UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
MARK ONE
X ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
__ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-11313
-----------------------
MAY DRILLING PARTNERSHIP 1983-3
MAY LIMITED PARTNERSHIP 1983-3
(Exact name of registrant as specified in its charter)
------------------------
75-1915681
TEXAS 75-1915685
(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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ----------------------
NONE NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Units of Participation, $1,000 Per Unit
(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 (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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein and will not 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. X
DOCUMENTS INCORPORATED BY REFERENCE:
DOCUMENT PART OF FORM
-------- 10-K INTO
WHICH IT IS
-----------
INCORPORATED
The General Partnership
Agreement and the Limited
Partnership Agreement filed as Part IV
an Exhibit to Registration
Statement No. 0-11313
PART I
------
ITEM 1 - BUSINESS
May Drilling Partnership 1983-3 (the "Drilling or General Partnership") and May
Limited Partnership 1983-3 (the "Limited Partnership") were organized by May
Petroleum Inc. ("May") to explore for and develop oil and gas reserves
primarily in Texas, Oklahoma and Louisiana. Funds received from the sale and
production of oil and gas reserves are used to pay the obligations of the
Limited Partnership. Funds not required by the Limited Partnership as working
capital are distributed to the participants in the Drilling Partnership and the
general partner.
The general partner of the Limited Partnership is EDP Operating, Ltd., which is
one of the operating partnerships for Hallwood Energy Partners, L. P. ("HEP").
The Drilling Partnership is the sole limited partner of the Limited Partnership.
The Limited Partnership does not have any subsidiaries, nor does it engage in
any other kind of business. The Limited Partnership has no employees and is
operated by Hallwood Petroleum, Inc. ("HPI"), a subsidiary of HEP. In February
1996, HPI employed 133 full-time employees.
Pursuant to the terms of the general partnership agreement and the limited
partnership agreement, HEP is obligated, from time to time, to contribute
certain amounts, in property, cash or unreimbursed services, to the Limited
Partnership. As of December 31, 1995, all such required contributions had been
made.
PARTICIPATION IN EXPENSES AND REVENUES
The principal expenses and revenues of the Limited Partnership are shared by the
general partner and the Drilling Partnership as set forth in the following
table. The charges and credits to participants in the Drilling Partnership are
shared among the participants in proportion to their ownership of units of
participation.
<TABLE>
<CAPTION>
Drilling General
Partnership Partner
----------- -------
<S> <C> <C>
Abandonment expenses (1) 99% 1%
Noncapital expenses 99% 1%
Direct expenses 99% 1%
Lease acquisition expenses - 100%
Capital expenses - 100%
Oil and gas revenues (2) (2)
Operating expenses (2) (2)
Special projects (2) (2)
General and administrative
overhead (2) (2)
<F1>
(1) Includes expenses that would otherwise be allocated as lease
acquisition expenses and/or capital expenses but that relate to
abandoned properties.
<F2>
(2) Such items were shared 70% by the Drilling Partnership and 30% by the
general partner until December 31, 1984. As of December 31, 1984 and
as of December 31 of each year thereafter, the sharing of such items
is adjusted so the general partner's allocation will equal the
percentage that the amount of Limited Partnership expenses allocated
to the general partner bears to the aggregate amount of Limited
Partnership expenses allocated to the general partner and the
Drilling Partnership, plus 15 percentage points, but in no event will
the general partner's allocation exceed 50%. The sharing ratio for
each of the last three years was:
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Limited Partner 57.9% 58.1% 58.6%
General Partner 42.1% 41.9% 41.4%
</TABLE>
In 1996, the sharing ratio will be 57.7% to the limited partner and 42.3% to the
general partner.
To the extent that the characterization of any expense of the Limited
Partnership depends on its deductibility for federal income tax purposes, the
proper characterization is determined by the general partner (according to its
intended characterization on the Limited Partnership's federal income tax
return) in good faith at the time the expense is to be charged or credited.
Such characterization will control related charges and credits to the partners
regardless of any subsequent determination by the Internal Revenue Service or a
court of law that the reported expenses should be otherwise characterized for
tax purposes.
