UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
/ x / Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1997
or
/ / Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______ to ________
Commission File No. 1-10695
PARKER & PARSLEY PETROLEUM COMPANY
(Exact name of Registrant as specified in its charter)
Delaware 74-2570602
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
303 West Wall, Suite 101, Midland, Texas 79701
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code : (915) 683-4768
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
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 (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes / x / No / /
Number of shares of Common Stock outstanding as of
April 30, 1997..................................................... 35,038,821
Page 1 of 22 pages.
Exhibit index on page 21
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996 ....................................... 3
Consolidated Statements of Operations for the three months
ended March 31, 1997 and 1996............................... 5
Consolidated Statement of Stockholders' Equity for the three
months ended March 31, 1997................................. 6
Consolidated Statements of Cash Flows for the three months
ended March 31, 1997 and 1996............................... 7
Notes to Consolidated Financial Statements.................... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................. 21
Item 6. Exhibits and Reports on Form 8-K.............................. 21
Signatures.................................................... 22
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
PARKER & PARSLEY PETROLEUM COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
March 31, December 31,
1997 1996
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 9,425 $ 18,711
Restricted cash 1,731 1,749
Accounts receivable:
Trade, net 38,084 34,075
Affiliates 320 434
Oil and gas sales 30,206 48,459
Inventories 4,509 3,644
Deferred income taxes 8,700 7,400
Other current assets 1,732 2,567
---------- ----------
Total current assets 94,707 117,039
---------- ----------
Property, plant and equipment, at cost:
Oil and gas properties, using the successful
efforts method of accounting:
Proved properties 1,473,208 1,419,051
Unproved properties 8,294 7,331
Natural gas processing facilities 62,073 59,276
Accumulated depletion, depreciation and
amortization (470,734) (445,238)
---------- ----------
1,072,841 1,040,420
---------- ----------
Other property and equipment, net 27,676 27,779
Other assets, net 14,846 14,627
---------- ----------
$ 1,210,070 $ 1,199,865
========== ==========
The financial information included as of March 31, 1997 has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
CONSOLIDATED BALANCE SHEETS (continued)
(in thousands, except share data)
<TABLE>
March 31, December 31,
1997 1996
----------- -----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 6,285 $ 5,381
Undistributed unit purchases 1,731 1,749
Accounts payable:
Trade 58,910 56,713
Affiliates 7 7,528
Domestic and foreign income taxes 2,343 1,743
Other current liabilities 14,711 17,856
---------- ----------
Total current liabilities 83,987 90,970
---------- ----------
Long-term debt, less current maturities 309,434 320,908
Other noncurrent liabilities 10,794 8,071
Deferred income taxes 70,800 60,800
Preferred stock of subsidiary 188,820 188,820
Stockholders' equity:
Preferred stock, $.01 par value; 20,000,000 shares
authorized; none issued and outstanding - -
Common stock, $.01 par value; 180,000,000 shares
authorized; 36,950,324 and 36,899,618 shares issued
at March 31, 1997 and December 31, 1996, respectively 370 369
Additional paid-in capital 464,290 462,873
Treasury stock, at cost; 1,919,818 and 1,833,383 shares
at March 31, 1997 and December 31, 1996, respectively (34,113) (31,528)
Unearned compensation (1,378) (1,625)
Retained earnings 117,066 100,207
---------- ----------
Total stockholders' equity 546,235 530,296
Commitments and contingencies (Note B)
$ 1,210,070 $ 1,199,865
========== ==========
The financial information included as of March 31, 1997 has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of
these consolidated financial statements.
</TABLE>
4
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
Three months ended
March 31,
---------------------------
1997 1996
----------- -----------
Revenues:
Oil and gas $ 103,779 $ 98,025
Natural gas processing 6,865 5,419
Interest and other 2,153 1,167
Gain on disposition of assets, net 775 13,671
---------- ----------
113,572 118,282
Costs and expenses:
Oil and gas production 28,081 30,494
Natural gas processing 3,497 3,198
Depletion, depreciation and amortization 28,630 31,179
Exploration and abandonments 7,615 4,986
General and administrative 6,720 6,360
Interest 9,895 14,682
Other 421 373
---------- ----------
84,859 91,272
---------- ----------
Income before income taxes 28,713 27,010
Income tax provision (10,100) (12,300)
---------- ----------
Net income $ 18,613 $ 14,710
========== ==========
Net income per share:
Primary $ .53 $ .41
========== ==========
Fully diluted $ .49 $ .39
========== ==========
Dividends declared per share $ .05 $ .05
========== ==========
Weighted average shares outstanding 35,358,697 35,591,835
========== ==========
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
(Unaudited)
<TABLE>
Common
Stock Additional Total
Shares Common Paid-in Treasury Unearned Retained Stockholders'
Outstanding Stock Capital Stock Compensation Earnings Equity
----------- ------ ---------- -------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 35,066,235 $ 369 $ 462,873 $(31,528) $ (1,625) $ 100,207 $ 530,296
Exercise of long-term
incentive plan stock options 20,834 - 418 - - - 418
Tax benefits related to stock
options - - 100 - - - 100
Purchase of treasury stock (86,435) - - (2,585) - - (2,585)
Shares awarded 29,872 1 899 - - - 900
Amortization of unearned
compensation - - - - 247 - 247
Net income - - - - - 18,613 18,613
Dividends ($.05 per share) - - - - - (1,754) (1,754)
----------- ------ -------- ------- --------- -------- ----------
Balance at March 31, 1997 35,030,506 $ 370 $ 464,290 $(34,113) $ (1,378) $ 117,066 $ 546,235
=========== ===== ========= ======= ========= ======== ==========
</TABLE>
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of
these consolidated financial statements.
