CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 or 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
Commission File Number 033-63635
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the transaction period from to
PDC 1996-C LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
West Virginia 55-0751069
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
103 East Main Street, Bridgeport, West Virginia 26330
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (304) 842-3597
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
General and Limited Partnership Interests
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
<PAGE>
PART I
ITEM 1. BUSINESS.
General
PDC 1996-C Limited Partnership ("the Partnership") is a limited partner-
ship formed on November 12, 1996 pursuant to the West Virginia Uniform Limited
Partnership Act. Petroleum Development Corporation ("PDC") serves as Managing
General Partner of the Partnership.
Since the commencement of operations on November 12, 1996, the Partnership
has been engaged in onshore, domestic gas exploration exclusively in the
northern Appalachian Basin. A total of 2 limited partners contributed
initial capital of $24,250; a total of 283 additional general partners
contributed initial capital of $3,922,228; and PDC (Managing General Partner)
contributed $858,359 in capital as a participant in accordance with
contribution provisions of the Limited Partnership Agreement (the Agreement).
Under the terms of the Agreement, the allocation of revenues is as
follows:
Allocation
of Revenues
Additional General and
Limited Partners 80%
Managing General Partner 20%
Operating and direct costs are allocated and charged to the additional
general and limited partners and the Managing General Partner in the same
percentages as revenues are allocated. Leasehold, drilling and completion
costs, and equipment costs are borne 80% by the additional general and
limited partners and 20% by the Managing General Partner.
Employees
The Partnership has no employees, however, PDC has approximately 72
employees which include a staff of geologists, petroleum engineers, landmen and
accounting personnel who administer all of the partnership's operations.
Plan of Operations
The Partnership participated in the drilling of twenty-three gross wells
and will continue to operate and produce its twenty-one wells. The Partnership
does not have unexpended initial capital and no additional drilling activity is
planned.
See Item 2 herein for information concerning the Partnership's gas wells.
Markets for Oil and Gas
The availability of a market for any oil and gas produced from the
operations of the Partnership will depend upon a number of factors beyond the
control of the Partnership which cannot be accurately predicted. These factors
include the proximity of the Partnership wells to and the capacity of natural
gas pipelines, the availability and price of competitive fuels, fluctuations in
seasonal supply and demand, and government regulation of supply and demand
created by its pricing and allocation restrictions. Oversupplies of gas can be
expected to occur from time to time and may result in the Partnership's wells
being shut-in or curtailed. Increased imports of oil and natural gas have
occurred and are expected to continue. The effects of such imports could
adversely impact the market for domestic oil and natural gas.
Competition
The Partnership competes in marketing its gas with numerous companies and
individuals, many of which have financial resources, staffs and facilities
substantially greater than those of the Partnership or Petroleum Development
Corporation. <PAGE>
State Regulations
State regulatory authorities have established rules and regulations
requiring permits for well operations, reclamation bonds and reports concerning
operations. States also have statutes and regulations concerning the spacing of
wells, environmental matters, and conservation, and have established regulations
concerning the unitization and pooling of oil and gas properties and maximum
rates of production from oil and gas wells. The Partnership believes it has
complied in all material respects with applicable state regulations.
Federal Regulations
Regulation of Liquid Hydrocarbons. Liquid hydrocarbons (including crude
oil and natural gas liquids) were subject to federal price and allocation
controls until January 1981 when controls were effectively eliminated by
executive order of the President. As a result, to the extent the Partnership
sells oil produced from its properties, those sales are at unregulated market
prices.
Although it appears unlikely under present circumstances that controls
will be reimposed upon liquid hydrocarbons, it is possible Congress may enact
such legislation at a future date. The impact of such legislation on the
Partnership would be minimal since the partnership expects to sell only small
quantities of liquid hydrocarbons, if any.
Natural Gas Regulation. Sale of natural gas by the Partnership is subject
to regulation of production, transportation and pricing by governmental
regulatory agencies. Generally, the regulatory agency in the state where a
producing well is located regulates production activities and, in addition, the
transportation of gas sold intrastate. The Federal Energy Regulatory Commission
(FERC) regulates the operation and cost of interstate pipeline operators who
transport gas. Currently the price of gas to be sold by the Partnership is not
regulated by any state or federal agency.
