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, 1998
Commission File Number 333-41977-03
- - Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transaction period from to
PDC 1998-C LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
West Virginia 55-0758135
(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 1998-C Limited Partnership ("the Partnership") is a limited
partnership formed on November 16, 1998 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 16, 1998, 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 initial capital of $75,000; a total of 428
additional general partners contributed initial capital of $7,737,783; and
PDC (Managing General Partner) contributed $1,699,280 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 81
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-four gross wells
and will continue to operate and produce its thirty-three productive wells.
The Partnership has unexpended initial capital and plans to drill an
additional five to six wells in the first quarter of 1999.
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.
2
<PAGE>
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. State Regulations
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.
3
<PAGE>
ITEM 2. PROPERTIES.
Drilling Activity
The following table sets forth the results of drilling activity from
November 16, 1998 (date of inception) to March 15, 1999, of the Partnership
which was conducted in the Continental United States.
<TABLE>
<C> <C> <C> <C> <C> <C> <C>
Development Wells
Gross Net
Productive Dry Total Productive Dry Total
Period Ended
March 15, 1999. . . 36 1 37 28.8703 .9990 29.8693
</TABLE>
The Partnership has not participated in any exploratory wells. An
additional five to six wells are to be drilled in the first quarter of 1999.
Productive Wells
The following table summarizes the Partnership's total gross and net
interests in productive wells at March 15, 1999.
<TABLE>
<C> <C> <C> <C> <C>
Productive Gas Wells
Well Name County State Gross Net
Shannon Land #18 Clearfield PA 1 .99900
Smith C2-5 Montmorency MI 1 .54945
Smith B4-6 Montmorency MI 1 .54945
Susquehanna Rec. #1 Clearfield PA 1 .94900
Smith D1-5 Montmorency MI 1 .54945
Smith D4-6 Montmorency MI 1 .54945
Mahaffey #21 Clearfield PA 1 .94900
Palazzolo D4-5 Montmorency MI 1 .54945
Shannon Land #10 Clearfield PA 1 .99900
Shannon Land #17 Clearfield PA 1 .99900
Dickey #1 Clearfield PA 1 .94900
Thomas #29 Clearfield PA 1 .94900
Collins #3, R. Taylor WV 1 .99900
Pricer #1 Clearfield PA 1 .94900
Iraca #4 Clearfield PA 1 .94900
Pricer #3 Clearfield PA 1 .94900
Iraca #3 Clearfield PA 1 .94900
Pricer #2 Clearfield PA 1 .94900
Collins #4, R. Taylor WV 1 .99900
State Ossineke A2-31 Alpena MI 1 .54945
State Ossineke C3-25 Alpena MI 1 .54945
Iraca #2 Clearfield PA 1 .94900
Hartzfeld #2 Clearfield PA 1 .94900
Susquehanna Rec. #2 Clearfield PA 1 .94900
Reighard Unit #2 Clearfield PA 1 .94900
Reighard Unit #3 Clearfield PA 1 .94900
Pricer #4 Clearfield PA 1 .94900
Fishel #2 Clearfield PA 1 .94900
Shannon #8R Clearfield PA 1 .99900
State Ossineke D2-25 Alpena MI 1 .54945
State Ossineke B3-36 Alpena MI 1 .54945
State Ossineke D4-25 Alpena MI 1 .54945
State Ossineke D1-25 Alpena MI 1 .54945
State Ossineke A4-36 Alpena MI 1 .54945
State Ossineke A1-36 Alpena MI 1 .54945
State Ossineke C4-36 Alpena MI 1 .54945
36 28.8703
</TABLE>
4<PAGE>
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.
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, 1998, PDC 1998-C Limited Partnership had one Managing
General Partner, 4 Limited Partners who fully paid for 3.75 units at $20,000
per unit of limited partnership interests and a total of 428 Additional
General Partners who fully paid for 386.889 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.