6
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
Three months ended
March 31,
-------------------------
1997 1996
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 18,613 $ 14,710
Adjustments to reconcile net income to net cash
provided by operating activities:
Depletion, depreciation and amortization 28,630 31,179
Exploration and abandonments 6,023 1,840
Deferred income taxes 8,800 12,300
Gain on disposition of assets, net (775) (13,671)
Other noncash items 446 260
--------- ---------
61,737 46,618
Change in operating assets and liabilities, net of
effects from acquisitions and dispositions:
Accounts receivable 14,502 8,648
Inventory (803) (54)
Other current assets 833 514
Accounts payable (2,907) (4,893)
Accrued income taxes and other current liabilities 100 13,823
--------- ---------
Net cash provided by operating activities 73,462 64,656
--------- ---------
Cash flows from investing activities:
Payment for acquisitions, net of cash acquired (17) (59)
Proceeds from disposition of wholly-owned subsidiaries,
net of cash disposed - 108,281
Proceeds from disposition of assets 5,706 3,802
Additions to oil and gas properties (76,598) (39,607)
Other, net 3,016 (1,629)
--------- ---------
Net cash provided by (used in) investing activities (67,893) 70,788
--------- ---------
Cash flows from financing activities:
Borrowings under long-term debt - 168
Principal payments on long-term debt (10,572) (128,278)
Payment of noncurrent liabilities (380) (110)
Dividends (1,754) (1,770)
Purchase of treasury stock (2,585) (73)
Exercise of long-term incentive plan stock options 418 736
Distributable litigation settlement - receipts - 4,934
Other - (108)
--------- ---------
Net cash used in financing activities (14,873) (124,501)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents - 290
Net increase (decrease) in cash, cash equivalents and
restricted cash (9,304) 10,943
Cash, cash equivalents and restricted cash, beginning of period 20,460 35,512
--------- ---------
Cash, cash equivalents and restricted cash, end of period $ 11,156 $ 46,745
========= =========
</TABLE>
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of
these consolidated financial statements.
7
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
NOTE A. Summary of Significant Accounting Policies
Basis of Presentation
In the opinion of management, the unaudited consolidated financial
statements of Parker & Parsley Petroleum Company (the "Company") as of March 31,
1997 and for the three months ended March 31, 1997 and 1996 include all
adjustments and accruals, consisting only of normal recurring accrual
adjustments, which are necessary for a fair presentation of the results for the
interim periods. These interim results are not necessarily indicative of results
for a full year. Certain amounts in the prior period financial statements have
been reclassified to conform to the current period presentation.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this Form 10-Q pursuant to the
rules and regulations of the Securities and Exchange Commission. These
consolidated financial statements should be read in connection with the
consolidated financial statements and notes thereto included in the Company's
1996 Annual Report on Form 10-K.
NOTE B. Commitments and Contingencies
Legal Actions. The Company is party to various legal actions incidental
to its business. These lawsuits primarily involve claims for damages arising
from oil and gas leases and ownership interest disputes. The Company believes
that the ultimate disposition of these legal actions will not have a material
adverse effect on the Company's consolidated financial position, liquidity,
capital resources or future results of operations. The Company will continue to
evaluate its litigation matters on a quarter-by-quarter basis and will adjust
the litigation reserve as appropriate to reflect the then current status of its
litigation.
NOTE C. Derivative Financial Instruments
Commodity hedges. The Company utilizes various swap and option contracts
to (i) reduce the effect of the volatility of price changes on the commodities
the Company produces and sells, (ii) support the Company's annual capital
budgeting and expenditure plans and (iii) lock in prices to protect the
economics related to certain capital projects.
Natural Gas. The Company employs a policy of hedging gas production
based on the index price upon which the gas is actually sold in order to
mitigate the basis risk between NYMEX prices and actual index prices. The
following table sets forth the Company's outstanding gas collar options and swap
contracts as of May 2, 1997. Prices included herein represent the Company's
weighted average index price per MMBtu for the swap contracts and the weighted
average index price range for the collar option contracts and, as an additional
point of reference, the weighted average NYMEX price.
8
<PAGE>
<TABLE>
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gas production:
1997 - Swap Contracts
Volume (Bcf) - 6.0 2.9 2.6 11.5
Index price per MMBtu $ - $ 2.01 $ 1.89 $ 1.86 $ 1.94
NYMEX price per MMBtu $ - $ 2.27 $ 2.15 $ 2.03 $ 2.19
1997 - Collar Options
Volume (Bcf) - 1.2 4.3 3.0 8.5
Index price per MMBtu $ - $ 1.91-2.29 $ 1.91-2.29 $1.91-2.28 $1.91-2.29
1998 - Swap Contracts
Volume (Bcf) 2.5 1.8 1.4 1.4 7.1
Index price per MMBtu $ 1.86 $ 1.86 $ 1.86 $ 1.86 $ 1.86
NYMEX price per MMBtu $ 2.03 $ 2.03 $ 2.03 $ 2.03 $ 2.03
1999 - Swap Contracts
Volume (Bcf) 1.4 .4 - - 1.8
Index price per MMBtu $ 1.86 $ 1.86 $ - $ - $ 1.86
NYMEX price per MMBtu $ 2.03 $ 2.03 $ - $ - $ 2.03
</TABLE>
The Company reports average gas prices per Mcf including the effects of
Btu content, gathering and transportation costs, gas processing and shrinkage
and the net effect of the gas hedges. The Company reported an average gas price
of $2.47 per Mcf for the three months ended March 31, 1997. The Company's
average realized price for physical gas sales (excluding hedge results) for the
same period was $2.83 per Mcf. The comparable average NYMEX prompt month closing
for the three months ended March 31, 1997 was $2.37 per Mcf.
Crude Oil. All material purchase contracts governing the Company's oil
production are tied directly or indirectly to NYMEX prices. The following table
sets forth the Company's outstanding oil swap contracts as of May 2, 1997.