The FERC has adopted major changes in certain of its regulations and
continues to make additional changes that will significantly affect future
transportation and marketing of natural gas.
The Partnership is uncertain how the recent or proposed regulations will
affect the marketing of its gas because it is unable to predict how all
interstate pipelines that receive its gas will respond to such rulemakings.
Proposed Regulation. Numerous proposals concerning energy are being
considered by the United States Congress, various state legislatures and
regulatory agencies. The possible outcome and effect of these proposals cannot
be accurately predicted.
Environmental and Safety Regulation. The Partnership believes that it
complies, in all material respects, with all legislation and regulations
affecting its operations in the drilling and production of oil and gas wells and
the discharge of wastes. To date, compliance with such provisions and
regulations has not had a material effect upon the Partnership's expenditures
for capital equipment, its operations or its competitive position. The cost
of such compliance is not anticipated to be material in the future.
ITEM 2. PROPERTIES.
Drilling Activity
The following table sets forth the results of drilling activity from
November 12, 1996 (date of inception) to March 15, 1997, of the Partnership
which was conducted in the Continental United States.
Development Wells
Gross Net
Productive Dry Total Productive Dry Total
Period Ended
March 15, 1997. . . 21 2 23 17.4125 2.0 19.4125
The Partnership has not participated in any exploratory wells.
Productive Wells
The following table summarizes the Partnership's total gross and net
interests in productive wells at March 15, 1997.
<TABLE>
<S> <S> <S> <S> <S>
Productive Gas Wells
Well Name County State Gross Net
Mitchell #1 Clearfield PA 1 .2125
Mitchell #3 Clearfield PA 1 .9025
Burner Heirs #4 Barbour WV 1 .9525
Thomson-Stephenson #73 Clearfield PA 1 .9025
S. Wright #1 Preston WV 1 .9525
Thomson-Stephenson #74 Clearfield PA 1 .9025
Irvin #270 Clearfield PA 1 .7025
Thomson-Gibbs #32 Clearfield PA 1 .9025
Thomson-Gibbs #30 Clearfield PA 1 .9025
Thomson-Stephenson #75 Clearfield PA 1 .9025
Tate #32 Clearfield PA 1 .9025
Goff Estates #41 Harrison WV 1 .9525
Thomson-Gibbs #31 Clearfiled PA 1 .9025
Irvin #321 Clearfield PA 1 .9025
Thomson Stephenson #77 Clearfield PA 1 .9025
Irvin #323 Clearfield PA 1 .7025
Thomson Stephenson #78 Clearfield PA 1 .9025
Thomson Stephenson #76 Clearfield PA 1 .9025
Thomson Stephenson #86 Clearfield PA 1 .9025
Hopkins #316 Clearfield PA 1 .7025
McClure #23 Clearfield PA 1 .7025
21 17.4125
</TABLE>
A "productive well" is a well producing, or capable of producing, oil
and gas in commercial quantities. For purposes of the above table, a "gross
well" is one in which the Partnership has a working interest and a "net well"
is a gross well multiplied by the Partnership's working interest to which it
is entitled under its drilling agreement.
Title to Properties
The Partnership's interests in producing acreage are in the form of
assigned direct interests in leases. Such properties are subject to
customary royalty interests generally contracted for in connection with the
acquisition of properties, and could be subject to liens incident to
operating agreements, liens for current taxes and other burdens. The
Partnership believes that none of these burdens materially interfere with
the use of such properties in the operation of the Partnership's business.
As is customary in the oil and gas industry, little or no investigation
of title is made at the time of acquisition of undeveloped properties (other
than a preliminary review of local mineral records). Investigations are
generally made, including in most cases receiving a title opinion of legal
counsel, before commencement of drilling
operations. A thorough examination of title has been made with respect to
all of the Partnership's producing properties and the Partnership believes
that it has generally satisfactory title to such properties.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Managing General Partner as driller/operator is not party to any
legal action that would materially affect the Managing General Partner's or
Partnership's operations or financial statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the security holders of the
Partnership for the period November 12, 1996 (date of inception) to December
31, 1996.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND SECURITY HOLDER MATTERS.
