan chase bank na plus one percent 1 value shall reduced risk factor discount onethird 13 determined managing general partner sole absolute discretion partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations december 31 2004 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon capital expenditures earnings competitive position oil gas industry however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties 6 related party transactions significant portion oil gas properties partnership interest operated purchased managing general partner provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts southwest royalties inc operator approximating 39500 41200 43900 years ended december 31 2004 2003 2002 respectively amounts administrative overhead attributable operating partnership properties deducted gross oil gas revenues determination net profit interest addition managing general partner certain officers employees may interest properties partnership also participates southwest royalties inc managing general partner paid 90000 2004 2003 2002 administrative fee indirect general administrative overhead expenses administrative fees included general administrative expense statement operations receivables southwest royalties inc managing general partner approximately 72400 42800 oil gas production net lease operating costs production taxes december 31 2004 2003 respectively southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 oil gas reserves information unaudited estimates proved oil gas reserves utilized preparation financial statements prepared independent petroleum engineers estimates accordance guidelines established securities exchange commission financial accounting standards board require reserve reports prepared economic operating conditions existing registrants year end provision price cost escalations except contractual arrangements future cash inflows computed applying yearend prices yearend quantities proved reserves future development abandonment production costs computed estimating expenditures incurred developing producing abandoning proved oil gas reserves end year based yearend costs partnerships reserves located united states information partnerships results operations oil gas producing activities see accompanying statements operations partnerships interest proved oil gas reserves follows oil gas bbls mcf total proved january 1 2002 187000 221000 revisions previous 55000 41000 estimates production 13000 30000 december 31 2002 119000 232000 revisions previous 10000 51000 estimates production 12000 28000 december 31 2003 117000 255000 revisions previous 1000 85000 estimates production 10000 30000 december 31 2004 108000 310000 proved developed reserves december 31 2002 116000 219000 december 31 2003 117000 255000 december 31 2004 108000 310000 southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 oil gas reserves information unaudited continued oil price adjustments made individual evaluations reflect oil quality gathering transportation costs results reserve report december 31 2004 2003 2002 average price 3999 3006 2845 per barrel gas price adjustments made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage results reserve report december 31 2004 2003 2002 average price 571 573 471 per mcf evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes pertinent information gathered year may include actual production decline rates production offset wells drilled geologic formation increased decreased water production workovers changes lifting costs among others accordingly reserve estimates often different quantities oil gas ultimately recovered partnership reserves classified proved developed proved undeveloped proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 7 oil gas reserves information unaudited continued standardized measure discounted future net cash flows relating proved oil gas reserves december 31 2004 2003 2002 presented 2004 2003 2002 future cash inflows 606800 498200 445900 0 production development abandonment costs 295000 224800 206300 0 future net cash flows 311800 273400 239600 0 10 annual discount estimated timing cash 159600 134100 107800 flows 0 standardized measure discounted future net cash 152200 139300 131800 flows 0 changes standardized measure discounted future net cash flows relating proved reserves years ended december 31 2004 2003 2002 follows 2004 2003 2002 sales oil gas produced net production costs 275000 203000 108000 changes prices 178000 118000 631000 production costs changes production rates timing others 58000 134000 8000 revisions previous quantities estimates 145000 162000 402000 accretion discount 139000 132000 110000 discounted future net cash flows beginning year 139300 131800 109500 0 end year 152200 139300 131800 0 southwest royalties institutional income fund xa lp delaware limited partnership notes financial statements 11 selected quarterly financial results unaudited quarter first second third fourth 2004 total revenues 65430 54255 69977 85829 total expenses 32381 34569 33299 29665 net income 33049 19686 36678 56164 net income per limited 260 partners unit 154 289 444 quarter first second third fourth 2003 total revenues 72094 46085 55728 45080 total expenses 31011 39993 33730 28153 net income 41083 6092 21998 16927 cumulative effect cumulative effect sfas 17635 143 net income 58718 6092 21998 16927 per limited partner unit amounts net income cumulative effect change 323 45 accounting principle 171 133 cumulative effect sfas 140 143 net income per limited 463 45 partners unit 171 133 item 9 item 8 financial statements supplementary data page report independent registered public accounting firm balance sheets statements operations statements changes partners equity deficit statements cash flows notes financial statements report independent registered public accounintg firm partners southwest royalties institutional fund xa lp delaware limited partnership audited accompanying balance sheets southwest royalties institutional fund xa lp partnership december 31 2009 2008 related statements operations changes partner’s equity deficit cash flows years threeyear period ended december 31 2009 financial statements responsibility partnership’s management responsibility express opinion financial statements based audits conducted audits accordance generally accepted auditing standards established auditing standards board united states accordance auditing standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement partnership required engaged perform audit internal control financial reporting audit included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness partnership’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position southwest royalties institutional fund xa lpas december 31 2009 2008 results operations cash flows years threeyear period ended december 31 2009 conformity us generally accepted accounting principles kpmg llp dallas texas march 29 2010 southwest royalties institutional income fund xa lp balance sheets accompanying notes integral part financial statements southwest royalties institutional income fund xa lp statements operations accompanying notes integral part financial statements southwest royalties institutional income fund xa lp statements changes partners equity deficit years ended december 31 2009 2008 2007 accompanying notes integral part financial statements southwest royalties institutional income fund xa lp statements cash flows accompanying notes integral part financial statements southwest royalties institutional income fund xa lp notes financial statements 1 organization southwest royalties institutional income fund xa lp organized laws state delaware november 27 1990 purpose acquiring producing oil gas properties produce market crude oil natural gas produced properties term 50 years unless terminated earlier date provided partnership agreement partnership sells oil gas production variety purchasers prices receives dependent upon oil gas economy southwest royalties inc wholly owned subsidiary clayton williams energy inc serves managing general partner revenues costs expenses allocated follows 1 organization costs excess 3 initial capital contributions paid managing general partner treated capital contribution partnership paid managing general partner amount equal 3 initial capital contributions organization costs 2 