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
------- ------- ------- ------- -------
Oil production:
1997 - Swap Contracts
Volume (MMBbl) - 1.5 1.2 .7 3.4
Price per Bbl $ - $ 19.56 $ 19.28 $ 18.56 $ 19.26
1998 - Swap Contracts
Volume (MMBbl) .2 .2 .3 .2 .9
Price per Bbl $ 18.53 $ 18.53 $ 18.53 $ 18.53 $ 18.53
The Company reports average oil prices per Bbl including the effects of
oil quality, gathering and transportation costs and the net effect of the oil
hedges. The Company reported an average oil price of $19.99 per Bbl for the
three months ended March 31, 1997. The Company's average realized price for
physical oil sales (excluding hedge results) for the same period was $21.86 per
Bbl. The comparable average NYMEX prompt month closing for the three months
ended March 31, 1997 was $22.86 per Bbl.
NOTE D. Proposed Merger with Mesa, Inc.
On April 6, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Mesa Inc. ("Mesa"), a publicly traded
independent oil and gas company based in Irving, Texas with substantial
producing properties and operations in the MidContinent region of the United
States. The Merger Agreement provides for (i) the merger of Mesa with and into
Pioneer Natural Resources Company ("Pioneer"), a wholly-owned subsidiary of
Mesa, as a result of which Mesa, which is a Texas corporation, will
reincorporate into Delaware and (ii) the merger of the Company with and into
Mesa Operating Co., a wholly-owned subsidiary of Mesa, as a result of which the
Company will become a wholly-owned subsidiary of Pioneer (items (i) and (ii)
collectively the "Mergers"). In accordance with the Merger Agreement, (i)
9
<PAGE>
holders of the Company common stock will receive one share of Pioneer common
stock for each share held; (ii) holders of Mesa common stock will receive one
share of Pioneer common stock for every seven shares held; and (iii) holders of
Mesa Series A 8% Cumulative Convertible Preferred Stock and Mesa Series B 8%
Cumulative Convertible Preferred Stock will have the option to receive either
(a) 1.25 shares of Pioneer common stock for every seven shares held or (b) one
share of Pioneer Series A 8% Cumulative Convertible Preferred Stock for every
seven shares held (subject to certain conditions).
On May 13, 1997, the Company filed with the Securities and Exchange
Commission a Registration Statement on Form S-4 relating to the shares of
Pioneer common stock and Pioneer preferred stock to be issued in the Mergers. A
portion of such registration statement will constitute a joint proxy statement
to be submitted to the stockholders of Mesa's common stock and preferred stock
and the Company's common stock in connection with a special meeting to be held
by each company's stockholders to approve the Mergers. It is expected that such
proxy statement/prospectus will be mailed to all stockholders in June 1997, and
that such meeting will be held, and the Mergers will be consummated, by early
August 1997. Since the Mergers require approval by both Mesa's common and
preferred stockholders and the Company's stockholders, in addition to a number
of other conditions, there can be no assurance that the Mergers will occur.
10
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations(1)
General
Financial Performance. The Company reported net income of $18.6 million
or $.53 per share for the first quarter of 1997 as compared to net income of
$14.7 million or $.41 per share for the same period in 1996. Excluding
production from the Company's Australasian subsidiaries which were sold in 1996
and production from nonstrategic domestic assets which were sold in 1996,
average daily oil production increased 12% to 31,912 Bbls per day for the first
quarter of 1997 from 28,558 Bbls per day for the first quarter of 1996, and
average daily gas production increased 17% to 208,173 Mcf per day from 177,750
Mcf per day for the same period. As discussed more fully in "Results of
Operations" below, the Company's financial performance for the first quarter of
1997 was positively affected by the following items: (i) improved oil and gas
prices, (ii) decreases in production costs due to ongoing cost reduction
efforts, and (iii) a decrease in interest expense due to a decrease in the
Company's outstanding long-term indebtedness.
Net cash provided by operating activities, before changes in operating
assets and liabilities, increased 32% to $61.7 million for the first quarter of
1997 as compared to $46.6 million for the same period in 1996. This increase was
primarily attributable to improved commodity prices during 1997, declining
production costs due to the improvements made in the overall cost structure of
the Company during 1996 and decreased interest expense due to a decrease in
long-term debt.
The Company strives to maintain its outstanding indebtedness at a
moderate level in order to provide sufficient financial flexibility to fund
future opportunities. The Company's total book capitalization at March 31, 1997
was $1.1 billion, consisting of total long-term debt of $316 million,
stockholders' equity of $546 million and preferred stock of subsidiary of $189
million. Debt as a percentage of total capitalization was 30% at March 31, 1997,
down slightly from 31% at December 31, 1996.
Drilling and Acquisition Activities. The Company's 1997 capital
expenditure budget has been set at $270 million, reflecting planned expenditures
of $170 million for exploitation activities, $67 million for exploration
activities and $33 million for oil and gas property acquisitions in the
Company's core areas of Texas, Oklahoma, New Mexico and Louisiana. During the
first quarter of 1997, the Company participated in the completion of 95 gross
exploration and development wells, including 66 in the Spraberry Division, 15 in
the Permian Division, seven in the Gulf Coast Division, six in the MidContinent
Division and one in Argentina. Of these wells, 59 were in progress at December
31, 1996. Of the total wells completed during the three months ended March 31,
1997, 86 were completed successfully which resulted in a 90% success rate. In
addition to the wells completed in the first quarter of 1997, the Company had
122 wells in progress at March 31, 1997. In total during 1997, the Company plans
to drill 500 development wells and 100 exploratory wells and to perform
recompletions on over 150 wells.
In addition, the Gulf Coast Division completed the acquisition of a
majority interest in the Maude Traylor and Olivia fields in Calhoun County,
Texas for approximately $8.8 million in February 1997. The acquisition
represented an average working interest of 87% in approximately 1,840 acres and
five wells which produce from the upper and lower Frio formations. Since the
Company assumed operations, the gross gas production rate has doubled to
approximately 3.1 MMcf of gas per day, and the gross oil production rate has
tripled to 166 Bbls per day. The Company plans to drill up to nine additional
wells during 1997 and 1998 on this acreage utilizing existing 3-D seismic
information.