5
<PAGE>
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>
<C> <C>
Period from
November 16, 1998
(date of inception)
to December 31, 1998
Oil and Gas Sales . . . . . . . . . . . . . . . . . . . $ -
Costs and Expenses . . . . . . . . . . . . . . . . . . 3,709,758
Net Loss . . . . . . . . . . . . . . . . . . . . . . . (3,695,802)
Allocation of Net Loss:
Managing General Partner. . . . . . . . . . . . . (700,096)
Limited and Additional General Partners . . . . . (2,995,706)
Per Limited and Additional General Partner Unit . (7,669)
Total Assets. . . . . . . . . . . . . . . . . . . . . . 5,011,009
Distributions:
Managing General Partner. . . . . . . . . . . . . -
Limited and Additional General Partners . . . . . -
</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 $7,812,783 and the Managing General Partner
contributed $1,699,280 in accordance with the Agreement. Syndication costs
and management fee of $1,015,662 were incurred leaving available capital of
$8,496,401 for Partnership activities.
The Partnership began exploration and development activities subsequent
to the funding of the Partnership. Thirty-four wells have been drilled, of
which thirty-three have been completed as producing wells. An additional
five to six wells are planned to be drilled during the first quarter of
1999.
The Partnership had negative working capital at December 31, 1998 of
$1,134.
Operations are expected to be conducted with available funds and
revenues generated from oil and gas activities. No bank borrowings are
anticipated.
Results of Operations
1998 Results
The net loss of $3,695,802 was primarily due to the impairment charge
of oil and gas properties which amounted to $3,499,348 in 1998. This
impairment resulted from net capitalized costs exceeding estimated
undiscounted future net cash flow. The impairment was based on estimated
fair value which considered future discounted cash flows. This charge will
not effect cash distributions to the partners which are scheduled to
commence in the second quarter of 1999.
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.
6
<PAGE>
Year 2000 Issue
State of Readiness
The Year 2000 Issue is the risk that computer programs using two-digit
data fields will fail to properly recognize the year 2000, with the result
being business interruption due to computer system failures by PDC's
software or hardware or that of government entities, service providers and
vendors. PDC, who administers all aspects of the Partnership, has assessed
the extent of the Year 2000 Issues affecting PDC and the Partnership. PDC
believes that the new computer system including operating software installed
during 1998 along with modifications made by PDC's computer technicians have
addressed the dating system flaw inherent in most operating systems. PDC
has completed a remediation plan and believes it is currently fully Year
2000 compliant.
PDC has initiated formal communications with its significant suppliers
and service providers to determine the extent to which PDC may be vulnerable
to their failure to correct their own Year 2000 issues. It is expected that
full identification will be completed by April 30, 1999. To the extent that
responses to Year 2000 readiness are unsatisfactory, PDC intends to take
appropriate action, including identifying alternative suppliers and service
providers who have demonstrated Year 2000 readiness.
Cost of Readiness
PDC does not currently expect to charge the Partnership for any portion
of PDC's cost to become Year 2000 Compliant.
Risks of Year 2000 Issues
PDC presently believes the Year 2000 Issue will not present a materially
adverse risk to PDC's or the Partnership's future results of operations,
liquidity, and capital resources. However, if the level of the timely
compliance by key suppliers or service providers is not sufficient, the Year
2000 Issue could have a material impact on PDC's or the Partnership's
operations including, but not limited to, increased operating costs, loss
of customers or suppliers, loss of accounting functions, including well
revenue distributions, or other significant disruptions to PDC's or the
Partnership's business.
Contingency Plan
PDC has a contingency plan, and will implement it on any system that
remains non-compliant at December 31, 1999, if any.
New Accounting Standards
Statement of Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS No. 133), was issued by the
Financial Accounting Standards Board in June, 1998. Statement 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts. The Partnership must
adopt SFAS No. 133 by January 1, 2000; however, early adoption is permitted.
On adoption, the provisions of SFAS No. 133 must be applied prospectively.
At the present time, the Partnership cannot determine the impact that SFAS
No. 133 will have on its financial statements upon adoption, as such impact
will be based on the extent of derivative instruments, such as natural gas
futures and options contracts, outstanding at the date of adoption.
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.
7
<PAGE>
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 1998 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, 1998.
Sales of Leases $ 220,896
Footage Drilling Contracts, Services,
Chemicals, Supplies, and Equipment 8,275,505
Syndication costs and management fee 1,015,662
Tax return preparation 4,998
Direct administrative cost 1,500
8
<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.