At December 31, 1996, PDC 1996-C Limited Partnership had one Managing
General Partner, 2 Limited Partners who fully paid for 1.2125 units at
$20,000 per unit of limited partnership interests and a total of 283
Additional General Partners who fully paid for 196.1114 units at $20,000 per
unit of additional general partnership interests. No established public
trading market exists for the interests.
Limited and additional general partnership interests are transferable,
however no assignee of an interest in the Partnership can become a
substituted partner without the written consent of the transferor and the
Managing General Partner.
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below has been derived from audited
financial statements of the Partnership appearing elsewhere herein.
Period from
November 12, 1996
(date of inception)
to December 31, 1996
Oil and Gas Sales . . . . . . . . . . . . . . . . . . . $ -
Costs and Expenses . . . . . . . . . . . . . . . . . . 110,550
Net Loss . . . . . . . . . . . . . . . . . . . . . . . (110,550)
Allocation of Net Loss:
Managing General Partner. . . . . . . . . . . . . (2,378)
Limited and Additional General Partners . . . . . (108,172)
Per Limited and Additional General Partner Unit . (548)
Total Assets. . . . . . . . . . . . . . . . . . . . . . 4,296,197
Distributions:
Managing General Partner. . . . . . . . . . . . . -
Limited and Additional General Partners . . . . . -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Liquidity and Capital Resources
The Partnership was funded with initial Limited and Additional General
Partner contributions of $3,946,478 and the Managing General Partner
contributed $858,359 in accordance with the Agreement. Syndication costs and
management fee of $513,042 were incurred leaving available capital of
$4,291,795 for Partnership activities.
The Partnership began exploration and development activities subsequent
to the funding of the Partnership and substantially completed well drilling
activities by December 31, 1996. Twenty-three wells have been drilled, of
which twenty-one have been completed as producing wells. All partnership
wells were completed by March 15, 1997.
The Partnership had net working capital at December 31, 1996 of $4,112.
Operations are expected to be conducted with available funds and revenues
generated from oil and gas activities. No bank borrowings are anticipated.
<PAGE>
Results of Operations
The Partnership's revenues from natural gas sales will be affected by
changes in prices. Natural gas prices are subject to general market conditions
which drive the pricing changes.
The principal effects of inflation upon the Partnership relate to the
costs required to drill, complete and operate oil and gas wells. The
Partnership expects these costs to remain somewhat stable over the next year.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:
The response to this Item is set forth herein in a separate section of
this Report, beginning on Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
NONE.
Part III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The Partnership has no directors or executive officers. The
partnership is managed by Petroleum Development Corporation (the Managing
General Partner). Petroleum Development Corporation's common stock is traded
in the NASDAQ National Market and Form 10-K for 1996 has been filed with the
Securities and Exchange Commission.
ITEM 11. MANAGEMENT REMUNERATIONS AND TRANSACTIONS.
NON-APPLICABLE.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
NON-APPLICABLE.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to the authorization contained in the Limited Partnership
Agreement, PDC receives fees for services rendered and reimbursement of
certain expenses from the Partnership. The following table presents
compensation or reimbursements by the Partnership to PDC or other related
parties during the period ended December 31, 1996.
Sales of Leases $ 162,127
Footage Drilling Contracts, Services,
Chemicals, Supplies, and Equipment 4,113,668
Syndication costs and management fee 513,042
Tax return preparation 3,255
Direct administrative cost 1,250
<PAGE>
CONFORMED COPY
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements
See Index to Financial Statements on F-2
(2) Financial Statement Schedules
See Index to Financial Statements on page F-2. All financial
statement schedules are omitted because they are not required,
inapplicable, or the information is included in the Financial
Statements or Notes thereto.