Also during February 1997, the Texas Railroad Commission (which regulates
oil and gas production) entered a favorable order on the Company's application
to allow administrative approval of uncontested applications to increase the
density of the drilling in the Spraberry field from one well per 80 acres to one
well in 40. The Company believes such reduced spacing may provide in excess of
1,000 additional drilling locations which have the potential to add 70 million
equivalent barrels to the Company's reserve base.
Asset Dispositions. For the three months ended March 31, 1997, the
Company's asset disposition activity primarily consisted of the sale of the
Company's Turkish oil and gas properties for proceeds of $1.7 million which
resulted in the recognition of a gain of $756 thousand. During the first quarter
of 1996, the Company sold certain wholly-owned Australasian subsidiaries for
11
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
proceeds of $108.3 million and a pre-tax gain of $11 million and certain
nonstrategic domestic assets which resulted in the recognition of a pre-tax net
gain of $2.7 million.
Proposed Merger with Mesa, Inc.
On April 6, 1997, the Company entered into an Agreement and Plan of
Merger (the "Merger Agreement") with Mesa Inc. ("Mesa"), a publicly traded
independent oil and gas company based in Irving, Texas with substantial
producing properties and operations in the MidContinent region of the United
States. The Merger Agreement provides for (i) the merger of Mesa with and into
Pioneer Natural Resources Company ("Pioneer"), a wholly-owned subsidiary of
Mesa, as a result of which Mesa, which is a Texas corporation, will
reincorporate into Delaware and (ii) the merger of the Company with and into
Mesa Operating Co., a wholly-owned subsidiary of Mesa, as a result of which the
Company will become a wholly-owned subsidiary of Pioneer (items (i) and (ii)
collectively the "Mergers"). In accordance with the Merger Agreement, (i)
holders of the Company common stock will receive one share of Pioneer common
stock for each share held; (ii) holders of Mesa common stock will receive one
share of Pioneer common stock for every seven shares held; and (iii) holders of
Mesa Series A 8% Cumulative Convertible Preferred Stock and Mesa Series B 8%
Cumulative Convertible Preferred Stock will have the option to receive either
(a) 1.25 shares of Pioneer common stock for every seven shares held or (b) one
share of Pioneer Series A 8% Cumulative Convertible Preferred Stock for every
seven shares held (subject to certain conditions).
The Company's Board of Directors (the "Board") believes that the terms of
the Merger Agreement are fair and in the best interest of the Company and its
stockholders. Accordingly, the Board has unanimously approved the Mergers and
the Merger Agreement and also recommends approval by the Company's stockholders.
The Company expects that the Mergers will have numerous benefits, the most
significant of which are discussed below.
Benefits of a Larger Enterprise. The Board considered various benefits to
the Company's stockholders of holding an ownership interest in Pioneer, which
will be a substantially larger enterprise than the Company as it now exists.
Specifically, the Board believes that Pioneer will have a larger market
capitalization than the Company and, as a result, Company stockholders should
enjoy enhanced liquidity as a result of Pioneer's larger stockholder base and
the increased visibility resulting from heightened market research and
institutional investor focus on a larger entity. The Board also considered that
the combined entity should produce significantly greater cash flows than the
Company, which should allow Company stockholders to participate in opportunities
for growth in oil and gas reserves and production, either through acquisitions,
exploration, exploitation or entries into new core areas, that might not
otherwise be available to the Company. In addition, the Board considered that
the stocks of larger enterprises often experience higher trading multiples in
relation to various standard measures (e.g., net cash flow or net present value
of oil and gas reserves) and that Pioneer's stock trading multiples may be
higher than those of the Company. If Pioneer common stock trades at higher
multiples than the Company common stock, Pioneer will have a greater ability
than the Company to use its common stock as currency in future acquisitions.
Quality and Nature of Assets. In developing its recommendations, the
Board considered the quality and nature of Mesa's assets, the nature and scope
of its operations and its financial condition, as well as those of Pioneer
following the Mergers. In its review of the quality and nature of Mesa's assets,
the Board considered the favorable financial performance and stable cash flows
generated by Mesa's assets in the Hugoton and West Panhandle Fields. The Board
also considered that Pioneer's reserve base would be well balanced, with 52% of
its reserves comprised of natural gas and 48% of its reserves comprised of crude
oil and liquids. In addition, Pioneer would be the only large independent oil
and gas exploration and production company in the United States whose primary
assets consist of both long-lived gas and long-lived oil reserves. The Board
also considered the immediate significant impact that the Mergers would have on
the achievement of certain of the Company's strategic goals, including growth in
total reserves, growth in market capitalization, and exposure to the exploration
potential of the Gulf of Mexico through Mesa's interest in 60 offshore
exploration blocks and in its recent acquisition of Greenhill Petroleum.
12
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Management and Significant Stockholders. The Board and many industry
analysts consider Jon Brumley, who will serve as Pioneer's Chairman of the
Board, to be among the most experienced and successful builders of independent
oil and gas companies in the United States. The Board also considered the
benefits to the Company's stockholders of the continued ownership by Richard
Rainwater of Pioneer common stock and Mr. Rainwater's continued participation as
a Pioneer director in Pioneer's strategic planning. Mr. Rainwater, who will be
the largest individual stockholder of Pioneer upon consummation of the Mergers,
has a record of quickly and aggressively building shareholder value in companies
operated in a wide variety of industries.
Financial. The Board reviewed a broad range of financial information and
analysis regarding Mesa, the Company and the two companies on a pro forma
combined basis, including a financial comparison of Mesa and the Company and a
review of the potential impact of the Mergers on the balance sheet of the
combined company prepared by Goldman Sachs. Goldman Sachs' analysis included,
among other matters, a comparison of the relative contribution made by Mesa and
the Company to the combined levels of certain measures of Pioneer's financial
and operating condition, including total assets, proved reserves and production.