COMPETITION
Oil and gas must compete with coal, atomic energy, hydro-electric power and
other forms of energy. See also "Marketing" for a discussion of the market
structure for oil and gas sales.
REGULATION
Production and sale of oil and gas is subject to federal and state governmental
regulations in a variety of ways including environmental regulations, labor law,
interstate sales, excise taxes and federal, state and Indian lands royalty
payments. Failure to comply with these regulations may result in fines,
cancellation of licenses to do business and cancellation of federal, state or
Indian leases.
The production of oil and gas is subject to regulation by the state regulatory
agencies in the states in which the Limited Partnership does business. These
agencies make and enforce regulations to prevent waste of oil and gas and to
protect the rights of owners to produce oil and gas from a common reservoir.
The regulatory agencies regulate the amount of oil and gas produced by assigning
allowable production rates to wells capable of producing oil and gas.
FEDERAL INCOME TAX CONSIDERATIONS
The Limited Partnership and the General Partnership are partnerships for federal
income tax purposes. Consequently, they are not taxable entities; rather, all
income, gains, losses, deductions and credits are passed through and taken into
account by the partners on their individual federal income tax returns. In
general, distributions are not subject to tax so long as such distributions do
not exceed the partner's adjusted tax basis. Any distributions in excess of the
partner's adjusted tax basis are taxed generally as capital gains.
MARKETING
The oil and gas produced from the properties owned by the Limited Partnership
has typically been marketed through normal channels for such products. Oil has
generally been sold to purchasers at field prices posted by the principal
purchasers of crude oil in the areas where the producing properties are located.
The majority of the Limited Partnership's gas production is sold on the spot
market and is transported in intrastate and interstate pipelines. Both oil and
natural gas are purchased by refineries, major oil companies, public utilities
and other users and processors of petroleum products.
Factors which, if they were to occur, might adversely affect the Limited
Partnership include decreases in oil and gas prices, the availability of a
market for production, rising operational costs of producing oil and gas,
compliance with and changes in environmental control statutes and increasing
costs and difficulties of transportation.
SIGNIFICANT CUSTOMER
For the years ended December 31, 1995, 1994 and 1993, purchases by the following
company exceeded 10% of the total oil and gas revenues of the Limited
Partnership:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Conoco Inc. 94% 62% 74%
</TABLE>
Although the Limited Partnership sells the majority of its production to one
purchaser, there are numerous other purchasers in the area, so the loss of its
significant customer would not adversely affect the Limited Partnership's
operations.
ENVIRONMENTAL CONSIDERATIONS
The exploration for, and development of, oil and gas involve the extraction,
production and transportation of materials which, under certain conditions, can
be hazardous or can cause environmental pollution problems. In light of the
present general interest in environmental problems, the general partner cannot
predict what effect possible future public or private action may have on the
business of the Limited Partnership. The general partner is continually taking
all action necessary in its operations to ensure conformity with applicable
federal, state and local environmental regulations and does not presently
anticipate that the compliance with federal, state and local environmental
regulations will have a material adverse effect upon capital expenditures,
earnings or the competitive position of the Limited Partnership in the oil and
gas industry.
INSURANCE COVERAGE
The Limited Partnership is subject to all the risks inherent in the exploration
for, and development of, oil and gas, including blowouts, fires and other
casualties. The Limited Partnership maintains insurance coverage as is
customary for entities of a similar size engaged in operations similar to the
Limited Partnership's, but losses can occur from uninsurable risks or in amounts
in excess of existing insurance coverage. The occurrence of an event which is
not insured or not fully insured could have an adverse impact upon the Limited
Partnership's earnings and financial position.
ITEM 2 - PROPERTIES
The Limited Partnership's oil and gas reserves are concentrated in prospects in
south Louisiana. The Limited Partnership's reserves are predominantly natural
gas, which accounts for 86% of estimated future gross revenues in the Limited
Partnership's reserve report as of December 31, 1995.
SIGNIFICANT PROSPECTS
At December 31, 1995, the following prospects accounted for approximately 97% of
the Limited Partnership's proved oil and gas reserves. Reserve quantities were
obtained from the December 31, 1995 reserve report prepared by HPI's petroleum
engineers.