administrative costs year exceed 2 capital contributions shall paid managing general partner treated capital contribution 2 summary significant accounting policies oil gas properties partnership uses full cost method accounting oil gas producing activities accordingly costs associated acquisition exploration development oil gas reserves capitalized depletion provided using unitof production method based upon estimates proved oil gas reserves amortizable base includes estimated future development costs dismantlement restoration abandonment costs net estimated salvage value partnership’s oil gas properties located within united states gain loss sale oil gas properties recognized unless significant oil gas reserves sold net capitalized costs exceed estimated present value oil gas reserves discounted 10 excess costs would charged current expense december 31 2009 2008 2007 net capitalized costs exceed estimated present value oil gas reserves partnerships interest oil gas properties consists net profits interests proved properties located within continental united states net profits interest created owner working interest property enters arrangement providing net profits interest owner receive stated percentage net profit property net profits interest owner otherwise participate additional costs expenses property southwest royalties institutional income fund xa lp notes financial statements 2 summary significant accounting policies continued partnership recognizes income net profits interest oil gas property accrual basis quarterly cash distributions net profits interest based calculation actual cash received oil gas sales net expenses incurred quarterly period net profits interest calculation results expenses incurred exceeding oil gas income received quarter cash distribution due partnerships net profits interest deficit recovered future net profits partnership accrues quarterly loss net profits interest provided cumulative net amount due accrued revenue balance sheet date december 31 2009 timing differences resulted deficit net profit interest estimates uncertainties preparation financial statements conformity generally accepted accounting principles requires management make estimates assumptions affect reported amounts assets liabilities disclosure contingent assets liabilities date financial statements reported amounts revenues expenses reporting period partnership’s depletion calculation fullcost ceiling test oil gas properties uses oil gas reserves estimates inherently imprecise actual results could differ estimates syndication costs syndication costs accounted reduction partnership equity environmental costs partnership subject extensive federal state local environmental laws regulations laws constantly changing regulate discharge materials environment may require partnership remove mitigate environmental effects disposal release petroleum chemical substances various sites environmental expenditures expensed capitalized depending future economic benefit costs improve property compared condition property originally constructed acquired costs prevent future environmental contamination capitalized expenditures relate existing condition caused past operations future economic benefits expensed liabilities expenditures noncapital nature recorded environmental assessment andor remediation probable costs reasonably estimated revenue recognition partnership recognizes oil gas sales delivery purchaser occurred title transferred occurs production delivered pipeline transport vehicle gas balancing partnership utilizes sales method accounting gasbalancing arrangements method partnership recognizes sales revenue gas sold december 31 2009 2008 significant amounts imbalance terms units value income taxes provision income taxes reflected financial statements since tax effects partnerships income loss passed individual partners cash equivalents purposes statement cash flows partnership considers highly liquid debt instruments purchased maturity three months less cash equivalents partnership maintains cash one financial institution southwest royalties institutional income fund xa lp notes financial statements 2 summary significant accounting policies continued number limited partner units december 31 2009 2008 2007 11316 limited partner units outstanding held 522 503 522 partners concentrations credit risk partnership subject credit risk amounts due customers although substantial portion debtors’ ability pay dependent upon oil gas industry credit risk minimized due large customer base partnership revenues received managing general partner subsequently remitted partnership expenses paid managing general partner subsequently reimbursed partnership fair value financial instruments carrying amount cash accounts receivable approximates fair value due short maturity instruments net income per limited partnership unit net income per limited partnership unit calculated using number outstanding limited partnership units recent accounting pronouncements effective july 1 2009 partnership adopted sfas 168 “the financial accounting standards board “fasb” accounting standards codification hierarchy generally accepted accounting principles replacement fasb statement 162” “sfas 168” superseded topic 105105 fasb accounting standards codification “asc” sfas 168 establishes asc source authoritative accounting principles recognized fasb applied nongovernmental entities preparation financial statements conformity gaap manner new accounting guidance referenced adoption material impact financial statements effective april 1 2009 partnership adopted sfas 165 “subsequent events” “sfas 165” superseded asc topic 855105 establishes principles requirements disclosure subsequent events establishes period balance sheet date events transactions evaluated potential disclosure also establishes circumstances entity shall recognize events transactions occurring balance sheet date adoption sfas 165 material impact disclosure subsequent events december 2008 sec released final rule “modernization oil gas reporting” new disclosure requirements include provisions permit use new technologies determine proved reserves technologies demonstrated empirically lead reliable conclusions reserves volumes new requirements also allow companies disclose probable possible reserves investors addition new disclosure requirements require companies 1 report independence qualifications reserves preparer auditor 2 file reports third party relied upon prepare reserves estimates conducts reserves audit 3 report oil gas reserves using average price based upon prior 12month period rather yearend prices rule changes became effective december 31 2009 adopted changes conformed reserve estimation disclosure practices accordance guidance contained releases 3 abandonment obligations partnership follows provisions asc topic 41020 formerly sfas 143 “accounting asset retirement obligations” “sfas 143” asc topic 41020 requires partnership recognize liability present value legal obligations associated retirement tangible longlived assets capitalize equal amount cost asset cost associated abandonment obligations along estimated salvage value included computation depreciation depletion amortization asset retirement obligation measured using primarily level 3 inputs significant unobservable inputs fair value measurement include estimates plugging abandonment remediation costs inflation rate well life inputs calculated based historical data well current estimated costs southwest royalties institutional income fund xa lp notes financial statements 3 abandonment obligations continued changes abandonment obligations 2009 2008 follows 4 commitments contingent liabilities partnership agreement provides limited partner must notify managing general partner writing representation warranty covenant limited partner made connection investment partnership becomes untrue limited partner becomes unqualified hold interests federal oil gas leases event managing general partner right obligation purchase limited partners’ units partnership value determined adding sum 1 current assets less liabilities 2 present value future net revenues attributable proved reserves present value future net revenues determined applying discount rate excess prime rate charged jp morgan chase bank na plus one percent 1 value shall reduced risk factor discount onethird 13 