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 1998-C Limited Partnership
By its Managing General
Partner Petroleum Development
Corporation
By /s/ James N. Ryan
James N. Ryan, Chairman
March 24, 1999
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, 1999
/s/ Steven R. Williams President and Director
Steven R. Williams March 24, 1999
/s/ Dale G. Rettinger Executive Vice President,
Dale G. Rettinger Treasurer and Director March 24, 1999
(principal financial and
accounting officer)
/s/ Roger J. Morgan Secretary and Director
Roger J. Morgan March 24, 1999
9
<PAGE>
PDC 1998-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 16, 1998
(Date of Inception)
to December 31, 1998
(With Independent Auditors' Report Thereon)
F-1
<PAGE>
PDC 1998-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Index to Financial Statements
Independent Auditors' Report F-3
Balance Sheet - December 31, 1998 F-4
Statement of Operations - Period from November 16, 1998
(Date of Inception) to December 31, 1998 F-5
Statement of Partners' Equity - Period from November 16, 1998
(Date of Inception) to December 31, 1998 F-6
Statement of Cash Flows - Period from November 16, 1998
(Date of Inception) to December 31, 1998 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 1998-C Limited Partnership:
We have audited the financial statements of PDC 1998-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 1998-C Limited
Partnership as of December 31, 1998, and the results of its operations and
its cash flows for the period from November 16, 1998 (date of inception) to
December 31, 1998, in conformity with generally accepted accounting
principles.
KPMG LLP
Pittsburgh, Pennsylvania
March 23, 1999
F-3
<PAGE>
PDC 1998-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Balance Sheet
December 31, 1998
<TABLE>
<C> <C>
Assets
Current assets:
Cash $ 13,956
Total current assets 13,956
Oil and gas properties, successful efforts method
(Notes 3 and 5):
Oil and gas properties 3,927,233
Unevaluated properties 1,069,820
Less accumulated depreciation, depletion and
amortization -
4,997,053
$5,011,009
Current Liabilities and Partners' Equity
Current liabilities:
Accrued expenses $ 15,090
Total current liabilities 15,090
Partners' equity 4,995,919
$ 5,011,009
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
PDC 1998-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Statement of Operations
Period from November 16, 1998 (Date of Inception) to December 31, 1998
<TABLE>
<C> <C>
Revenues:
Sales of oil and gas $ -
Interest income 13,956
13,956
Expenses (note 3):
Management fee 195,320
Independent engineering fee 5,000
Independent audit fee 3,492
Franchise taxes 100
Tax return preparation 4,998
Direct administrative cost 1,500
Loss on impairment of oil and gas properties 3,499,348
3,709,758
Net loss $(3,695,802)
Net loss per limited and additional
general partner unit $ (7,669)
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
PDC 1998-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Statement of Partners' Equity
Period from November 16, 1998 (Date of Inception) to December 31, 1998
<TABLE>
<C> <C> <C> <C>
Limited and
additional Managing
general partners general partner Total
Partners' initial capital
contributions $ 7,812,783 1,699,280 9,512,063
Syndication costs (820,342) - (820,342)
Net loss (2,995,706) (700,096) (3,695,802)
Balance, December 31, 1998 $ 3,996,735 999,184 4,995,919
</TABLE>
See accompanying notes to financial statements.
F-6<PAGE>
PDC 1998-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Statement of Cash Flows
Period from November 16, 1998 (Date of Inception) to December 31, 1998
<TABLE>
<C> <C>
Cash flows from operating activities:
Net loss $ (3,695,802)
Adjustments to reconcile net loss to net cash
used by operating activities:
Loss on impairment of oil and gas properties 3,499,348
Changes in operating assets and liabilities:
Increase in accrued expenses 15,090
Net cash used by operating activities (181,364)
Cash flows from investing activities:
Expenditures for oil and gas properties (7,426,581)
Expenditures for unevaluated properties (1,069,820)
Net cash used by investing activities (8,496,401)
Cash flows from financing activities:
Limited and additional general partner contributions 7,812,783
Managing General Partner contribution 1,699,280
Syndication cost paid (820,342)
Net cash provided from financing activities 8,691,721
Net increase in cash 13,956
Cash at beginning of period -
Cash at end of period $ 13,956
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
PDC 1998-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements
December 31, 1998
(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 1998-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 in each years calculation 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. During 1998 the loss on impairment of oil and gas
properties as reflected in the statement of operations amounted to
$3,499,348.
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.
(Continued)
F-8<PAGE>
PDC 1998-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
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.