BOUDREAUX PROSPECT. The Boudreaux prospect is located in Lafayette Parish,
Louisiana. The Limited Partnership's interest in the prospect has remaining net
proved reserves of 36,800 bbls of oil and 1,711,000 mcf of gas as of December
31, 1995, all of which are developed and producing at December 31, 1995. The
Limited Partnership's working interest in this prospect ranges up to 3.5%.
MEAUX PROSPECT. The Meaux prospect is located in Lafayette Parish, Louisiana.
The Limited Partnership's interest in the prospect has remaining net proved
reserves of 800 bbls of oil and 77,000 mcf of gas as of December 31, 1995, all
of which are developed and producing at December 31, 1995. The Limited
Partnership's working interest in this prospect is 19.8%.
ITEM 3 - LEGAL PROCEEDINGS
For a description of legal proceedings affecting the Limited Partnership, please
refer to Item 8 - Note 3.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
No matter was submitted to a vote of participants during the fourth quarter of
1995.
PART II
-------
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
a) The registrant's securities consist of partnership interests which are
not traded on any exchange and for which no established public trading
market exists.
b) As of December 31, 1995, there were approximately 776 holders of record
of partnership interests in the Drilling Partnership.
c) Distributions paid by the Limited Partnership were as follows (in
thousands):
<TABLE>
<CAPTION>
General Limited
Partner Partner
------- -------
<S> <C> <C>
1995 $144 $144
1994 386 542
1993 145 205
</TABLE>
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Limited Partnership
As of or for the Year Ended December 31,
----------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total revenues $ 628 $ 661 $1,183 $1,230 $ 819
Oil and gas
revenues 619 648 1,170 1,221 809
Net income 255 282 339 679 297
Working capital 316 258 779 646 489
Total assets 1,110 1,150 2,117 1,809 2,012
Partners'
capital 1,084 1,117 1,763 1,774 1,911
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Material changes in the Limited Partnership's cash position for the years ended
December 31, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
(In thousands)
<S> <C> <C>
Cash provided by operating $ 293 $ 552
activities
Distributions to partners (288) (928)
Additions to oil and gas
properties (39) (9)
Proceeds from sale of oil
and gas properties 16
------- -------
Decrease in cash $ (34) $ (369)
</TABLE>
Cash provided by operating activities in 1995 was used for distributions to the
partners and additions to oil and gas properties. The Limited Partnership has
net working capital of $316,000. This working capital, together with future net
cash flows generated from operations may be used to fund future distributions.
Future distributions depend on, among other things, continuation of current or
higher oil and gas prices, markets for production and future development costs,
and the outcome of the litigation described in Item 8, Note 3.
The Limited Partnership's ability to generate funds adequate to meet its future
needs will be largely dependent upon its ability to continue to develop further
its existing reserves. Proved reserves and discounted future net revenues
(discounted at 10% and before general and administrative expenses) from proved
reserves were estimated at 39,000 bbls and 1,844,000 mcf valued at $3,206,000 in
1995 and 39,000 bbls and 1,870,000 mcf valued at $2,872,000 in 1994. The
increase in discounted future net revenues and the fluctuation in the quantities
resulted from an increase in year end oil and gas prices as well as changes in
the estimated rates of production on certain wells.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS
121 provides the standards for accounting for the impairment of various long-
lived assets. The Limited Partnership is required to adopt SFAS 121 no later
than 1996. The Limited Partnership uses the full cost method of accounting for
its only long-lived assets, which requires an impairment to be recorded when
total capitalized costs exceed the present value, discounted at 10%, of
estimated future net revenues from proved oil and gas reserves. Therefore, the
adoption of SFAS 121 is not expected to have a material effect on the financial
position or results of operations of the Limited Partnership.
RESULTS OF OPERATIONS
- ---------------------
1995 COMPARED TO 1994
- ---------------------
OIL REVENUE
Oil revenue increased $11,000 during 1995 as compared with 1994. The increase
is comprised of an increase in the average oil price from $16.03 per barrel in
1994 to $17.68 per barrel in 1995 combined with a 2% increase in production as
shown in the table below. The increase in production is due to increased state
allowable production limits, partially offset by normal production declines as
well as the temporary abandonment of one well and sale of another during the
second quarter of 1994.
