UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
MARK ONE
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-11313
MAY DRILLING PARTNERSHIP 1983-2
MAY LIMITED PARTNERSHIP 1983-2
(Exact name of registrant as specified in its charter)
75-1915688
Texas 75-1915682
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4582 South Ulster Street Parkway
Suite 1700
Denver, Colorado 80237
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 850-7373
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 [ ]
Page 1 of 12
<PAGE>
<TABLE>
<CAPTION>
MAY DRILLING PARTNERSHIP 1983-2
BALANCE SHEETS
(Unaudited)
(In thousands)
September 30, December 31,
1998 1997
ASSETS
<S> <C> <C>
Investment in May Limited Partnership 1983-2 $ 319 $ 407
==== ====
PARTNERS' CAPITAL
Partners' Capital $ 319 $ 407
==== ====
<FN>
NOTE: The statements of operations and cash flows for May Drilling
Partnership 1983-2 are not presented because such information is
equal to the limited partner's share of such activity as presented in
the May Limited Partnership 1983-2 financial statements. The May
Drilling Partnership carries its investment in May Limited
Partnership 1983-2 on the equity method. The May Limited Partnership
1983-2 financial statements should be read in conjunction with these
balance sheets.
</FN>
<FN>
The accompanying note is an integral part of the financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAY LIMITED PARTNERSHIP 1983-2
BALANCE SHEETS
(Unaudited)
(In thousands)
September 30, December 31,
1998 1997
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 201 $ 217
Accrued oil and gas sales 97 140
Due from affiliate 58 67
-------- --------
Total 356 424
------- -------
OIL AND GAS PROPERTIES, using the
full cost method of accounting 16,675 16,652
Less accumulated depletion (16,243) (16,162)
------ ------
Net oil and gas properties 432 490
------- -------
TOTAL ASSETS $ 788 $ 914
======= =======
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 17 $ 24
-------- --------
PARTNERS' CAPITAL
General partner 452 483
Limited partner 319 407
------- -------
Total 771 890
------- -------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 788 $ 914
======= =======
<FN>
The accompanying note is an integral part of the financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAY LIMITED PARTNERSHIP 1983-2
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except for unit information)
For the Three Months Ended September 30,
1998 1997
REVENUES
<S> <C> <C>
Gas revenue $ 157 $ 191
Oil revenue 16 25
Interest 2 2
---------- ----------
Total 175 218
-------- --------
COSTS AND EXPENSES
Lease operating 23 24
General and administrative 18 22
Depletion 27 30
Professional services and other 2 2
Litigation settlement 8
----------- ----------
Total 70 86
--------- ---------
NET INCOME $ 105 $ 132
======== ========
ALLOCATION OF NET INCOME:
General Partner $ 49 $ 61
========= =========
Limited Partner $ 56 $ 71
========= =========
Per initial $1,000 limited partner
investment $ 5.30 $ 6.73
========= =========
Weighted average initial $1,000 limited
partner investment units outstanding 10,557 10,557
====== ======
<FN>
The accompanying note is an integral part of the financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAY LIMITED PARTNERSHIP 1983-2
STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except for unit information)
For the Nine Months Ended September 30,
1998 1997
REVENUES
<S> <C> <C>
Gas revenue $ 541 $ 516
Oil revenue 50 64
Interest 7 7
---------- ----------
Total 598 587
-------- --------
COSTS AND EXPENSES
Lease operating 77 64
General and administrative 57 59
Depletion 81 71
Professional services and other 10 10
Litigation settlement 8
------------ ----------
Total 225 212
--------- --------
NET INCOME $ 373 $ 375
======== ========
ALLOCATION OF NET INCOME:
General Partner $ 175 $ 174
========= ========
Limited Partner $ 198 $ 201
========= ========
Per initial $1,000 limited partner
investment $ 18.76 $ 19.04
======== ========
Weighted average initial $1,000 limited
partner investment units outstanding 10,557 10,557
====== ======
<FN>
The accompanying note is an integral part of the financial
statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAY LIMITED PARTNERSHIP 1983-2
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
For the Nine Months Ended September 30,
1998 1997
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 373 $ 375
Adjustment to reconcile net income to
net cash provided by operating activities:
Depletion 81 71
Changes in assets and liabilities provided (used) cash:
Accrued oil and gas sales 43 26
Due from affiliate 9 (43)
Accounts payable and accrued liabilities (7) 2
Due to affiliate (5)
------------ ----------
Net cash provided by operating activities 499 426
--------- --------
INVESTING ACTIVITIES -
Additions to oil and gas properties (23) (37)
--------- ---------
FINANCING ACTIVITIES -
Distributions to partners (492) (383)
------- -------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (16) 6
CASH AND CASH EQUIVALENTS:
Balance, beginning of period 217 157
-------- --------
Balance, end of period $ 201 $ 163
======== ========
<FN>
The accompanying note is an integral part of the financial
statements.