determined managing general partner sole absolute discretion partnership subject various federal state local environmental laws regulations establish standards requirements protection environment partnership cannot predict future impact standards requirements subject change retroactive effectiveness partnership continues monitor status laws regulations december 31 2009 partnership fined cited notified environmental violations management aware unasserted violations would material adverse effect upon partnership’s financial condition operations however managing general partner recognize nature business material costs could incurred near term bring partnership total compliance amount future expenditures determinable due several factors including unknown magnitude possible contaminations unknown timing extent corrective actions may required determination partnerships liability proportion responsible parties extent expenditures recoverable insurance indemnifications prior owners partnerships properties may 2006 state texas adopted house bill 3 modified state’s franchise tax structure replacing previous tax based capital earned surplus margin tax “texas margin tax” effective franchise tax reports filed january 1 2008 texas margin tax computed applying applicable tax rate 1 partnership’s business profit margin generally determined total revenue less either cost goods sold compensation applicable however partnership believes based interpretation texas margin tax apply partnership since substantially income derived net profits interest 5 related party transactions significant portion oil gas properties partnership interest purchased operated managing general partner provided operating agreement respective oil gas property partnership interest operator paid amount administrative overhead attributable operating properties amounts payable southwest royalties inc operator approximating 51100 45300 41000 years ended december 31 2009 2008 2007 respectively amounts administrative overhead attributable operating partnership properties deducted gross oil gas revenues determination net profit interest addition managing general partner certain officers employees may interest properties partnership also participates southwest royalties inc managing general partner paid 87200 90000 years 2009 2008 2007 respectively administrative fee indirect general administrative overhead expenses administrative fees included general administrative expense statement operations southwest royalties institutional income fund xa lp notes financial statements 5 related party transactions continued receivables payable southwest royalties inc managing general partner approximately 46800 38300 oil gas production net lease operating costs production taxes december 31 2009 2008 respectively 6 oil gas reserves information unaudited estimates proved oil gas reserves utilized preparation financial statements prepared independent petroleum engineers estimates accordance guidelines established securities exchange commission financial accounting standards board partnerships reserves located united states information partnership’s results operations oil gas producing activities see accompanying statements operations 2009 sec issued final rule modernization oil gas reporting financial accounting standards board “fasb” adopted conforming changes accounting standards codification “asc” topic 932 “extractive industries” align fasb’s reserves requirements sec final rule effect companies fiscal years ending december 31 2009 affects partnership’s reserve estimates disclosures final rule · amends definition proved reserves require use average commodity prices based upon prior 12month period rather yearend prices · expands type technologies available establish reserve estimates categories · modifies certain definitions used estimating proved reserves · permits disclosure probable possible reserves · permits disclosure reserves based different price cost criteria futures prices management forecasts emphasize reserve estimates inherently imprecise accordingly estimates expected change current information becomes available addition portion proved reserves classified proved developed nonproducing proved undeveloped increases imprecision inherent estimating reserves may ultimately produced partnerships interest proved oil gas reserves follows southwest royalties institutional income fund xa lp notes financial statements 6 oil gas reserves information unaudited continued net revisions 27000 boe 2009 consisted approximately 5000 boe upward revisions attributable effects higher product prices estimated quantities proved reserves upward revisions approximately 22000 boe attributable well performance primarily properties big spring field west texas net revisions 46000 boe 2008 consisted approximately 36000 boe downward revisions attributable effects lower product prices estimated quantities proved reserves downward revisions approximately 10000 boe attributable well performance primarily properties big spring field west texas oil price adjustments made individual evaluations reflect oil quality gathering transportation costs standardized measure december 31 2009 2008 2007 reflects average oil price 5493 4169 9024 per barrel average prices december 31 2009 based 12month unweighted arithmetic average firstdayofthemonth price period january 2009 december 2009 gas price adjustments made individual evaluations reflect btu content gathering transportation costs gas processing shrinkage standardized measure december 31 2009 2008 2007 reflects average natural gas price 382 690 770 per mcf average prices december 31 2009 based 12month unweighted arithmetic average firstdayofthemonth price period january 2009 december 2009 evaluation oil gas properties exact science inevitably involves significant degree uncertainty particularly respect quantity oil gas given property capable producing estimates oil gas reserves based available geological engineering data extent quality may vary case certain instances may prove inaccurate consequently properties may depleted rapidly geological engineering data indicated unanticipated depletion occurs result lower reserves previously estimated thus ultimately lower return partnership basic changes past reserve estimates occur annually new data gathered subsequent year engineer must revise earlier estimates year new information pertinent estimation future recoverable volumes available subsequent year evaluation applying industry standards procedures new data may cause previous estimates revised revision may increase decrease earlier estimated volumes partnership reserves classified proved developed proved reserves included engineering reports evaluate partnerships present reserves partnership engage drilling activities development proved undeveloped reserves conducted pursuant farmout arrangements managing general partner unrelated third parties generally partnership retains carried interest overriding royalty interest terms farmout southwest royalties institutional income fund xa lp notes financial statements 6 oil gas reserves information unaudited continued standardized measure discounted future net cash flows relating proved oil gas reserves december 31 2009 2008 2007 presented changes standardized measure discounted future net cash flows relating proved reserves years ended december 31 2009 2008 2007 follows 7 selected quarterly financial results unaudited item 9 item 15 exhibits financial statement schedules 1 financial statements included part ii report independent registered public accounting firm balance sheets statements operations statements changes partners equity deficit statements cash flows notes financial statements 2 schedules required article 12 regulation sx either omitted applicable required information shown financial statements notes thereto 3 exhibits certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 311 rule 13a14a15d14a certification 312 rule 13a14a15d14a certification 321 certification chief executive officer chief financial officer pursuant usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 glossary oil gas terms following abbreviations definitions terms commonly used oil gas industry used filing volumes natural gas referred herein stated legal pressure base state area reserves exit 60 degrees fahrenheit instances rounded nearest major multiple