This analysis showed that the relative contribution made by the Company on the
majority of the measures did not exceed the percentage ownership interest in
Pioneer to be held by the Company stockholders after the Mergers. The Board also
considered that accounting for the Mergers as a purchase would decrease
Pioneer's earnings below the levels it would achieve if Pioneer could account
for the Mergers as a pooling, and Goldman Sachs' advice that, based on current
market conditions, if Pioneer has positive earnings, the reduction in earnings
due to the impact of purchase accounting should not by itself have a material
adverse effect on the stock price of Pioneer common stock. Goldman Sachs also
advised that more relevant variables currently used to measure the market
valuations of the Company and Mesa and similar companies include, among other
things, discretionary cash flows, discounted present values of future expected
cash flows, the estimated value of reserves and the estimated productive lives
of reserves. The Board reviewed an analysis which showed that if oil and gas
commodity prices on the date of the Merger Agreement remained constant, Pioneer
would have positive earnings in 1997 on a pro forma combined basis. The Board
also considered that the established floor value of $35.00 for Company
stockholders at the end of the Measurement Period as provided by the Merger
Agreement might cause the price of the Company's common stock to rise to levels
which would allow the Company to effect an exchange of the Company's Cumulative
Guaranteed Monthly Income Convertible Preferred Shares for Company common stock,
increasing the Company's equity and decreasing its leverage, even if the Merger
Agreement were subsequently terminated. If this exchange occurred, Pioneer's
leverage would be within a range that is considered acceptable in the oil and
gas industry and would be at a level which is not materially greater than the
Company's. The Board also considered that Pioneer would succeed to Mesa's
approximately $600 million of net operating loss carryforwards. Subject to
certain limitations set forth in the Internal Revenue Code, these net operating
loss carryforwards could be used to reduce the federal income taxes that would
otherwise be assessed on Pioneer's earnings. In considering the financial
rationale for the Mergers, the Board also reviewed the terms of several recent
transactions in which long-lived natural gas reserves were acquired by public
exploration and production companies.
Merger Agreement. The Board considered the terms and conditions of the
Merger Agreement, including the consideration to be received by the Company's
stockholders in the Mergers (which is anticipated to be a tax free
reorganization). The Board considered that both the Company and Mesa may, in
their discretion, terminate the Merger Agreement if the average trading price
for Mesa common stock during the Measurement Period is less than $5.00 per
share. Because the Merger Agreement provides that each seven shares of Mesa
common stock outstanding will be converted into one share of Pioneer common
stock, and that each share of the Company's common stock outstanding will be
converted into one share of Pioneer common stock, the Company can terminate the
Merger Agreement unless it appears, at the end of the Measurement Period, that
each share of Pioneer common stock has a value of at least $35.00. Under these
circumstances, the $35.00 in value received in exchange for each share of the
Company's common stock would represent a 17.15% premium over $29.875, which was
the NYSE closing price per share of the Company's common stock on April 4, 1997,
the last trading day prior to the execution of the Merger Agreement. If the
average trading price for Mesa common stock during the Measurement Period is
less than $5.00, the Board will determine whether to terminate the Merger
Agreement, waive this right and proceed to the consummation of the Mergers or
seek to renegotiate the Conversion Numbers. The Board also considered the
provisions of the Merger Agreement which prohibit Mesa and its officers,
directors, employees, agents, affiliates and other representatives, and those of
Mesa's subsidiaries, from soliciting or encouraging any Mesa Acquisition
Proposal (as hereinafter defined) or, subject to the fiduciary duties of the
Mesa Board, from engaging in any discussions or negotiations with any third
13
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
parties with respect to a Mesa Acquisition Proposal. The Board further
considered the provisions of the Merger Agreement which require Mesa to pay to
the Company a fee of $45 million under certain circumstances described in the
Merger Agreement.
On May 13, 1997, the Company filed with the Securities and Exchange
Commission a Registration Statement on Form S-4 relating to the shares of
Pioneer common stock and Pioneer preferred stock to be issued in the Mergers. A
portion of such registration statement will constitute a joint proxy statement
to be submitted to the stockholders of Mesa's common stock and preferred stock
and the Company's common stock in connection with a special meeting to be held
by each company's stockholders to approve the Mergers. It is expected that such
proxy statement/prospectus will be mailed to all stockholders in June 1997, and
that such meeting will be held, and the Mergers will be consummated, by early
August 1997. Since the Mergers require approval by both Mesa's common and
preferred stockholders and the Company's stockholders, in addition to a number
of other conditions, there can be no assurance that the Mergers will occur.
14
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Results of Operations
Oil and Gas Production.
Three months ended
March 31,
------------------------
1997 1996
--------- ---------
(in thousands, except average
production, price and
cost data)
Revenues:
Oil and gas $ 103,779 $ 98,025
Gain on disposition of oil and gas properties,
net (a) 705 463
-------- --------
104,484 98,488
-------- --------
Costs and expenses:
Oil and gas production (28,081) (30,494)
Depletion (26,369) (28,596)
Exploration and abandonments (5,402) (1,524)
Geological and geophysical (2,213) (2,827)
-------- --------
(62,065) (63,441)
-------- --------
Operating profit (excluding general and
administrative expenses and income taxes) $ 42,419 $ 35,047
======== ========
- ---------------
(a) The 1996 amount does not include the gain related to the disposition of
certain of the Company's wholly-owned Australasian subsidiaries.