(3) Exhibits
See Exhibits Index on page E-1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
PDC 1996-C Limited Partnership
By its Managing General Partner
Petroleum Development
Corporation
By /s/ James N. Ryan
James N. Ryan, Chairman
March 24, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Signature Title Date
/s/ James N. Ryan Chairman, Chief Executive
James N. Ryan Officer and Director March 24, 1997
/s/ Steven R. Williams President and Director
Steven R. Williams March 24, 1997
/s/ Dale G. Rettinger Executive Vice President,
Dale G. Rettinger Treasurer and Director March 24, 1997
(principal financial and
accounting officer)
/s/ Roger J. Morgan Secretary and Director
Roger J. Morgan March 24, 1997
<PAGE>
PDC 1996-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Financial Statements for Annual Report
on Form 10-K to
Securities and Exchange Commission
Period from November 12,
1996 (Date of Inception)
to December 31, 1996
(With Independent Auditors' Report Thereon)
F-1
<PAGE>
PDC 1996-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Index to Financial Statements
Independent Auditors' Report F-3
Balance Sheet - December 31, 1996 F-4
Statement of Operations - Period from November 12, 1996
(Date of Inception) to December 31, 1996 F-5
Statement of Partners' Equity - Period from November 12, 1996
(Date of Inception) to December 31, 1996 F-6
Statement of Cash Flows - Period from November 12, 1996
(Date of Inception) to December 31, 1996 F-7
Notes to Financial Statements F-8
All financial statement schedules have been omitted because they are not
applicable or not required or for the reason that the required information is
shown in the financial statements or notes thereto.
F-2
<PAGE>
Independent Auditors' Report
To the Partners
PDC 1996-C Limited Partnership:
We have audited the financial statements of PDC 1996-C Limited Partnership (a
West Virginia limited partnership) as listed in the accompanying index.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PDC 1996-C Limited
Partnership as of December 31, 1996, and the results of its operations and
its cash flows for the period from November 12, 1996 (date of inception) to
December 31, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
March 20, 1997
F-3
<PAGE>
PDC 1996-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Balance Sheet
December 31, 1996
Assets
Current assets:
Cash $ 20,402
Total current assets 20,402
Oil and gas properties, successful efforts method
(Notes 3 and 5):
Oil and gas properties 4,275,795
Less accumulated depreciation, depletion and
amortization -
4,275,795
$4,296,197
Current Liabilities and Partners' Equity
Current liabilities:
Accrued expenses $ 11,888
Due to Managing General Partner 4,402
Total current liabilities 16,290
Partners' equity 4,279,907
$ 4,296,197
See accompanying notes to financial statements.
F-4
<PAGE>
PDC 1996-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Statement of Operations
Period from November 12, 1996 (Date of Inception) to December 31, 1996
Revenues:
Sales of oil and gas $ -
-
Expenses (note 3):
Management fee 98,662
Independent engineering fee 3,500
Independent audit fee 3,677
Franchise taxes 206
Tax return preparation 3,255
Direct administrative cost 1,250
110,550
Net loss $(110,550)
Net loss per limited and additional
general partner unit $ (548)
See accompanying notes to financial statements.
F-5
<PAGE>
PDC 1996-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Statement of Partners' Equity
Period from November 12, 1996 (Date of Inception) to December 31, 1996
Limited and
additional Managing
general partners general partner Total
Partners' initial capital
contributions $3,946,478 858,359 4,804,837
Syndication costs (414,380) - (414,380)
Net loss (108,172) (2,378) (110,550)
Balance, December 31, 1996 $3,423,926 855,981 4,279,907
See accompanying notes to financial statements.
F-6
<PAGE>
PDC 1996-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Statement of Cash Flows
Period from November 12, 1996 (Date of Inception) to December 31, 1996
Cash flows from operating activities:
Net loss $ (110,550)
Adjustments to reconcile net loss to net cash
used by operating activities:
Changes in operating assets and liabilities:
Accrued expenses 11,888
Due to Managing General Partner 4,402
Net cash used by operating activities (94,260)
Cash flows from investing activities:
Expenditures for oil and gas properties (4,275,795)
Net cash used by investing activities (4,275,795)
Cash flows from financing activities:
Limited and additional general partner contributions 3,946,478
Managing General Partner contribution 858,359
Syndication cost paid (414,380)
Net cash provided from financing activities 4,390,457
Net increase in cash 20,402
Cash at beginning of period -
Cash at end of period $ 20,402
See accompanying notes to financial statements.
F-7
<PAGE>
PDC 1996-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements
December 31, 1996
(1) Summary of Significant Accounting Policies
Partnership Financial Statement Presentation Basis
The financial statements include only those assets, liabilities and
results of operations of the partners which relate to the business of
PDC 1996-C Limited Partnership (the Partnership). The statements do
not include any assets, liabilities, revenues or expenses
attributable to any of the partners'other activities.
