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, 1997
Commission File Number 033-63635-06
Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transaction period from to
PDC 1997-B LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
West Virginia 31-1503512
(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 1997-B Limited Partnership ("the Partnership") is a limited
partnership formed on September 9, 1997 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 September 9, 1997, the
Partnership has been engaged in onshore, domestic gas exploration
exclusively in the Northern Appalachian and Michigan Basins. A total of 4
limited partners contributed $39,000; a total of 431 additional general
partners contributed initial capital of $6,720,470; and PDC (Managing
General Partner) contributed $1,470,185 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 75
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 thirty-five gross wells
and will continue to operate and produce its thirty-three gross productive
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.
2<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 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
September 9, 1997 (date of inception) to March 15, 1998, of the Partnership
which was conducted in the Continental United States.
<TABLE>
<S> <S> <S> <S> <S> <S> <S>
Development Wells
Gross Net
Productive Dry Total Productive Dry Total
Period Ended
March 15, 1998. . . 33 2 35 28.5432 2.0 30.5432
</TABLE>
3<PAGE>
The Partnership has not participated in any exploratory wells. No
additional drilling activity is planned.
Productive Wells
The following table summarizes the Partnership's total gross and net
interests in productive wells at March 15, 1998.
<TABLE>
<S> <S> <S> <S> <S>
Productive Gas Wells
Well Name County State Gross Net
Spencer #20 Clearfield PA 1 0.9450
Robbins #4 Clearfield PA 1 0.9450
Thomson Blackhills #58 Clearfield PA 1 0.9450
Clary Rod & Gun Club #1 Clearfield PA 1 0.9450
Thomson Blackhills #91 Clearfield PA 1 0.9450
Thomson Blackhills #92 Clearfield PA 1 0.9450
Jordan #3 Clearfield PA 1 0.9450
Thomson Blackhills #59 Clearfield PA 1 0.9450
Krick #16 Clearfield PA 1 0.9450
Jacques #2 Fayette PA 1 0.9950
Thomson Blackhills #90 Clearfield PA 1 0.9450
Krick #14 Clearfield PA 1 0.9450
Paper #1 Fayette PA 1 0.9950
Mitchell #2 Clearfield PA 1 0.9450
Rupert #3 Clearfield PA 1 0.9450
McCay #324 Clearfield PA 1 0.7450
Jacques #3 Fayette PA 1 0.9950
Irvin #150 Clearfield PA 1 0.7450
Tubbs #1 Clearfield PA 1 0.9450
Tubbs #2 Clearfield PA 1 0.9450
Hopkins #331 Clearfield PA 1 0.7450
Tubbs #3 Clearfield PA 1 0.9450
Rupert #5 Clearfield PA 1 0.9450
Rupert #4 Clearfield PA 1 0.9450
Rupert #1 Clearfield PA 1 0.9450
Banks #6 Clearfield PA 1 0.9450
Banks #4 Clearfield PA 1 0.9450
Daisher #3 Clearfield PA 1 0.9450
East 23 Unit Alcona MI 5 2.5332
33 28.5432
</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.
4
<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.
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND SECURITY HOLDER
MATTERS.
At December 31, 1997, PDC 1997-B Limited Partnership had one Managing
General Partner, 4 Limited Partners who fully paid for 1.95 units at $20,000
per unit of limited partnership interests and a total of 431 Additional
General Partners who fully paid for 336.0235 units at $20,000 per unit of
additional general partnership interests. No established public trading
market exists for the interests.
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.
<TABLE>
<S> <S>
Period from
September 9, 1997
(date of inception)
to December 31, 1997
Oil and Gas Sales . . . . . . . . . . . . . . . . . . . $126,397
Costs and Expenses . . . . . . . . . . . . . . . . . . 283,839
Net Loss . . . . . . . . . . . . . . . . . . . . . . . (142,402)
Allocation of Net Income (loss):
Managing General Partner. . . . . . . . . . . . . 5,317
Limited and Additional General Partners . . . . . (147,719)
Per Limited and Additional General Partner Unit . (437)
Total Assets. . . . . . . . . . . . . . . . . . . . . . 7,395,975
</TABLE>
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 $6,759,470 and the Managing General Partner
contributed $1,470,185 in accordance with the Agreement. Syndication cost
and Management fee of $878,731 were incurred leaving available capital of
$7,350,924 for Partnership activities.