Worldwide:
Production:
Oil (MBbls) 2,872 3,116
Gas (MMcf) 18,736 19,735
Total (MBOE) 5,995 6,405
Average daily production:
Oil (Bbls) 31,912 34,243
Gas (Mcf) 208,173 216,869
Average oil price (per Bbl) $ 19.99 $ 18.37
Average gas price (per Mcf) $ 2.47 $ 2.07
Costs (per BOE):
Lease operating expense $ 3.24 $ 3.69
Production taxes $ 1.05 $ .73
Workover costs $ .40 $ .34
-------- --------
Total production costs $ 4.69 $ 4.76
======== ========
Depletion $ 4.40 $ 4.46
15
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Three months ended
March 31,
-----------------------
1997 1996
--------- ---------
(in thousands, except average
production, price and
cost data)
Domestic:
Production:
Oil (MBbls) 2,838 2,767(a)
Gas (MMcf) 18,736 17,808(a)
Total (MBOE) 5,961 5,735
Average daily production:
Oil (Bbls) 31,536 30,402(a)
Gas (Mcf) 208,173 195,693(a)
Average oil price (per Bbl) $ 19.94 $ 18.22
Average gas price (per Mcf) $ 2.47 $ 2.08
Costs (per BOE):
Lease operating expense $ 3.21 $ 3.55
Production taxes $ 1.05 $ .82
Workover costs $ .40 $ .37
-------- --------
Total production costs $ 4.66 $ 4.74
======== ========
Depletion $ 4.35 $ 4.30
- ---------------
(a) Includes 168 MBbls (1,844 Bbls per day) and 1.6 Bcf (17,943 Mcf per day) of
production associated with certain nonstrategic domestic assets which were
sold during 1996.
Oil and Gas Revenues. Revenues from oil and gas operations totaled $103.8
million in the first quarter of 1997 compared to $98 million in the first
quarter of 1996, representing an increase of 6%. The increase is primarily
attributable to the higher average prices being received for both oil and gas
production and increases in production due to the Company's successful
exploitation and exploration activities in 1996 and the first quarter of 1997,
offset by the decreased production resulting from the 1996 sale of the Company's
Australasian subsidiaries and the 1996 sales of certain domestic assets. The
average oil price received for the three months ended March 31, 1997 increased
9% (from $18.37 to $19.99 for the three months ended March 31, 1996 and 1997,
respectively), while the average gas price received increased 19% (from $2.07 to
$2.47 for the three months ended March 31, 1996 and 1997, respectively).
Excluding production from the Company's Australasian subsidiaries which
were sold in 1996 and production from the nonstrategic domestic assets which
were sold in 1996, average daily oil production increased 12% from 28,558 Bbls
for the first quarter of 1996 to 31,912 Bbls for the first quarter of 1997 and
average daily gas production increased 17% from 177,750 Mcf to 208,173 Mcf for
the same period.
Hedging Activities
The oil and gas prices that the Company reports are based on the market
price received for the commodities adjusted by the results of the Company's
hedging activities. The Company periodically enters into commodity derivative
contracts (swaps, futures and options) in order to (i) reduce the effect of the
volatility of price changes on the commodities the Company produces and sells,
(ii) support the Company's annual capital budgeting and expenditure plans and
(iii) lock in prices to protect the economics related to certain capital
projects. During the first quarter of 1997, the Company's hedging activities
reduced the average price received for oil and gas sales 9% and 13%,
respectively, as discussed below.
16
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Crude Oil. All material purchase contracts governing the Company's oil
production are tied directly or indirectly to NYMEX prices. The average oil
price per Bbl that the Company reports includes the effects of oil quality,
gathering and transportation costs and the net effect of the oil hedges. The
Company's average realized price for physical oil sales (excluding hedge
results) for the three months ended March 31, 1997 was $21.86 per Bbl. The
comparable average NYMEX prompt month closing for the same period was $22.86 per
Bbl.
Natural Gas. The Company employs a policy of hedging gas production based
on the index price upon which the gas is actually sold in order to mitigate the
basis risk between NYMEX prices and actual index prices. The average gas price
per Mcf that the Company reports includes the effects of Btu content, gathering
and transportation costs, gas processing and shrinkage and the net effect of the
gas hedges. The Company's average realized price for physical gas sales
(excluding hedge results) for the three months ended March 31, 1997 was $2.83
per Mcf. The comparable average NYMEX prompt month closing for the same period
was $2.37 per Mcf.
See Note C of Notes to Consolidated Financial Statements included in "Item
1. Financial Statements" for information concerning the Company's open hedge
positions at May 2, 1997 and the related prices to be realized.
Production Costs. While total production costs per BOE decreased slightly
to $4.69 during the three months ended March 31, 1997 as compared to production
costs per BOE of $4.76 during the same period in 1996, the primary component of
production costs, lease operating expense, decreased 12% from $3.69 per BOE in
the first quarter of 1996 to $3.24 per BOE for the same period in 1997. These
reductions are primarily due to the Company's concentrated efforts to evaluate
and reduce all operating costs and the sale of certain high operating cost
properties during 1996. The success of these cost reduction efforts is
particularly evident in light of the fact that production costs per BOE have
declined despite a 44% or $.32 per BOE increase in average production taxes per
BOE resulting from higher commodity prices.
Depletion Expense. Depletion expense per BOE declined to $4.40 during the
first quarter of 1997 from $4.46 per BOE during the first quarter of 1996. The
slight decrease in depletion expense per BOE during 1997 is primarily due to the
1996 sale of the Company's Australian oil properties which had average depletion
rates at $5.84 per BOE, offset by increases in the depletion per BOE for
domestic properties resulting from decreases in oil and gas reserves due to
declines in oil and gas prices from March 31, 1996 to March 31, 1997.
Exploration and Abandonments/Geological and Geophysical Costs. Exploration
and abandonments/geological and geophysical costs increased to $7.6 million
during the first quarter of 1997 from $4.4 million during the same period in
1996. The increase is largely the result of increased domestic activity, both in
exploratory drilling and geological and geophysical activity, resulting from the
Company's increased focus on exploration activities. The domestic exploratory
dry hole costs are primarily related to five unsuccessful exploratory wells in
the Gulf Coast Division and four unsuccessful exploratory wells in the
MidContinent Division at a total cost of $3.2 million and $1.1 million,
respectively. These domestic increases are offset by a decrease in foreign
geological and geophysical activity primarily due to the sale in March 1996 of
the Company's Australasian subsidiaries. The following table sets forth the
components of the Company's 1997 and 1996 first quarter expense:
Three months ended
March 31,
---------------------
1997 1996
-------- --------
(in thousands)
Exploratory dry holes:
United States $ 4,517 $ 315
Foreign 394 580
Geological and geophysical costs:
United States 1,655 1,205
Foreign 558 1,622
Leasehold abandonments and other 491 629
------- -------
$ 7,615 $ 4,351
======= =======
17
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Approximately 25% of the Company's 1997 capital budget will be spent on
exploratory projects (compared to 16.7% in 1996 and 13.3% in 1995). The Company
currently anticipates that its 1997 exploration efforts will be concentrated in
the Gulf Coast Division, the Permian Division and its interests in Argentina.