bbl one stock tank barrel 42 united states gallons liquid volume boe equivalent barrels oil natural gas converted oil equivalents based ratio six mcf natural gas one bbl oil developmental well drilled within proved area oil natural gas reservoir depth stratigraphic horizon known productive exploratory well drilled find produce oil gas unproved area find new reservoir field previously found productive oil natural gas another reservoir extend known reservoir farmout arrangement agreement whereby owner leasehold working interest agrees assign interest certain specific acreage assignee retaining interest overriding royalty interest subject drilling one 1 wells specified performance assignee field area consisting single reservoir multiple reservoirs grouped related individual geological structural feature andor stratigraphic condition mcf one thousand cubic feet net profits interest agreement whereby owner receives specified percentage defined net profits producing property exchange consideration paid net profits interest owner otherwise participate additional costs expenses property oil crude oil condensate natural gas liquids overriding royalty interest interests carved working interest duration limited term lease created standardized measure discounted future net cash flows present value proved reserves adjusted give effect estimated future abandonment costs net estimated salvage value related equipment production costs incurred operate maintain wells related equipment facilities including depreciation applicable operating costs support equipment facilities costs operating maintaining wells related equipment facilities proved area part property proved reserves specifically attributed proved developed oil gas reserves proved oil gas reserves expected recovered existing wells existing equipment operating methods proved properties proved reserves proved oil gas reserves estimated quantities crude oil natural gas natural gas liquids geological engineering data demonstrate reasonable certainty recoverable future years known reservoirs existing economic operating conditions ie prices costs date estimate made proved undeveloped reserves proved oil gas reserves expected recovered new wells undrilled acreage existing wells relatively major expenditure required recompletion reservoir porous permeable underground formation containing natural accumulation producible oil gas confined impermeable rock water barriers individual separate reservoirs royalty interest oil natural gas property entitling owner share oil natural gas production free costs production working interest operating interest gives owner right drill produce conduct operating activities property share production workover operations producing well restore increase production signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner l paul latham l paul latham president chief executive officer date april 5 2007 accordance exchange act report signed following persons behalf registrant capacities dates indicated clayton w williams l paul latham clayton w williams chairman board l paul latham president director date april 5 2007 date april 5 2007 mel g riggs mel g riggs vice president finance treasurer director date april 5 2007 item 15 exhibits financial statement schedules reports form 8k a1 financial statements included part ii report independent auditors report balance sheets statements operations statement changes partners equity statements cash flows notes financial statements 2 schedules required article 12 regulation x either omitted applicable required information shown financial statements notes thereto 3 exhibits 4 certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 311 rule 13a14a15d14a certification 312 rule 13a14a15d14a certification 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act b reports form 8k reports filed form 8k quarter ended december 31 2003 signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner h wommack iii h wommack iii president date may 12 2004 accordance exchange act report signed following persons behalf registrant capacities dates indicated h wommack iii bill e coggin h wommack iii bill e coggin chairman board executive vice president director chief financial chief executive officer date may 12 2004 date may 12 2004 william p nicoletti james n chapman william p nicoletti james n chapman director date may 10 2004 date may 12 2004 richard rinehart joseph j radecki jr richard rinehart joseph j radecki jr director date may 12 2004 date may 12 2004 herbert c williamson iii herbert c williamson iii john white director date may 11 2004 date section 302 certification exhibit 311 hh wommack iii certify 1 reviewed annual report form 10k southwest royalties institutional income fund xa lp 2 based knowledge report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered report 3 based knowledge financial statements financial information included report fairly present material respects financial condition results operations cash flows registrant periods presented report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a15e 1515e internal control financial reporting defined exchange act rules 13a15f 15d 15f registrant designed disclosure controls procedures caused disclosure controls procedures designed supervision ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period report prepared b designed internal control financial reporting caused internal control financial reporting designed supervision provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles c evaluated effectiveness registrants disclosure controls procedures presented report conclusions effectiveness disclosure controls procedures end period covered report based evaluation disclosed report change registrants internal control financial reporting occurred registrants recent fiscal quarter registrants fourth fiscal quarter case annual report materially affected reasonably likely materially affect registrants internal control financial reporting 5 registrants certifying officers disclosed based recent evaluation internal control financial reporting registrants auditors audit committee registrants board directors persons performing equivalent functions significant deficiencies material weaknesses design operation internal controls financial reporting reasonably likely adversely affect registrants ability record process summarize report financial information b fraud whether material involves management employees significant role registrants internal controls financial reporting date may 12 2004 hh wommack iii h wommack iii chairman president chief executive officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp section 302 certification exhibit 312 bill e coggin certify 1 reviewed annual report form 10k southwest royalties institutional income fund xa lp 2 based knowledge report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered report 3 based knowledge financial statements financial information included report fairly present material respects financial condition results operations cash flows registrant periods presented report 4 registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a15e 1515e internal control financial reporting defined exchange act rules 13a15f 15d 15f registrant designed disclosure controls procedures caused disclosure controls procedures designed supervision ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period report prepared b designed internal control financial reporting caused internal control financial reporting designed supervision provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles c evaluated effectiveness registrants disclosure controls procedures presented report conclusions effectiveness disclosure controls procedures end period covered report based evaluation disclosed report change registrants internal control financial reporting occurred registrants recent fiscal quarter registrants fourth fiscal quarter case annual report materially affected reasonably likely materially affect registrants internal control financial reporting 5 registrants certifying officers disclosed based recent evaluation internal control financial reporting registrants auditors audit committee registrants board directors persons performing equivalent functions significant deficiencies material weaknesses design operation internal controls financial