</FN>
</TABLE>
<PAGE>
MAY LIMITED PARTNERSHIP 1983-2
NOTE TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
The financial statements presented are those of May Limited Partnership 1983-2
(the "Partnership"). The interim financial data are unaudited; however, in the
opinion of the general partner, the interim data include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results for the interim periods. These financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Partnership's December 31, 1997 Annual Report on Form 10-K.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
Liquidity and Capital Resources
The Partnership generated $499,000 of cash flow from operating activities during
the nine months ended September 30, 1998 and distributed $492,000 to partners. A
distribution payable to partners of record as of September 30, 1998 was declared
in October 1998. The distribution amount is $160,000 payable $92,800 to May
Drilling Partnership 1983-2 partners and $67,200 to the general partner. Future
distributions are dependent on future prices for the Partnership's production
and the production level of the Partnership's remaining oil and gas reserves.
Year 2000 Update
General. The Year 2000 problem has arisen because many existing computer
programs use only the last two digits to refer to a year. Therefore, these
computer programs do not properly recognize and process date sensitive
information beyond 1999. In general, there are two areas where Year 2000
problems may exist for the Partnership: information technology such as
computers, programs and related systems ("IT") and non-information technology
systems such as embedded technology on a silicon chip ("Non IT").
The Plan. The Partnership's Year 2000 Plan (the "Plan") has four phases: (i)
assessment, (ii) inventory, (iii) remediation, testing and implementation and
(iv) contingency plans. Approximately twelve months ago, the Partnership began
its phase one assessment of its particular exposure to problems that might arise
as a result of the new millennium. The assessment phase has been substantially
completed and has identified the Partnership IT systems that must be updated or
replaced in order to be Year 2000 compliant. In particular, the software used by
the Partnership for reservoir engineering must be updated or replaced. The
inventory phase of the Plan is currently underway and is expected to be
completed by December 31, 1998. Remediation, testing and implementation are
scheduled to be completed by June 30, 1999, and the contingency plans phase of
the Plan is scheduled to be completed by September 30, 1999.
To date, the Partnership has determined that its IT systems are either compliant
or can be made compliant without material cost. However, the effects of the Year
2000 problem on IT systems are exacerbated because of the interdependence of
computer systems in the United States. The Partnership's assessment of the
readiness of third parties whose IT systems might have an impact on the
Partnership's business has thus far not indicated any material problems; the
process of inquiring of third parties and reviewing their responses is underway
but is not complete.
With regard to the Partnership's Non IT systems, the Partnership believes that
most of these systems can be brought into compliance on schedule. The
Partnership's assessment of third party readiness is not yet completed. Because
Non IT systems are embedded chips, it is difficult to determine with complete
accuracy where all such systems are located. As part of its Plan, the
Partnership is making formal and informal inquiries of its vendors, customers
and transporters in an effort to determine the third party systems that might
have embedded technology requiring remediation. Estimated Costs. Although it is
difficult to estimate the total costs of implementing the Plan through January
1, 2000 and beyond, the Partnership's preliminary estimate is that such costs
will not be material. However, although management believes that its estimates
are reasonable, there can be no assurance, for the reasons stated in the next
paragraph, that the actual cost of implementing the Plan will not differ
materially from the estimated costs.
Potential Risks. The failure to correct a material Year 2000 problem could
result in an interruption in, or a failure of, certain normal business
activities or operations. This risk exists both as to the Partnership's IT and
Non IT systems, as well as to the systems of third parties. Such failures could
materially and adversely affect the Partnership's results of operations, cash
flow and financial condition. Due to the general uncertainty inherent in the
Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third party suppliers, vendors and transporters, the Partnership is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Partnership's results of operations, cash
flow or financial condition. Although the Partnership is not currently able to
determine the consequences of Year 2000 failures, its current assessment is that
its area of greatest potential risk is in connection with the transporting and
marketing of the oil and gas produced by the Partnership. The Partnership is
contacting the various purchasers and pipelines with which it regularly does
business to determine their state of readiness for the Year 2000. The
Partnership's Year 2000 Plan is expected to significantly reduce the
Partnership's level of uncertainty about the compliance and readiness of these
material third parties. The evaluation of third party readiness will be followed
by the Partnership's development of contingency plans.
Cautionary Statement Regarding Forward-Looking Statements
In the interest of providing the partners with certain information regarding the
Partnership's future plans and operations, certain statements set forth in this
Form 10-Q relate to management's future plans and objectives. Such statements
are forward-looking statements. Although any forward-looking statements
contained in this Form 10-Q or otherwise expressed by or on behalf of the
Partnership are, to the knowledge and in the judgment of the officers and
directors of the general partner, expected to prove true and come to pass,
management is not able to predict the future with absolute certainty.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Partnership's actual performance and financial results in
future periods to differ materially from any projection, estimate or forecasted
result. These risks and uncertainties include, among other things, volatility of
oil and gas prices, competition, risks inherent in the Partnership's oil and gas
operations, the inexact nature of interpretation of seismic and other geological
and geophysical data, imprecision of reserve estimates, the Partnership's
ability to replace and expand oil and gas reserves, and such other risks and
uncertainties described from time to time in the Partnership's periodic reports
and filings with the Securities and Exchange Commission. In addition, the dates
for completion of the phases of the Year 2000 Plan are based on the
Partnership's best estimates, which were derived using numerous assumptions of
future events. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of
third-parties and the interconnection of computer systems, the Partnership
cannot ensure its ability to timely and cost-effectively resolve problems
associated with the Year 2000 issue that may affect its operations and business.