The Company continues to review opportunities involving exploration joint
ventures in domestic or international areas outside the Company's existing core
operating areas.
Natural Gas Processing
Natural gas processing revenues increased 28% to $6.9 million for the
three months ended March 31, 1997 as compared to $5.4 million for the same
period in 1996, and natural gas processing costs increased 9% to $3.5 million
from $3.2 million for the first quarters of 1997 and 1996, respectively. The
increases in natural gas processing revenues and costs are primarily due to
increases in the prices of NGL's and residue gas. The average price per Bbl of
NGL's increased 10% in the first quarter of 1997 compared to the first quarter
of 1996 (from $13.38 in 1996 to $14.69 in 1997), and the average price per Mcf
of residue gas increased 55% during the same period (from $1.92 in 1996 to $2.98
in 1997).
During the first quarter of 1996, the Company recognized noncash pre-tax
charges of $635 thousand related to abandonments of certain of the Company's gas
processing facilities and the cancellation of certain gas processing contracts.
General and Administrative Expense
General and administrative expense was $6.7 million for the quarter
ended March 31, 1997 as compared to $6.4 million for the quarter ended March 31,
1996, representing a 5% increase.
Interest Expense
Interest expense for the quarter ended March 31, 1997 decreased to $9.9
million as compared to $14.7 million for the comparable period in 1996. The
decrease is due to a decrease of $245.6 million in the weighted average
outstanding balance of the Company's indebtedness for the three months ended
March 31, 1997 as compared to the three months ended March 31, 1996. The
decrease in the weighted average outstanding balance of the Company's
indebtedness was primarily the result of the application of proceeds from the
sale of the Company's Australasian subsidiaries and the sales of certain
domestic assets during 1996 to the outstanding balance of the Company's bank
credit facility. This decrease is slightly offset by an increase in the weighted
average interest rate on the Company's indebtedness from 7.82% during the first
quarter of 1996 to 7.88% during the first quarter of 1997.
During the three months ended March 31, 1997, the Company recorded a
reduction in interest expense of $390 thousand related to a series of interest
rate swap agreements which effectively convert $150 million of the Company's
fixed rate borrowings into floating rate obligations.
Income Taxes
The Company's income tax provisions of $10.1 million and $12.3 million
for the quarters ended March 31, 1997 and March 31, 1996, respectively, reflect
the net provision resulting from the separate tax calculation prepared for each
tax jurisdiction in which the Company is subject to income taxes.
Capital Commitments, Capital Resources and Liquidity
Capital Commitments. The Company's primary needs for cash are for
exploration, development and acquisitions of oil and gas properties, repayment
of principal and interest on outstanding indebtedness and working capital
obligations.
The Company's cash expenditures during the first quarter of 1997 for
additions to oil and gas properties totaled $76.6 million. This amount includes
$12.4 million for the acquisition of properties and $64.2 million for
development and exploratory drilling. The Company's acquisition activities
during the first quarter of 1997 primarily consisted of an 87% average working
interest in the Maude Traylor and Olivia fields in Calhoun County, Texas for
approximately $8.8 million.
18
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Significant drilling expenditures in the first quarter of 1997 included $27.1
million in the unitized portion of the Spraberry field of the Permian Basin
(including $14 million in the Driver unit, $7 million in the Merchant unit and
$2.4 million in the Shackelford unit) and $5.7 million in other portions of the
Spraberry field, $9.6 million in other areas of the Permian Basin, $12.5 million
in the onshore Gulf Coast region, $7.7 million in the MidContinent region and
$1.6 million in Argentina.
The Permian Division has continued to develop its 38% working interest
in its War-Wink field discovery in the Delaware Basin and spent $1 million
drilling three wells in this area during the first quarter of 1997. The War Wink
18-37 #2 and the 18-33 B #1 tested at gross rates of 639 and 876 Bbls of oil per
day, respectively, and 503 and 876 Mcf per day, respectively, and both wells are
expected to produce at a top allowable rate of 267 Bbls of oil per day. The
third well is being completed at this time. The Company plans to drill an
additional eight to ten wells in this area before year-end and to expand its
acreage position as well. In the MidContinent Division, the Carolyn #1 well in
the Verden field, in which the Company owns a 23% interest, was completed in
February 1997 and tested at 9 MMcf of natural gas per day.
The Company's 1997 capital expenditure budget has been set at $270
million, reflecting planned expenditures of $170 million for exploitation
activities, $67 million for exploration activities and $33 million for oil and
gas property acquisitions in the Company's core areas of Texas, Oklahoma, New
Mexico and Louisiana. The Company budgets its capital expenditures based on
projected internally-generated cash flows and routinely adjusts the level of its
capital expenditures in response to anticipated changes in cash flows.
Funding for the Company's working capital obligations is provided by
internally-generated cash flows. Funding for the repayment of principal and
interest on outstanding debt may be provided by any combination of
internally-generated cash flows, proceeds from the disposition of nonstrategic
assets or alternative financing sources as discussed in "Capital Resources"
below.
Capital Resources. The Company's primary capital resources are net cash
provided by operating activities, proceeds from financing activities and
proceeds from sales of nonstrategic assets. The Company expects that these
resources will be sufficient to fund its capital commitments in 1997.
Operating Activities. Net cash provided by operating activities
increased 14% to $73.5 million during the first quarter of 1997 compared to
$64.7 million for the same period in 1996. This increase is primarily
attributable to higher oil and gas prices in the first quarter of 1997.