reporting reasonably likely adversely affect registrants ability record process summarize report financial information b fraud whether material involves management employees significant role registrants internal controls financial reporting date may 12 2004 bill e coggin bill e coggin executive vice president chief financial officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp certification pursuant exhibit 321 19 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 connection annual report southwest royalties institutional income fund xa lp company form 10k period ending december 31 2003 filed securities exchange commission date hereof report hh wommack iii chief executive officer managing general partner company certify pursuant 18 usc 1350 adopted pursuant 906 sarbanes oxley act 2002 1 report fully complies requirements section 13a 15d securities exchange act 1934 2 information contained report fairly presents material respects financial condition results operation company date may 12 2004 hh wommack iii h wommack iii chairman president director chief executive officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp certification pursuant exhibit 322 19 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 connection annual report southwest royalties institutional income fund xa lp company form 10k period ending december 31 2003 filed securities exchange commission date hereof report bill e coggin chief financial officer managing general partner company certify pursuant 18 usc 1350 adopted pursuant 906 sarbanesoxley act 2002 1 report fully complies requirements section 13a 15d securities exchange act 1934 2 information contained report fairly presents material respects financial condition results operation company date may 12 2004 bill e coggin bill e coggin executive vice president chief financial officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp item 15 exhibits financial statement schedules 1 financial statements included part ii report independent registered public accounting firm balance sheets statements operations statements changes partners equity deficit statements cash flows notes financial statements 2 schedules required article 12 regulation sx either omitted applicable required information shown financial statements notes thereto 3 exhibits certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 311 rule 13a14a15d14a certification 312 rule 13a14a15d14a certification 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 glossary oil gas terms following abbreviations definitions terms commonly used oil gas industry used filing volumes natural gas referred herein stated legal pressure base state area reserves exit 60 degrees fahrenheit instances rounded nearest major multiple bbl one stock tank barrel 42 united states gallons liquid volume boe equivalent barrels oil natural gas converted oil equivalents based ratio six mcf natural gas one bbl oil developmental well drilled within proved area oil natural gas reservoir depth stratigraphic horizon known productive exploratory well drilled find produce oil gas unproved area find new reservoir field previously found productive oil natural gas another reservoir extend known reservoir farmout arrangement agreement whereby owner leasehold working interest agrees assign interest certain specific acreage assignee retaining interest overriding royalty interest subject drilling one 1 wells specified performance assignee field area consisting single reservoir multiple reservoirs grouped related individual geological structural feature andor stratigraphic condition mcf one thousand cubic feet net profits interest agreement whereby owner receives specified percentage defined net profits producing property exchange consideration paid net profits interest owner otherwise participate additional costs expenses property oil crude oil condensate natural gas liquids overriding royalty interest interests carved working interest duration limited term lease created standardized measure discounted future net cash flows present value proved reserves adjusted give effect estimated future abandonment costs net estimated salvage value related equipment production costs incurred operate maintain wells related equipment facilities including depreciation applicable operating costs support equipment facilities costs operating maintaining wells related equipment facilities proved area part property proved reserves specifically attributed proved developed oil gas reserves proved oil gas reserves expected recovered existing wells existing equipment operating methods proved properties proved reserves proved oil gas reserves estimated quantities crude oil natural gas natural gas liquids geological engineering data demonstrate reasonable certainty recoverable future years known reservoirs existing economic operating conditions ie prices costs date estimate made proved undeveloped reserves proved oil gas reserves expected recovered new wells undrilled acreage existing wells relatively major expenditure required recompletion reservoir porous permeable underground formation containing natural accumulation producible oil gas confined impermeable rock water barriers individual separate reservoirs royalty interest oil natural gas property entitling owner share oil natural gas production free costs production working interest operating interest gives owner right drill produce conduct operating activities property share production workover operations producing well restore increase production signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner l paul latham l paul latham president chief executive officer date march 27 2009 accordance exchange act report signed following persons behalf registrant capacities dates indicated clayton w williams l paul latham clayton w williams chairman board l paul latham president director date march 27 2009 date march 27 2009 mel g riggs mel g riggs vice president finance treasurer director date march 27 2009 item 15 exhibits financial statement schedules a1 financial statements included part ii report independent registered public accounting firm balance sheets statements operations statement changes partners equity statements cash flows notes financial statements 2 schedules required article 12 regulation x either omitted applicable required information shown financial statements notes thereto 3 exhibits 4 certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 311 rule 13a14a15d14a certification 312 rule 13a14a15d14a certification 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner l paul latham l paul latham president chief executive officer date march 30 2006 accordance exchange act report signed following persons behalf registrant capacities dates indicated clayton w williams l paul latham clayton w williams l paul latham chairman board president director date march 30 2006 date march 30 2006 mel g riggs mel g riggs vice president finance treasurer director date march 30 2006 section 302 certification exhibit 311 l paul latham certify 1 reviewed annual report form 10k southwest royalties institutional income fund xa lp 2based knowledge report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered report 3based knowledge financial statements financial information included report fairly present material respects financial condition results operations cash flows registrant periods presented report 4the registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a15e 15d15e registrant adesigned disclosure controls procedures caused disclosure controls procedures designed supervision ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period report prepared bevaluated effectiveness registrants disclosure controls procedures presented report conclusions effectiveness disclosure controls procedures end period covered report based evaluation cdisclosed report change registrants internal control financial reporting occurred registrants recent fiscal quarter registrants fourth fiscal quarter case annual report materially affected reasonably likely materially affect registrants internal control financial reporting 5the registrants certifying officers disclosed based recent evaluation internal control financial reporting registrants auditors audit committee registrants board directors persons performing equivalent functions aall significant deficiencies