Oil and Gas Properties
The Partnership follows the successful efforts method of accounting for
the cost of exploring for and developing oil and gas reserves. Under
this method, costs of development wells, including equipment and
intangible drilling costs related to both producing wells and
developmental dry holes, and successful exploratory wells are
capitalized and amortized on an annual basis to operations by the
units-of-production method using estimated proved developed reserves
determined at year end by an independent petroleum engineer, Wright &
Company, Inc. If a determination is made that an exploratory well
has not discovered economically producible reserves, then its costs
are expensed as dry hole costs.
The Partnership assesses impairment of capitalized costs of proved oil
and gas properties by comparing net capitalized costs to undiscounted
future net cash flows on a field-by-field basis using expected
prices. Prices utilized for measurement purposes and expected costs
are held constant. If net capitalized costs exceed undiscounted
future net cash flow, the measurement of impairment is based on
estimated fair value which would consider future discounted cash flows.
Based on the Managing General Partner's experience, management believes
site restoration, dismantlement and abandonment costs, net of salvage
to be immaterial in relation to operating costs. These costs are
being expensed when incurred.
Income Taxes
Since the taxable income or loss of the Partnership is reported in
the separate tax returns of the partners, no provision has been made
for income taxes on the Partnership's books.
Under federal income tax laws, regulations and administrative rulings,
certain types of transactions may be accorded varying interpretations.
Accordingly, the Partnership's tax return and, consequently,
individual tax returns of the partners may be changed to conform to
the tax treatment resulting from a review by the Internal Revenue
Service.
Use of Estimates
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
revenues and expenses and the disclosure of contingent assets and
liabilities to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could
differ from those estimates. Estimates which are particularly
significant to the financial statements include estimates of
oil and gas reserves and future cash flows from oil and gas properties.
(Continued)
F-8
<PAGE>
PDC 1996-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
(2) Organization
The Partnership was organized as a limited partnership on November 12,
1996, in accordance with the laws of the State of West Virginia for
the purpose of engaging in the drilling, completion and operation of
oil and gas development and exploratory wells in the Northern
Appalachian Basin.
Purchasers of partnership units subscribed to and fully paid for 1.2125
units of limited partner interests and 196.1114 units of additional
general partner interests at $20,000 per unit (Investor Partners).
Petroleum Development Corporation has been designated the Managing
General Partner of the Partnership. Although costs, revenues and
cash distributions allocable to the limited and additional general
partners are shared pro rata based upon the amount of their
subscriptions, including the Managing General Partner to the extent
of its 20% capital contributions, there are significant differences
in the federal income tax effects and liability associated with these
different types of units in the Partnership.
Upon completion of the drilling phase of the Partnership's wells, all
additional general partners units are converted into units of limited
partner interests and thereafter become limited partners of the
Partnership. Limited partners do not have any rights to convert
their units into units of additional general partner interests in the
Partnership.
In accordance with the terms of the Partnership Agreement (the
Agreement), the Managing General Partner manages all activities of
the Partnership and acts as the intermediary for substantially all
Partnership transactions.
(3) Transactions with Managing General Partner and Affiliates
The Partnership's transactions with the Managing General Partner
include charges for the following:
Period from
November 12, 1996
(date of inception)
to December 31, 1996
Drilling and completion costs $ 4,113,668
Lease acquisitions, at cost 162,127
Offering and organization costs (includes
reimbursements of commissions and
management fee) 513,042
Tax return preparation 3,255
Direct administrative cost 1,250
(4) Allocation
The table below summarizes the participation of the Managing General
Partner and the Investor Partners, taking account of the Managing
General Partner's capital contribution equal to 20% of the Initial
Operating Capital, in the costs and revenues of the Partnership.