GAS REVENUE
Gas revenue decreased $40,000 during 1995 as compared with 1994. The decrease
is due to a decrease in the average gas price from $2.15 per mcf during 1994 to
$1.84 per mcf during 1995, partially offset by an 8% increase in production as
shown below. The increase in production is due to increased state allowable
production limits, partially offset by normal production declines as well as the
temporary abandonment of one well and the sale of another during the second
quarter of 1994.
The following table summarizes the Limited Partnership's share of production
from the Limited Partnership's significant properties for 1995 and 1994.
<TABLE>
<CAPTION>
Net Production
----------------------------------
1995 1994
-------------- --------------
Oil Gas Oil Gas
County, State and Well (Bbls) (Mcf) (Bbls) (Mcf)
---------------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
Lafayette, Louisiana
--------------------
Hutchinson #1 142 25,750 165 32,188
Meaux Prospect
--------------
Richard #1 410 36,876 480 42,223
Warwick Richard #1 - - 44 2,343
Middle Bayou Cannes
-------------------
Duhon #1 - - 67 4,058
Boudreaux Prospect
------------------
A. L. Boudreaux #1 4,419 209,316 4,085 170,357
G. S. Boudreaux
Estate #1 85 4,352 74 3,626
Hallwood Fontenot #1 11 1,368 4 510
Other Properties 398 5,245 463 5,964
----- ------- ----- -------
Total Net Production 5,465 282,907 5,382 261,269
===== ======= ===== =======
</TABLE>
LEASE OPERATING
Lease operating expense decreased $23,000 during 1995 as compared with 1994
primarily due to the sale of the Warwick Richard #1 during the second quarter of
1994 and the temporary abandonment of the Duhon #1.
PRODUCTION TAXES
Production taxes increased $16,000 during 1995 as compared with 1994 as a result
of the settlement of a lawsuit which resulted in lower production taxes during
1994.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased $27,000 during 1995 as compared
with 1994 due to a decrease in the allocation of overhead from the general
partner.
DEPLETION
Depletion expense increased $12,000 during 1995 as compared with 1994 due to a
higher depletion rate caused by the 8% increase in oil and gas production during
1995.
LITIGATION SETTLEMENT
Litigation settlement expense during 1995 primarily represents amounts paid in
connection with the settlement of a royalty dispute on the Duhon #1 well.
1994 COMPARED TO 1993
- ---------------------
OIL REVENUES
Oil revenues decreased $61,000 in 1994 as compared to 1993. The average oil
price decreased from $17.88 per barrel in 1993 to $16.03 per barrel in 1994.
Oil production decreased 36% as shown in the table below, primarily due to the
reduction in state allowable production limits, as well as normal production
declines.<PAGE>
GAS REVENUES
Gas revenues decreased $461,000 as compared to 1993. The average gas price
decreased from $2.26 per mcf in 1993 to $2.15 per mcf in 1994. Gas production
decreased 42% as shown in the table below, primarily due to the reduction in
state allowable production limits, as well as normal production declines.
The following table summarizes the Limited Partnership's share of production
from the Limited Partnership's significant properties for 1994 and 1993.
<TABLE>
<CAPTION>
Net Production
----------------------------------
1994 1993
-------------- --------------
Oil Gas Oil Gas
County, State and Well (Bbls) (Mcf) (Bbls) (Mcf)
---------------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
Lafayette, Louisiana
--------------------
Hutchinson #1 165 32,188 693 80,408
Meaux Prospect
--------------
Richard #1 480 42,223 532 41,907
Warwick Richard #1 44 2,343 23 13,242
Middle Bayou Cannes
-------------------
Duhon #1 67 4,058 979 39,563
Boudreaux Prospect
------------------
A. L. Boudreaux #1 4,085 170,357 5,445 255,662
G. S. Boudreaux
Estate #1 74 3,626 82 3,797
Hallwood Fontenot #1 4 510 10 1,460
Other Properties 463 5,964 598 15,268
----- ------- ----- -------
Total Net Production 5,382 261,269 8,362 451,307
===== ======= ===== =======
</TABLE>
LEASE OPERATING
Lease operating expense decreased $14,000 as compared to 1993, primarily due to
the sale of the Warwick Richard #1 during the second quarter of 1994.