material weaknesses design operation internal control financial reporting reasonably likely adversely affect registrants ability record process summarize report financial information bany fraud whether material involves management employees significant role registrants internal control financial reporting date march 30 2006 l paul latham l paul latham president chief executive officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp section 302 certification exhibit 312 mel g riggs certify 1 reviewed annual report form 10k southwest royalties institutional income fund xa lp 2based knowledge report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered report 3based knowledge financial statements financial information included report fairly present material respects financial condition results operations cash flows registrant periods presented report 4the registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a15e 15d15e registrant adesigned disclosure controls procedures caused disclosure controls procedures designed supervision ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period report prepared bevaluated effectiveness registrants disclosure controls procedures presented report conclusions effectiveness disclosure controls procedures end period covered report based evaluation cdisclosed report change registrants internal control financial reporting occurred registrants recent fiscal quarter registrants fourth fiscal quarter case annual report materially affected reasonably likely materially affect registrants internal control financial reporting 5the registrants certifying officers disclosed based recent evaluation internal control financial reporting registrants auditors audit committee registrants board directors persons performing equivalent functions aall significant deficiencies material weaknesses design operation internal control financial reporting reasonably likely adversely affect registrants ability record process summarize report financial information bany fraud whether material involves management employees significant role registrants internal control financial reporting date march 30 2006 mel g riggs mel g riggs vice president chief financial officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp exhibit 321 certification chief executive officer chief financial officer pursuant 18 usc 1350 connection accompanying report form 10k period ended december 31 2005 filed concurrently securities exchange commission date hereof report undersigned officers southwest royalties institutional income fund xa lp company hereby certifies 1 report fully complies requirements section 13a 15d securities exchange act 1934 2 information contained report fairly presents material respects financial condition results operation company l paul latham l paul latham president chief executive officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp march 30 2006 mel g riggs mel g riggs vice president chief financial officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp march 30 2006 item 15 exhibits financial statement schedules 1 financial statements included part ii report independent registered public accounting firm balance sheets statements operations statements changes partners equity deficit statements cash flows notes financial statements 2 schedules required article 12 regulation sx either omitted applicable required information shown financial statements notes thereto 3 exhibits certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 311 rule 13a14a15d14a certification 312 rule 13a14a15d14a certification 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 glossary oil gas terms following abbreviations definitions terms commonly used oil gas industry used filing volumes natural gas referred herein stated legal pressure base state area reserves exit 60 degrees fahrenheit instances rounded nearest major multiple bbl one stock tank barrel 42 united states gallons liquid volume boe equivalent barrels oil natural gas converted oil equivalents based ratio six mcf natural gas one bbl oil developmental well drilled within proved area oil natural gas reservoir depth stratigraphic horizon known productive exploratory well drilled find produce oil gas unproved area find new reservoir field previously found productive oil natural gas another reservoir extend known reservoir farmout arrangement agreement whereby owner leasehold working interest agrees assign interest certain specific acreage assignee retaining interest overriding royalty interest subject drilling one 1 wells specified performance assignee field area consisting single reservoir multiple reservoirs grouped related individual geological structural feature andor stratigraphic condition mcf one thousand cubic feet net profits interest agreement whereby owner receives specified percentage defined net profits producing property exchange consideration paid net profits interest owner otherwise participate additional costs expenses property oil crude oil condensate natural gas liquids overriding royalty interest interests carved working interest duration limited term lease created standardized measure discounted future net cash flows present value proved reserves adjusted give effect estimated future abandonment costs net estimated salvage value related equipment production costs incurred operate maintain wells related equipment facilities including depreciation applicable operating costs support equipment facilities costs operating maintaining wells related equipment facilities proved area part property proved reserves specifically attributed proved developed oil gas reserves proved oil gas reserves expected recovered existing wells existing equipment operating methods proved properties proved reserves proved oil gas reserves estimated quantities crude oil natural gas natural gas liquids geological engineering data demonstrate reasonable certainty recoverable future years known reservoirs existing economic operating conditions ie prices costs date estimate made proved undeveloped reserves proved oil gas reserves expected recovered new wells undrilled acreage existing wells relatively major expenditure required recompletion reservoir porous permeable underground formation containing natural accumulation producible oil gas confined impermeable rock water barriers individual separate reservoirs royalty interest oil natural gas property entitling owner share oil natural gas production free costs production working interest operating interest gives owner right drill produce conduct operating activities property share production workover operations producing well restore increase production signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner l paul latham l paul latham president chief executive officer date march 28 2008 accordance exchange act report signed following persons behalf registrant capacities dates indicated clayton w williams l paul latham clayton w williams chairman board l paul latham president director date march 28 2008 date march 28 2008 mel g riggs mel g riggs vice president finance treasurer director date march 28 2008 item 15 exhibits financial statement schedules 1 financial statements included part ii report independent registered public accounting firm balance sheets statements operations statements changes partners deficit equity statements cash flows notes financial statements 2 schedules required article 12 regulation sx either omitted applicable required information shown financial statements notes thereto 3 exhibits certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 311 rule 13a14a15d14a certification 312 rule 13a14a15d14a certification 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 glossary oil gas terms following abbreviations definitions terms commonly used oil gas industry used filing volumes natural gas referred herein stated legal pressure base state area reserves exit 60 degrees fahrenheit instances rounded nearest major multiple bbl one barrel 42 us gallons liquid volume boe means barrel oil equivalent standard convention used express oil gas volumes comparable oil equivalent basis gas equivalents determined relative energy content method using ratio 60 mcf gas 10 bbl oil natural gas liquid developmental well drilled within proved area oil natural gas reservoir depth stratigraphic horizon known