(Continued)
F-9
<PAGE>
PDC 1996-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
Managing
Investor General
Partners Partner
Partnership Costs
Broker-dealer Commissions and Expenses(1). . 100% 0%
Management Fee . . . . . . . . . . . . . . . 100% 0%
Undeveloped Lease Costs. . . . . . . . . . . 0% 100%
Drilling and Completion Costs. . . . . . . . 80% 20%
Tangible Equipment . . . . . . . . . . . . . 0% 100%
Intangible Drilling and Development Costs. . 100% 0%
Operating Costs(2) . . . . . . . . . . . . . 80% 20%
Direct Costs(3). . . . . . . . . . . . . . . 80% 20%
Administrative Costs . . . . . . . . . . . . 0% 100%
Partnership Revenues
Sale of Oil and Gas Production(4). . . . . . 80% 20%
Sale of Productive Properties(5) . . . . . . 80% 20%
Sale of Equipment . . . . . . . . . . . . . 0% 100%
Sale of Undeveloped Leases . . . . . . . . . 80% 20%
Interest Income. . . . . . . . . . . . . . . 80% 20%
____________________
(1) Organization and Offering Costs, net of the Dealer Manager
commissions, discounts, due diligence expenses, and wholesaling fees
of the Partnership will be paid by the Managing General Partner and
not from Partnership funds. In addition, Organization and Offering
Costs in excess of 10-1/2% of Subscriptions will be paid by the
Managing General Partner, without recourse to the Partnership.
(2) Represents Operating costs incurred after the completion of
productive wells, including monthly per-well charges paid to the
Managing General Partner.
(3) The Managing General Partner will receive monthly reimbursement from
the Partnership for their direct costs incurred by the Managing
General Partner on behalf of the Partnership.
(4) The revenues and expenses to be allocated to the partners are
subject to a special provision in the partnership agreement, whereby
the allocable share of revenues and expenses of the Investor
Partners may be increased and the interest of the Managing General
Partner may be decreased if certain cash distribution levels are not
met. The shifting of the allocable share of revenues and expenses
to the Investor Partners in the event that certain prescribed cash
distribution levels are not attained may also serve to shift an
increased amount of cash distributions to the Investor Partners and
a decreased amount of cash distributions to the Managing General
Partner.
(5) In the event of the sale or other disposition of a productive well,
a lease upon which such well is situated, or any equipment related
to any such lease or well, the proceeds from such sale or
disposition shall be allocated and credited to the Partners as oil
(Continued)
F-10
<PAGE>
and gas revenues are allocated. The term "proceeds" above does not
include revenues from a royalty, overriding royalty, lease interest
reserved, or other promotional consideration received by the
Partnership in connection with any sale or disposition, which
revenues shall be allocated to the Investor Partners and the
Managing General Partner in the same percentages that oil and gas
revenues are allocated.
(5) Costs Relating to Oil and Gas Activities
The Partnership is engaged solely in oil and gas activities, all of which
are located in the continental United States. Information regarding
aggregate capitalized costs and results of operations for these
activities is located in the basic financial statements. Costs
capitalized for these activities at December 31, 1996, are as follows:
Lease acquisition costs $ 167,127
Intangible development costs 3,435,501
Well equipment 673,167
$4,275,795
The following costs were incurred for the Partnership's oil and gas
activities:
Period from
November 12, 1996
(date of inception)
to December 31, 1996
Costs capitalized:
Property acquisition costs $ 167,127
Development costs 4,108,668
$4,275,795
(6) Income Taxes
As a result of the differences in the treatment of certain items for
income tax purposes as opposed to financial reporting purposes,
primarily depreciation, depletion and amortization of oil and gas
properties and the recognition of intangible drilling costs as an
expense or capital item, the income tax basis of oil and gas
properties differs from the basis used for financial reporting
purposes. At December 31, 1996, the income tax basis of the
partnership's oil and gas properties was $840,294.
(7) Supplemental Reserve Information (Unaudited)
Proved oil and gas reserves of the Partnership have been estimated by
an independent petroleum engineer, Wright & Company, Inc. These
reserves have been prepared in compliance with the Securities and
Exchange Commission rules based on year end prices. Since December
31, 1996 prices have declined to seasonal levels. A copy of the
reserve report has been made available to all partners. All of the
partnership's reserves are proved developed. An analysis of the
change in estimated quantities of proved developed oil and gas
reserves is shown below:
Natural gas
(mcf)
Proved developed reserves
as of November 12, 1996 (date of inception) -
Extensions, discoveries and other additions 2,522,541
Production -
Proved developed reserves
as of December 31, 1996 2,522,541
F-11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 20,402
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,402
<PP&E> 4,275,795
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,296,197
<CURRENT-LIABILITIES> 16,290
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,279,907
<TOTAL-LIABILITY-AND-EQUITY> 4,296,197
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 110,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> (110,550)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (110,550)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