The Partnership began exploration and development activities subsequent
to the funding of the Partnership and completed these activities by December
31, 1997. Thirty-five wells have been drilled, thirty-three of which have
been completed as producers. No additional wells will be drilled.
The Partnership had net working capital at December 31, 1997 of
$100,484.
Operations are expected to be conducted with available funds and
revenues generated from oil and gas activities. No bank borrowings are
anticipated.
5
<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.
Year 2000 Issue
PDC, who administers all aspects of the Partnership, has assessed the
extent of Year 2000 Issues affecting PDC and the Partnership. PDC believes
that the new computer system, including operating software currently being
installed along with modifications being made by PDC's computer technicians
will address the dating system flaw inherent in most operating systems. PDC
expects to be fully Year 2000 Compliant by the end of 1998. PDC expects to
be fully Year 2000 Compliant by the end of 1998. PDC does not currently
expect to charge the Partnership for any portion of PDC's cost to become
Year 2000 Compliant.
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 1997 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, 1997.
<TABLE>
<S> <S>
Sales of Leases $ 284,214
Footage Drilling Contracts, Services,
Chemicals, Supplies, and Equipment 7,066,710
Operator's Charges 22,487
Syndication cost and management fee 878,731
Tax return preparation 6,185
Direct administrative cost 1,500
</TABLE>
6<PAGE>
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.
CONFORMED COPY
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 1997-B Limited Partnership
By its Managing General
Partner Petroleum Development
Corporation
By /s/ James N. Ryan
James N. Ryan, Chairman
March 23, 1998
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 23, 1998
/s/ Steven R. Williams President and Director
Steven R. Williams March 23, 1998
/s/ Dale G. Rettinger Executive Vice President,
Dale G. Rettinger Treasurer and Director March 23, 1998
(principal financial and
accounting officer)
/s/ Roger J. Morgan Secretary and Director
Roger J. Morgan March 23, 1998
7
<PAGE>
PDC 1997-B LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Financial Statements for Annual Report
on Form 10-K to Securities and Exchange
Commission
Period from September 9, 1997
(Date of Inception)
to December 31, 1997
(With Independent Auditors' Report Thereon)
F-1
<PAGE>
PDC 1997-B LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Index to Financial Statements
Independent Auditors' Report F-3
Balance Sheet - December 31, 1997 F-4
Statement of Operations - Period from September 9, 1997
(Date of Inception) to December 31, 1997 F-5
Statement of Partners' Equity - Period from September 9, 1997
(Date of Inception) to December 31, 1997 F-6
Statement of Cash Flows - Period from September 9, 1997
(Date of Inception) to December 31, 1997 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 1997-B Limited Partnership:
We have audited the financial statements of PDC 1997-B 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 1997-B Limited
Partnership as of December 31, 1997, and the results of its operations and
its cash flows for the period from September 9, 1997 (date of inception) to
December 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat
Marwick LLP
Pittsburgh, Pennsylvania
March 19, 1998
F-3
<PAGE>
PDC 1997-B LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Balance Sheet
December 31, 1997
<TABLE>
<S> <S>
Assets
Current assets:
Cash $ 15,040
Accounts receivable - oil and gas revenues 103,910
Total current assets 118,950
Oil and gas properties, successful efforts method
(Notes 3 and 5):
Oil and gas properties 7,350,924
Less accumulated depreciation, depletion and
amortization 73,899
7,277,025
$ 7,395,975
Current Liabilities and Partners' Equity
Current liabilities:
Accrued expenses $ 18,466
Total current liabilities 18,466
Partners' equity 7,377,509
$ 7,395,975
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PDC 1997-B LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Statement of Operations
Period from September 9, 1997 (Date of Inception) to December 31, 1997
<TABLE>
<S> <S>
Revenues:
Sales of oil and gas $ 126,397
Interest income 15,040
141,437
Expenses (note 3):
Management fee 168,987
Lifting costs 22,487
Independent engineering fee 6,700
Independent audit fee 4,081
Direct administrative cost 1,500
Tax return preparation 6,185
Depreciation, depletion and amortization 73,899
283,839
Net loss $(142,402)
Net loss per limited and additional
general partner unit $ (437)
</TABLE>
See accompanying notes to financial statements.