productive completion installation permanent equipment production oil gas exploratory well drilled find new field find new reservoir field previously found productive oil natural gas another reservoir farmout arrangement agreement whereby owner leasehold working interest agrees assign interest certain specific acreage assignee retaining interest overriding royalty interest subject drilling one 1 wells specified performance assignee field area consisting single reservoir multiple reservoirs grouped related individual geological structural feature andor stratigraphic condition mcf one thousand cubic feet natural gas liquids liquid hydrocarbons extracted natural gas ethane propane butane natural gasoline net profits interest agreement whereby owner receives specified percentage defined net profits producing property exchange consideration paid net profits interest owner otherwise participate additional costs expenses property oil crude oil condensate natural gas liquids overriding royalty interest interests carved working interest duration limited term lease created present value proved reserves “pv10” present value estimated future revenues discounted 10 annually generated production proved reserves determined accordance securities exchange commission guidelines net estimated production future development costs using prices costs date estimation without future escalation without giving effect estimated future abandonment costs net estimated salvage value related equipment ii nonproperty related expenses general administrative expenses debt service future income tax expense iii depreciation depletion amortization production costs incurred operate maintain wells related equipment facilities including depreciation applicable operating costs support equipment facilities costs operating maintaining wells related equipment facilities proved area part property proved reserves specifically attributed proved developed oil gas reserves proved oil gas reserves expected recovered existing wells existing equipment operating methods cost required equipment relatively minor compared cost new well ii installed extraction equipment infrastructure operational time reserves estimate extraction means involving well proved properties proved reserves proved oil gas reserves proved oil gas reserves quantities oil gas analysis geoscience engineering data estimated reasonable certainty economically producible given date forward known reservoirs existing economic conditions operating methods government regulations prior time contracts providing right operate expire unless evidence indicates renewal reasonably certain regardless whether deterministic probabilistic methods used estimation project extract hydrocarbons must commenced operator must reasonably certain commence project within reasonable time area reservoir considered proved includes area identified drilling limited fluid contacts b adjacent undrilled portions reservoir reasonable certainty judged continuous contain economically producible oil gas basis available geoscience engineering data ii absence data fluid contacts proved quantities reservoir limited lowest known hydrocarbons lkh seen well penetration unless geoscience engineering performance data reliable technology establishes lower contact reasonable certainty iii direct observation well penetrations defined highest known oil hko elevation potential exists associated gas cap proved oil reserves may assigned structurally higher portions reservoir geoscience engineering performance data reliable technology establish higher contact reasonable certainty iv reserves produced economically application improved recovery techniques including limited fluid injection included proved classification successful testing pilot project area reservoir properties favorable reservoir whole operation installed program reservoir analogous reservoir evidence using reliable technology establishes reasonable certainty engineering analysis project program based b project approved development necessary parties entities including government entities proved undeveloped reserves undeveloped oil gas reserves category expected recovered new wells undrilled acreage existing wells relatively major expenditure required recompletion reserves undrilled acreage shall limited directly offsetting development spacing areas reasonably certain production drilled unless evidence using reliable technology exists establishes reasonable certainty economic producibility greater distances ii undrilled locations classified undeveloped reserves development plan adopted indicating scheduled drilled within five years unless specific circumstances justify longer time iii circumstances shall estimates undeveloped reserves attributable acreage application fluid injection improved recovery technique contemplated unless techniques proved effective actual projects reservoir analogous reservoir evidence using reliable technology establishing reasonable certainty reservoir porous permeable underground formation containing natural accumulation producible oil gas confined impermeable rock water barriers individual separate reservoirs royalty interest oil gas lease gives owner interest right receive portion production leased acreage proceeds sale thereof generally require owner pay portion costs drilling operating wells leased acreage royalties may either landowner’s royalties reserved owner leased acreage time lease granted overriding royalties usually reserved owner leasehold connection transfer subsequent owner standardized measure discounted future net cash flows present value proved reserves adjusted give effect estimated future abandonment costs net estimated salvage value related equipment ii estimated future income taxes working interest oil gas lease gives owner interest right drill produce oil gas leased acreage requires owner pay share costs drilling production operations share production working interest entitled smaller share costs working interest owner required bear extent royalty burden workover operations producing well restore increase production signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner mel g riggs mel g riggs president chief executive officer date march 29 2011 accordance exchange act report signed following persons behalf registrant capacities dates indicated clayton w williams mel g riggs clayton w williams chairman board mel g riggs president chief executive director officer director date march 29 2011 date march 29 2011 michael l pollard michael l pollard senior vice president chief financial officer date march 29 2011 item 15 exhibits financial statement schedules a1 financial statements included part ii report independent registered public accounting firm balance sheets statements operations statement changes partners equity statements cash flows notes financial statements 2 schedules required article 12 regulation x either omitted applicable required information shown financial statements notes thereto 3 exhibits 4 certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 311 rule 13a14a15d14a certification 312 rule 13a14a15d14a certification 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner l paul latham l paul latham president chief executive officer date march 31 2005 accordance exchange act report signed following persons behalf registrant capacities dates indicated clayton w williams l paul latham clayton w williams l paul latham chairman board president director date march 31 2005 date march 31 2005 mel g riggs mel g riggs vice president finance treasurer director date march 31 2005 section 302 certification exhibit 311 l paul latham certify 1 reviewed annual report form 10k southwest royalties institutional income fund xa lp 2based knowledge report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered report 3based knowledge financial statements financial information included report fairly present material respects financial condition results operations cash flows registrant periods presented report 4the registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a15e 15d15e registrant adesigned disclosure controls procedures caused disclosure controls procedures designed supervision ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period report prepared bevaluated effectiveness registrants disclosure controls procedures presented report conclusions