PRODUCTION TAXES
Production taxes decreased $45,000 in 1994 as compared to 1993, primarily due to
the decrease in revenues mentioned previously.
GENERAL AND ADMINISTRATIVE
General and administrative expenses decreased $26,000 in 1994 as compared to
1993, due to a decrease in allocation of overhead from the general partner.
DEPLETION
Depletion expense decreased $68,000 as compared to 1993, primarily due to a
lower depletion rate.<PAGE>
LITIGATION SETTLEMENT
Litigation settlement expense during 1993 represents the costs of a lawsuit
settlement which is discussed in Item 8 - Note 3 of this Form 10-K.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
----
FINANCIAL STATEMENTS:
Independent Auditors' Report 12
Balance Sheets at December 31, 1995 and 1994 -
May Drilling Partnership 1983-3 13
Balance Sheets at December 31, 1995 and 1994 -
May Limited Partnership 1983-3 14
Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 -
May Limited Partnership 1983-3 15
Statements of Changes in Partners' Capital for the
Years Ended December 31, 1995, 1994 and 1993 -
May Limited Partnership 1983-3 16
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 -
May Limited Partnership 1983-3 17
Notes to Financial Statements - May Drilling Partnership 1983-3
and May Limited Partnership 1983-3 18-21
SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED) 22
INDEPENDENT AUDITORS' REPORT
----------------------------
DRILLING PARTNERSHIP 1983-3 AND
MAY LIMITED PARTNERSHIP 1983-3:
We have audited the financial statements of May Drilling Partnership 1983-3
("General Partnership") and May Limited Partnership 1983-3 ("Limited
Partnership") as of December 31, 1995 and 1994 and for each of the three years
in the period ended December 31, 1995, listed in the accompanying index at Item
8. These financial statements are the responsibility of the Partnerships'
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the General Partnership and the Limited
Partnership at December 31, 1995 and 1994, and the results of operations and
cash flows of the Limited Partnership for each of the three years in the period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Denver, Colorado
February 27, 1996
MAY DRILLING PARTNERSHIP 1983-3
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Investment in May Limited $613 $637
Partnership 1983-3 === ===
PARTNERS' CAPITAL
Partners' Capital $613 $637
=== ===
</TABLE>
Note: The statements of operations and cash flows for May Drilling
Partnership 1983-3 are not presented because such information is
equal to the Limited Partners' share of such activity as presented
in the May Limited Partnership 1983-3 financial statements. The
May Drilling Partnership carries its investment in May Limited
Partnership 1983-3 on the equity method. The May Limited
Partnership 1983-3 financial statements should be read in
conjunction with this balance sheet.
MAY LIMITED PARTNERSHIP 1983-3
BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 153 $ 187
Accrued oil and gas sales 150 93
Due from affiliate 39 11
------- -------
Total 342 291
------- -------
OIL AND GAS PROPERTIES, using the
full cost method of accounting 16,509 16,470
Less - Accumulated depletion (15,741) (15,611)
------- -------
Net oil and gas properties 768 859
------- -------
TOTAL ASSETS $ 1,110 $ 1,150
======= =======
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
Accounts payable and accrued
liabilities $ 26 $ 33
------- -------
PARTNERS' CAPITAL
General partner 471 480
Limited partner 613 637
------- -------
Total 1,084 1,117
------- -------
TOTAL LIABILITIES AND PARTNERS' $ 1,110 $ 1,150
CAPITAL ======= =======
</TABLE>
MAY LIMITED PARTNERSHIP 1983-3
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands, except for Units)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Oil revenue $ 97 $ 86 $ 147
Gas revenue 522 562 1,023
Interest income 9 13 13
------ ------ ------
Total 628 661 1,183
------ ------ ------
COSTS AND EXPENSES
Lease operating 91 114 128
Production taxes 37 21 66
General and administrative 93 120 146
Depletion 130 118 186
Litigation settlement 13 306
Professional services and
other 9 6 12
------ ------ ------
Total 373 379 844
------ ------ ------
NET INCOME $ 255 $ 282 $ 339
====== ====== ======
ALLOCATION OF NET INCOME:
General Partner $ 135 $ 143 $ 177
====== ====== ======