F-5<PAGE>
PDC 1997-B LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Statement of Partners' Equity
Period from September 9, 1997 (Date of Inception) to December 31, 1997
<TABLE>
<S> <S> <S> <S>
Limited
Managing and additional
general general
partners partner Total
Partners' initial capital
contributions $ 6,759,470 $ 1,470,185 $8,229,655
Syndication costs (709,744) - (709,744)
Net income (loss) (147,719) 5,317 (142,402)
Balance, December 31, 1997$ 5,902,007 $1,475,502 $7,377,509
</TABLE>
See accompanying notes to financial statements.
F-6<PAGE>
PDC 1997-B LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Statement of Cash Flows
Period from September 9, 1997 (Date of Inception) to December 31, 1997
<TABLE>
<S> <S>
Cash flows from operating activities:
Net loss $ (142,402)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation, depletion and amortization 73,899
Changes in operating assets and liabilities:
Increase in accounts receivable -
oil and gas revenues (103,910)
Increase in accrued expenses 18,466
Net cash used by operating activities (153,947)
Cash flows from investing activities:
Expenditures for oil and gas properties (7,350,924)
Net cash used by investing activities (7,350,924)
Cash flows from financing activities:
Limited and additional general partner contributions 6,759,470
Managing General Partner contribution 1,470,185
Syndication cost paid (709,744)
Net cash provided from financing activities 7,519,911
Net increase in cash 15,040
Cash at beginning of period -
Cash at end of period $ 15,040
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
PDC 1997-B LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements
December 31, 1997
(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 1997-B 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 1997-B LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
(2) Organization
The Partnership was organized as a limited partnership on September 9,
1997, 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 and Michigan Basins.
Purchasers of partnership units subscribed to and fully paid for 1.95
units of limited partner interests and 336.0235 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:
<TABLE>
<S> <S>
Period from
September 9, 1997
(date of inception) to
December 31, 1997
Drilling and completion costs $7,066,710
Lease acquisitions, at cost 284,214
Offering and organization costs
(includes reimbursements of
commissions and management fee) 878,731
Lifting costs 22,487
Tax return preparation 6,185
Direct administrative cost 1,500
</TABLE>
(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 1997-B LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
<TABLE>
<S> <S> <S>
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%
</TABLE>
____________________
[FN]
(1) Organization and Offering Costs, net of the Dealer Manager
commissions, discounts, due diligence expenses, and wholesaling fees
of the Partnership were 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 were 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 receives monthly reimbursement from the
Partnership for direct costs incurred by the Managing General
Partner on behalf of the Partnership.
(4) The revenues and expenses 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
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. No such sale on disposition was made in
1997.
</FN>
(Continued)
F-10
<PAGE>
PDC 1997-B LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
(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, 1997, are as
follows:
<TABLE>
<S> <S>
Lease acquisition costs $ 284,214
Intangible development costs 5,880,739
Well equipment 1,185,971
$7,350,924
</TABLE>
The following costs were incurred for the Partnership's oil and gas
activities:
<TABLE> <S> <S>
Period from
September 9, 1997
(date of inception) to
December 31, 1997
Costs capitalized:
Property acquisition costs $ 284,214
Development costs 7,066,710
$7,350,924
</TABLE>
(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, 1997, the income tax basis of the Partnership's oil and gas
properties was $1,406,136.
(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. 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
September 9, 1997 (date of inception) -
Extensions, discoveries and other
additions 4,922,951
Production (42,143)
Proved developed reserves as of
December 31, 1997 4,880,808
F-11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,040
<SECURITIES> 0
<RECEIVABLES> 103,910
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 118,950
<PP&E> 7,350,924
<DEPRECIATION> 73,899
<TOTAL-ASSETS> 7,395,975
<CURRENT-LIABILITIES> 18,466
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 7,395,975
<SALES> 126,397
<TOTAL-REVENUES> 141,437
<CGS> 22,487
<TOTAL-COSTS> 283,839
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (142,402)
<INCOME-TAX> 0
<INCOME-CONTINUING> (142,402)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (142,402)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