Financing Activities. The Company had no outstanding balance under its
bank facility at March 31, 1997, leaving approximately $349.4 million of unused
borrowing base immediately available, net of outstanding letters of credit of
$617 thousand. The weighted average interest rate for the three months ended
March 31, 1997 on the Company's indebtedness was 7.88% as compared to 7.82% for
the three months ended March 31, 1996 (taking into account the effect of
interest rate swaps).
As the Company continues to pursue its strategy, it may utilize
alternative financing sources, including the issuance for cash of fixed rate
long-term public debt, convertible securities or preferred stock. The Company
may also issue securities in exchange for oil and gas properties, stock or other
interests in other oil and gas companies or related assets. Additional
securities may be of a class preferred to common stock with respect to such
matters as dividends and liquidation rights and may also have other rights and
preferences as determined by the Company's Board of Directors.
On February 12, 1997, the Company completed a shelf registration
statement with the Securities and Exchange Commission, which provides for the
issuance of up to $400 million of common stock, preferred stock, warrants to
acquire preferred stock, depository shares representing fractional interests in
preferred stock, debt securities and warrants to acquire debt securities, or any
combination thereof which the Company may offer from time to time. The $400
million includes $127.9 million which remained unused from a 1994 shelf
registration statement. The net proceeds from any such offering will be used for
general corporate purposes, which may include repayment of indebtedness,
redemption or repurchase of securities of the Company or any subsidiary,
additions to working capital and capital expenditures, including acquisitions
and drilling.
19
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
Sales of Nonstrategic Assets. During the three months ended March 31,
1997 and 1996, proceeds from the sale of domestic nonstrategic assets totaled
$5.7 million and $3.8 million, respectively. In addition, during the first
quarter of 1996, the Company sold certain Australasian subsidiaries resulting in
cash proceeds of $108.3 million. The proceeds from these sales were utilized to
reduce the Company's outstanding bank indebtedness and for general working
capital purposes. The Company anticipates that it will continue to sell
nonstrategic properties from time to time to increase capital resources
available for other activities and to achieve administrative efficiencies.
Liquidity. At March 31, 1997, the Company had $9.4 million of cash and
cash equivalents on hand, compared to $18.7 million at December 31, 1996. The
Company's ratio of current assets to current liabilities was 1.13 at March 31,
1997 and 1.29 at December 31, 1996.
- ---------------
(1) The information in this document includes forward-looking statements that
are based on assumptions that in the future may prove not to have been
accurate. Those statements, and Parker & Parsley Petroleum Company's
business and prospects, are subject to a number of risks including the
volatility of oil and gas prices, environmental risks, operating hazards
and risks, risks associated with natural gas processing plants, risks
related to exploration and development drilling, uncertainties about
estimates of reserves, competition, government regulation, and the ability
of the Company to implement its business strategy. These and other risks
are described in the Company's 1996 Annual Report on Form 10-K which is
available from the United States Securities and Exchange Commission.
20
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in Note B of Notes to Consolidated Financial Statements included in
"Item 1. Financial Statements", the Company is a party to various legal actions
incidental to its business. The claims for damages from such legal actions are
not in excess of 10% of the Company's current assets and the Company believes
none of these actions to be material.
Item 6. Exhibits and Reports on Form 8-K
Exhibits
27. Financial Data Schedule
Reports on Form 8-K
During the quarter ended March 31, 1997, the Company filed the following Current
Reports on Form 8-K:
(1) On February 3, 1997, the Company filed a Current Report on Form 8-K (a)
reporting under Item 5 (Other Events) the divestitures of (i) certain
wholly-owned Australasian subsidiaries, (ii) the wholly-owned subsidiary
Bridge Oil Timor Sea, Inc. and (iii) certain nonstrategic domestic oil
and gas properties, gas plants, and related assets and contract rights
and (b) reporting under Item 7 (Financial Statements and Exhibits) the
following pro forma financial information for the Company, taking into
account (i) the sale of certain wholly-owned Australasian subsidiaries,
(ii) the sale of Bridge Oil Timor Sea, Inc. and (iii) the aggregate
effect of completed sales of certain nonstrategic domestic oil and gas
properties, gas plants, and assets and contract rights through December
31, 1996.
a. Preliminary Statement
b. Unaudited Pro Forma Combined Statement of Operations for the nine
months ended September 30, 1996
c. Unaudited Pro Forma Combined Statement of Operations for the year
ended December 31, 1995
d. Notes to Unaudited Pro Forma Combined Financial Statements
21
<PAGE>
PARKER & PARSLEY PETROLEUM COMPANY
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
PARKER & PARSLEY PETROLEUM COMPANY
Date: May 13, 1997 By: /s/ Scott D. Sheffield
--------------------------------------
Scott D. Sheffield
President and Chief Executive Officer
Date: May 13, 1997 By: /s/ Steven L. Beal
--------------------------------------
Steven L. Beal
Senior Vice President and Chief
Financial Officer
22
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000355690
<NAME> P&P.397
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 11,156
<SECURITIES> 0
<RECEIVABLES> 68,610
<ALLOWANCES> 0
<INVENTORY> 4,509
<CURRENT-ASSETS> 94,707
<PP&E> 1,543,575
<DEPRECIATION> 470,734
<TOTAL-ASSETS> 1,210,070
<CURRENT-LIABILITIES> 83,987
<BONDS> 0
0
0
<COMMON> 370
<OTHER-SE> 545,865
<TOTAL-LIABILITY-AND-EQUITY> 1,210,070
<SALES> 110,644
<TOTAL-REVENUES> 113,572
<CGS> 31,578
<TOTAL-COSTS> 84,859
<OTHER-EXPENSES> 43,386
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,895
<INCOME-PRETAX> 28,713
<INCOME-TAX> 10,100
<INCOME-CONTINUING> 18,613
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,613
<EPS-PRIMARY> .53
<EPS-DILUTED> .49
</TABLE>