Limited Partner $ 120 $ 139 $ 162
====== ====== ======
Per initial $1,000 Limited
Partner investment $ 10.32 $ 11.95 $ 13.93
====== ====== ======
Weighted average initial
$1,000 Limited Partner
investment units
outstanding 11,629 11,629 11,629
======= ======= =======
</TABLE>
MAY LIMITED PARTNERSHIP 1983-3
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
<TABLE>
<CAPTION>
General Limited
Partner Partner Total
------- ------- -----
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 $ 691 $ 1,083 $ 1,774
Net income 177 162 339
Distributions (145) (205) (350)
------ ------ ------
BALANCE, DECEMBER 31, 1993 723 1,040 1,763
Net income 143 139 282
Distributions (386) (542) (928)
------ ------ ------
BALANCE, DECEMBER 31, 1994 480 637 1,117
Net income 135 120 255
Distributions (144) (144) (288)
------ ------ ------
BALANCE, DECEMBER 31, 1995 $ 471 $ 613 $ 1,084
====== ====== ======
</TABLE>
MAY LIMITED PARTNERSHIP 1983-3
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(In thousands)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 255 $ 282 $ 339
Adjustment to reconcile net
income to net cash provided
by operating activities:
Depletion 130 118 186
------ ------ ------
Cash from operations
before working capital
changes 385 400 525
Changes in assets and
liabilities provided (used)
cash:
Accrued oil and gas sales (57) 113 47
Due from affiliate (28) 360 (234)
Accounts payable and
accrued liabilities (7) (321) 319
------ ------ ------
Net cash provided by
operating activities 293 552 657
------ ------ ------
INVESTING ACTIVITIES:
Proceeds from sale of oil and
gas properties 16 16
Additions to oil and gas
properties (39) (9) (58)
------ ------ ------
Net cash provided by
(used in) investing
activities (39) 7 (42)
------ ------ ------
FINANCING ACTIVITIES:
Distributions to partners (288) (928) (350)
------ ------ ------
Net cash used in
financing activities (288) (928) (350)
------ ------ ------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (34) (369) 265
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR 187 556 291
------ ------ ------
END OF YEAR $ 153 $ 187 $ 556
====== ====== ======
</TABLE>
The accompanying notes are an integral part
of the financial statements.
MAY DRILLING PARTNERSHIP 1983-3
AND
MAY LIMITED PARTNERSHIP 1983-3
NOTES TO FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES AND OTHER MATTERS
GENERAL PARTNERSHIP
May Drilling Partnership 1983-3, a Texas general partnership (the "General
Partnership"), was organized by May Petroleum Inc. ("May") for the purpose of
oil and gas exploration through May Limited Partnership 1983-3 (the "Limited
Partnership"). The General Partnership was formed on November 7, 1983, with
investors ("Participants") subscribing an aggregate of $11,629,000 in assessable
$1,000 units. After the expenditure of the initial contributions of the
Participants, additional mandatory assessments from each Participant are
provided for under the terms of the general partnership agreement in an amount
up to 25% of the initial contribution of the Participant. No additional
assessments were made.
The general partnership agreement requires that the manager, Hallwood Energy
Partners, L. P. ("HEP"), offer to repurchase partnership interests from
Participants for cash at amounts to be determined by appraisal of the Limited
Partnership's net assets no later than December 31, 1988, and during the two
succeeding years, if such net assets are positive. The manager has made
repurchase offers in all years since 1989 and intends to make a repurchase offer
in 1996.
As the General Partnership is the sole limited partner of the Limited
Partnership, its results of operations, cash flows and changes in partners'
capital are equal to the limited partner's share of the Limited Partnership's
results of operations, cash flows and changes in partners' capital as set forth
herein. Therefore, separate statements of operations, cash flows and changes in
partners' capital are not presented for the General Partnership.
LIMITED PARTNERSHIP
The Limited Partnership, a Texas limited partnership, was organized by May and
the General Partnership, for the purpose of oil and gas exploration and the
production of crude oil, natural gas and petroleum products. The Limited
Partnership's oil and gas reserves are located in prospects in south Louisiana.