effectiveness disclosure controls procedures end period covered report based evaluation cdisclosed report change registrants internal control financial reporting occurred registrants recent fiscal quarter registrants fourth fiscal quarter case annual report materially affected reasonably likely materially affect registrants internal control financial reporting 5the registrants certifying officers disclosed based recent evaluation internal control financial reporting registrants auditors audit committee registrants board directors persons performing equivalent functions aall significant deficiencies material weaknesses design operation internal control financial reporting reasonably likely adversely affect registrants ability record process summarize report financial information bany fraud whether material involves management employees significant role registrants internal control financial reporting date march 31 2005 l paul latham l paul latham president chief executive officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp section 302 certification exhibit 312 mel g riggs certify 1 reviewed annual report form 10k southwest royalties institutional income fund xa lp 2based knowledge report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered report 3based knowledge financial statements financial information included report fairly present material respects financial condition results operations cash flows registrant periods presented report 4the registrants certifying officers responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a15e 15d15e registrant adesigned disclosure controls procedures caused disclosure controls procedures designed supervision ensure material information relating registrant including consolidated subsidiaries made known us others within entities particularly period report prepared bevaluated effectiveness registrants disclosure controls procedures presented report conclusions effectiveness disclosure controls procedures end period covered report based evaluation cdisclosed report change registrants internal control financial reporting occurred registrants recent fiscal quarter registrants fourth fiscal quarter case annual report materially affected reasonably likely materially affect registrants internal control financial reporting 5the registrants certifying officers disclosed based recent evaluation internal control financial reporting registrants auditors audit committee registrants board directors persons performing equivalent functions aall significant deficiencies material weaknesses design operation internal control financial reporting reasonably likely adversely affect registrants ability record process summarize report financial information bany fraud whether material involves management employees significant role registrants internal control financial reporting date march 31 2005 mel g riggs mel g riggs vice president chief financial officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp exhibit 321 certification chief executive officer chief financial officer pursuant 18 usc 1350 connection accompanying report form 10k period ended december 31 2004 filed concurrently securities exchange commission date hereof report undersigned officers southwest royalties institutional income fund xa lp company hereby certifies 1 report fully complies requirements section 13a 15d securities exchange act 1934 2 information contained report fairly presents material respects financial condition results operation company l paul latham l paul latham president chief executive officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp march 31 2005 mel g riggs mel g riggs vice president chief financial officer southwest royalties inc managing general partner southwest royalties institutional income fund xa lp march 31 2005 item 15 exhibits financial statement schedules 1 financial statements included part ii report independent registered public accounting firm balance sheets statements operations statements changes partners equity deficit statements cash flows notes financial statements 2 schedules required article 12 regulation sx either omitted applicable required information shown financial statements notes thereto 3 exhibits certificate limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 b agreement limited partnership southwest royalties institutional income fund xa lp dated january 29 1990 incorporated reference partnerships form 10k fiscal year ended december 31 1990 311 rule 13a14a15d14a certification 312 rule 13a14a15d14a certification 321 certification chief executive officer chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 glossary oil gas terms following abbreviations definitions terms commonly used oil gas industry used filing volumes natural gas referred herein stated legal pressure base state area reserves exit 60 degrees fahrenheit instances rounded nearest major multiple bbl one stock tank barrel 42 united states gallons liquid volume boe equivalent barrels oil natural gas converted oil equivalents based ratio six mcf natural gas one bbl oil developmental well drilled within proved area oil natural gas reservoir depth stratigraphic horizon known productive exploratory well drilled find produce oil gas unproved area find new reservoir field previously found productive oil natural gas another reservoir extend known reservoir farmout arrangement agreement whereby owner leasehold working interest agrees assign interest certain specific acreage assignee retaining interest overriding royalty interest subject drilling one 1 wells specified performance assignee field area consisting single reservoir multiple reservoirs grouped related individual geological structural feature andor stratigraphic condition mcf one thousand cubic feet net profits interest agreement whereby owner receives specified percentage defined net profits producing property exchange consideration paid net profits interest owner otherwise participate additional costs expenses property oil crude oil condensate natural gas liquids overriding royalty interest interests carved working interest duration limited term lease created production costs incurred operate maintain wells related equipment facilities including depreciation applicable operating costs support equipment facilities costs operating maintaining wells related equipment facilities proved area part property proved reserves specifically attributed proved developed oil gas reserves proved oil gas reserves expected recovered existing wells existing equipment operating methods proved properties proved reserves proved oil gas reserves estimated quantities crude oil natural gas natural gas liquids geological engineering data demonstrate reasonable certainty recoverable future years known reservoirs existing economic operating conditions ie prices costs date estimate made proved undeveloped reserves proved oil gas reserves expected recovered new wells undrilled acreage existing wells relatively major expenditure required recompletion reservoir porous permeable underground formation containing natural accumulation producible oil gas confined impermeable rock water barriers individual separate reservoirs royalty interest oil natural gas property entitling owner share oil natural gas production free costs production standardized measure discounted future net cash flows present value proved reserves adjusted give effect estimated future abandonment costs net estimated salvage value related equipment working interest operating interest gives owner right drill produce conduct operating activities property share production workover operations producing well restore increase production signatures pursuant requirements section 13 15d securities exchange act 1934 partnership duly caused report signed behalf undersigned thereunto duly authorized southwest royalties institutional income fund xa lp delaware limited partnership southwest royalties inc managing general partner l paul latham l paul latham president chief executive officer date march 31 2010 accordance exchange act report signed following persons behalf registrant capacities dates indicated clayton w williams l paul latham clayton w williams chairman board l paul latham president director date march 31 2010 date march 31 2010 mel g riggs mel g riggs vice president finance treasurer director date march 31 2010