(2) Organization
The Partnership was organized as a limited partnership on November 16,
1998, 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 3.75
units of limited partner interests and 386.889 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 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>
<C> <C>
Period from
November 16, 1998
(date of inception)
to December 31, 1998
Drilling and completion costs $ 8,275,505
Lease acquisitions, at cost 220,896
Offering and organization costs (includes
reimbursements of commissions and
management fee) 1,015,662
Tax return preparation 4,998
Direct administrative cost 1,500
</TABLE>
(Continued)
F-9
<PAGE>
PDC 1998-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
(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 a minimum of 20% of
the Initial Operating Capital, in the costs and revenues of the
Partnership.
<TABLE> <C> <C> <C>
Managing
Investor General
Partners(2)(3) Partner (2)(3)
Partnership Costs
Broker-dealer Commissions and Expenses(1). . 100% 0%
Management Fee . . . . . . . . . . . . . . . 100% 0%
Lease Costs. . . . . . . . . . . . . . . . . 0% 100%
Tangible Well Costs. . . . . . . . . . . . . 0% 100%
Intangible Drilling and Development Costs. . 100% 0%
Total Drilling and Completion Costs. . . . . 80% 20%
Operating Costs. . . . . . . . . . . . . . . 80% 20%
Direct Costs . . . . . . . . . . . . . . . . 80% 20%
Administrative Costs . . . . . . . . . . . . 0% 100%
Partnership Revenues
Sale of Oil and Gas Production . . . . . . . 80% 20%
Sale of Productive Properties. . . . . . . . 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) To the extent that Investor Partners receive preferred cash
distributions, the allocations for Investor Partners will be
increased accordingly and the allocation for the Managing General
Partner will likewise be decreased.
(3) As set forth in the following paragraph, the allocation of profits,
losses and cash distributions of the Managing General Partner might
be increased, and the allocation of profits, losses, and cash
distributions of the Investor Partners might be decreased in the
event that the Managing General Partner were to invest more than the
Managing General Partner's minimum required Capital Contribution to
cover tangible equipment and lease costs.
The Managing General Partner will pay for the Partnership's share of
all Leases and tangible well equipment. The entire Capital
Contribution of the Investor Partners, after payment of brokerage
commissions, due diligence reimbursement, and the Management Fee,
will be utilized to pay for intangible drilling costs. In the event
(Continued)
F-10<PAGE>
PDC 1998-C LIMITED PARTNERSHIP
(A West Virginia Limited Partnership)
Notes to Financial Statements, Continued
that the Intangible Drilling Costs exceed the funds of the Investor
Partners available for payment of Intangible Drilling Costs (herein
"excess IDC"), a portion of the Capital Contribution of the Managing
General Partner may be used to pay such excess IDC. If the cost of
Leases and tangible well equipment were to exceed the Managing
General Partner's Capital Contribution of 21-3/4 percent of the
aggregate Capital Contribution of the Investor Partners, then the
Managing General Partner will increase its Capital Contribution to
fund such additional capital requirements and the Managing General
Partner's allocation of profits, losses, and cash distributions will
be increased to equal the percentage arrived at by dividing the
Capital Contribution made by the Managing General Partner by the
Capital Available for Investment; the allocation of the Investor
Partners will be decreased accordingly.
</FN>
(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, 1998, are as
follows:
Lease acquisition costs $ 220,896
Intangible development costs 6,104,432
Well equipment 1,101,253
Unevaluated oil and gas properties 1,069,820
Impairment Charge (3,499,348)
$4,997,053
The following costs were incurred for the Partnership's oil and
gas activities:
Period from
November 16, 1998
(date of inception)
to December 31, 1998
Costs capitalized:
Property acquisition costs $ 220,896
Development costs 7,205,685
Unevaluated oil and gas properties 1,069,820
$8,496,401
(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, 1998, the income tax basis of the
partnership's oil and gas properties was $1,682,780.
F-11
<PAGE>
(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 November 16, 1998
(date of inception) -
Extensions, discoveries and other additions 5,103,615
Production -
Proved developed reserves as of December 31, 1998 5,103,615
F-12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 13,956
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,956
<PP&E> 4,997,053
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,011,009
<CURRENT-LIABILITIES> 15,090
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,011,009
<SALES> 0
<TOTAL-REVENUES> 13,956
<CGS> 0
<TOTAL-COSTS> 3,709,758
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,695,802)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,695,802)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,695,802)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