Among other things, the terms of the Limited Partnership agreement (the
"Agreement") give the general partner the authority to borrow funds. The
Agreement also requires that the general partner's total capital contributions
to the Limited Partnership as of each year end, including unrecovered general
partner acreage and equipment advances, must be compared to total Limited
Partnership expenditures from inception to date, and if such contributions are
less than 15% of such expenditures, an additional contribution in the amount of
the deficiency is required. At December 31, 1995, no additional contributions
were necessary to comply with this requirement.
On June 30, 1987, May sold to HEP all of its economic interest in the Limited
Partnership and account receivable balances due from the Limited Partnership.
HEP became the general partner of the Limited Partnership in 1988.
SHARING OF COSTS AND REVENUES
Capital costs, as defined by the Agreement, for commercially productive wells
and the costs related to the organization of the Limited Partnership are borne
by the general partner. Noncapital costs and direct expenses, as defined by the
Agreement, are charged 1% to the general partner and 99% to the limited partner.
Oil and gas sales, operating expenses and general and administrative overhead
are shared so that the general partner's allocation will equal the percentage
that the amount of Limited Partnership expenses, as defined, allocated to the
general partner bears to the aggregate amount of Limited Partnership expenses
allocated to the general partner and the limited partner, plus 15 percentage
points, but in no event will the general partner's allocation exceed 50%. The
sharing ratio for each of the last three years was as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Limited 57.9% 58.1% 58.6%
Partnership
General Partner 42.1% 41.9% 41.4%
</TABLE>
SIGNIFICANT CUSTOMER
For the years ended December 31, 1995, 1994 and 1993, purchases by the following
company exceeded 10% of the total oil and gas revenues of the Limited
Partnership:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Conoco Inc. 94% 62% 74%
</TABLE>
Although the Limited Partnership sells the majority of its production to one
purchaser, there are numerous other purchasers in the area, so the loss of its
significant customer would not adversely affect the Limited Partnership's
operations.
INCOME TAXES
No provision for federal income taxes is included in the financial statements of
the Limited Partnership or the General Partnership because, as partnerships,
they are not subject to federal income tax and the tax effects of their
activities accrue to the partners. The partnerships' tax returns, the
qualification of the General and Limited Partnerships as partnerships for
federal income tax purposes, and the amount of taxable income or loss are
subject to examination by federal and state taxing authorities. If such
examinations result in changes to the partnerships' taxable income or loss, the
tax liability of the partners could change accordingly.
OIL AND GAS PROPERTIES
The Limited Partnership follows the full cost method of accounting for oil and
gas properties and, accordingly, capitalizes all costs associated with the
exploration and development of oil and gas reserves.
The capitalized costs of evaluated properties, including the estimated future
costs to develop proved reserves, are amortized on the unit of production basis.
Full cost amortization per dollar of gross oil and gas revenues was $.21 in
1995, $.18 in 1994 and $.16 in 1993.
Capitalized costs are limited to an amount not to exceed the present value of
estimated future net cash flows. No valuation adjustment was required in 1995,
1994 or 1993. Significant price declines in the future could cause the Limited
Partnership to experience valuation adjustments and could reduce the amount of
future cash flow available for distributions and operations.
Generally no gains or losses are recognized on the sale or disposition of oil
and gas properties. Maintenance and repairs are charged against income when
incurred.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS 121"). SFAS
121 provides the standards for accounting for the impairment of various long-
lived assets. The Limited Partnership is required to adopt SFAS 121 no later
than 1996. The Limited Partnership uses the full cost method of accounting for
its only long-lived assets, which requires an impairment to be recorded when
total capitalized costs exceed the present value, discounted at 10%, of
estimated future net revenues from proved oil and gas reserves. Therefore, the
adoption of SFAS 121 is not expected to have a material effect on the financial
position or results of operations of the Limited Partnership.
GAS BALANCING
The Limited Partnership uses the sales method for accounting for gas balancing.
Under this method, the Limited Partnership recognizes revenue on all of its
sales of production, and any over production or under production is recovered at
a future date.