Accordingly, partners are cautioned that certain events or circumstances could
cause actual results to differ materially from those projected, estimated or
predicted.
Results of Operations
Third Quarter 1998 Compared to Third Quarter 1997
Gas Revenue
Gas revenue decreased $34,000 during the third quarter of 1998 compared to the
third quarter of 1997 as a result of a decrease in gas price and a decrease in
production. The average gas price decreased from $2.28 per mcf in 1997 to $2.09
per mcf in 1998. Gas production decreased 11% primarily due to normal production
declines.
<PAGE>
Oil Revenue
Oil revenue decreased $9,000 in the third quarter of 1998 compared to the third
quarter of 1997 as a result of a decrease in production and a decrease in price.
Oil production decreased 1% primarily due to normal production declines. The
average oil price decreased from $19.25 per barrel in 1997 to $12.23 per barrel
in 1998.
Lease Operating
Lease operating expense decreased $1,000 for the third quarter of 1998 compared
to the third quarter of 1997 primarily due to a decrease in production taxes
caused by the decrease in production discussed above.
General and Administrative
General and administrative expense decreased $4,000 during the third quarter of
1998 compared to the third quarter of 1997 due to a decrease in the allocation
of overhead from the general partner.
Depletion
Depletion expense decreased $3,000 during the third quarter of 1998 compared
with the third quarter of 1997 as a result of a lower depletion rate due to the
decrease in production discussed above.
Litigation Settlement
Litigation settlement expense during the third quarter of 1997 represents
amounts incurred to settle property related claims.
Nine Months Ended September 30, 1998 Compared to the Nine Months Ended September
30, 1997
The comparisons for the nine months ended September 30, 1998 and the nine months
ended September 30, 1997 are consistent with those discussed in the third
quarter 1998 compared to the third quarter of 1997 except for the following:
Gas Revenue
Gas revenue increased $25,000 during the first nine months of 1998 compared to
the corresponding period in 1997 due to an increase in production, partially
offset by a decrease in price. Gas production increased 15% because two
temporarily shut-in wells were back on line. The two wells were temporarily
shut-in while workover procedures were performed during the third quarter of
1997. The average gas price decreased from $2.51 per mcf in 1997 to $2.29 per
mcf in 1998.
Oil Revenue
Oil revenue decreased $14,000 during the first nine months of 1998 compared to
the corresponding period in 1997 due to a decrease in the average oil price,
partially offset by an increase in production. The average oil price decreased
from $20.29 per barrel in 1997 to $13.72 per barrel in 1998. Oil production
increased 14% because two temporarily shut-in wells were back on line. The two
wells were temporarily shut-in while workover procedures were performed during
the third quarter of 1997.
Lease Operating Expense
Lease operating expense increased $13,000 during the first nine months of 1998
compared to the first nine months of 1997 primarily due to an increase in
production taxes caused by the increase in production discussed above.
<PAGE>
Depletion
Depletion expense increased $10,000 during the first nine months of 1998
compared with the first nine months of 1997 due to an increase in the depletion
rate caused by the increase in production discussed above.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Reference is made to Item 8 - Note 4 of Form 10-K for the year
ended December 31, 1997.
ITEM 2 - CHANGES IN SECURITIES
None.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
None.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnerships have duly caused this report to be signed on their behalf by the
undersigned, thereunto duly authorized.
MAY DRILLING PARTNERSHIP 1983-2
MAY LIMITED PARTNERSHIP 1983-2
By: EDP OPERATING, LTD.,
General Partner
By: HEPGP Ltd.,
General Partner
By: HALLWOOD G.P., INC.,
General Partner
Date: November 9, 1998 By: /s/Thomas J. Jung
Thomas J. Jung, Vice President
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quarter ended September 30, 1998 for May Drilling Partnership 1983-2 and
is qualified in its entirety by reference to such Form 10-Q.
</LEGEND>
<CIK> 0000711309
<NAME> May Drilling Partnership 1983-2
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 201
<SECURITIES> 0
<RECEIVABLES> 155
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 356
<PP&E> 16,675
<DEPRECIATION> 16,243
<TOTAL-ASSETS> 788
<CURRENT-LIABILITIES> 17
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 771
<TOTAL-LIABILITY-AND-EQUITY> 788
<SALES> 591
<TOTAL-REVENUES> 598
<CGS> 0
<TOTAL-COSTS> 225
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 373
<INCOME-TAX> 0
<INCOME-CONTINUING> 373
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 373
<EPS-PRIMARY> 18.76
<EPS-DILUTED> 18.76
</TABLE>