As of December 31, 1995, the net imbalance to the Limited Partnership interest
is not considered material. Current imbalances can be made up with production
from existing wells or from wells which will be drilled as offsets to current
producing wells.
USE OF ESTIMATES
The preparation of the financial statements for the Limited Partnership and
General Partnership in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from these estimates.
RELATED PARTY TRANSACTIONS
Hallwood Petroleum, Inc. ("HPI"), a subsidiary of the general partner, pays all
costs and expenses of operations and receives all revenues associated with the
Limited Partnership's properties. At month end, HPI distributes revenues in
excess of costs to the Limited Partnership.
The amounts due from HPI were $39,000 and $11,000 as of December 31, 1995 and
1994, respectively. These balances represent net revenues less operating costs
and expenses.
CASH FLOWS
All highly liquid investments purchased with an original maturity of three
months or less are considered to be cash equivalents.
RECLASSIFICATIONS
Certain reclassifications have been made to prior years' amounts to conform to
the classifications used in the current year.
(2) GENERAL AND ADMINISTRATIVE OVERHEAD
HPI conducts the day to day operations of the Limited Partnership and other
affiliated partnerships of HEP. The costs of operating the entities are
allocated to each partnership based upon the time spent on that partnership.
General and administrative overhead allocated by HPI to the Limited Partnership
totaled $80,000 in 1995, $103,000 in 1994 and $143,000 in 1993.
(3) LEGAL PROCEEDINGS
In June 1993, 14 lawsuits were filed against the Limited Partnership in the 15th
Judicial District Court, Lafayette Parish, Louisiana, Docket Nos. 93-2332-F
through 93-2345-F, styled Lamson Petroleum Corporation v. Hallwood Petroleum,
Inc. et al. The plaintiffs in the lawsuits claim that they have valid leases
covering streets and roads in the units of the A. L. Boudreaux #1 well, G. S.
Boudreaux #1 well, Mary Guilbeau #1 well and Duhon #1 well, which represents
approximately 3% to 4% of the Limited Partnership's interest in these
properties, and are entitled to a portion of the production from the wells
dating from February 1990. The Limited Partnership has not recognized revenue
attributable to the contested leases since January 1993. These revenues,
totaling $61,000 at December 31, 1995, have been placed in escrow pending
resolution of the lawsuits. At this time, the Limited Partnership believes that
the difference between the escrowed amount and the amount of any liability that
may result upon resolution of this matter will not be material.
In February 1994, the Limited Partnership and the other parties to the lawsuit
styled SAS Exploration, Inc. v. Hall Financial Group, Inc. et al. settled the
lawsuit. The plaintiffs alleged that certain leases in the A. L. Boudreaux #1
and A. M. Duhon #1 wells expired and terminated at the end of their primary
terms as a result of production being from the Bol Mex 4 Sand rather than the A.
B. Sand. In the settlement, the Limited Partnership and the plaintiffs cross-
conveyed interests in certain leases to one another and the Limited Partnership
paid the plaintiffs $306,000. The cash paid by the Limited Partnership was
reflected as litigation settlement expense in the December 31, 1993 financial
statements. The interest conveyance resulted in a decrease in the Limited
Partnership's reserves as of December 31, 1993 totaling 197,000 mcf of gas,
4,100 barrels of oil and $371,000 in future net revenues, discounted at 10%.
SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION
(Unaudited)
The following tables contain certain costs and reserve information related to
the Limited Partnership's oil and gas activities. The Limited Partnership has
no long-term supply agreements and all reserves are located within the United
States.
COSTS INCURRED -
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1994 1993
------ ------ -----
(In thousands)
<S> <C> <C> <C>
Development costs $ 39 $ 9 $ 36
Acquisition costs - - 22
---- --- ---
$ 39 $ 9 $ 58
==== === ===
/TABLE
<PAGE>
OIL AND GAS RESERVES -
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
Bbls Mcf Bbls Mcf Bbls Mcf
---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>
Total Proved Reserves:
Beginning of period 39 1,870 46 2,279 58 2,852
Revisions to previous
estimates 5 257 (2) (127) - 75
Litigation settlement
(a) - - - - (4) (197)
Sale of reserves in
place - - - (21) - -
Production (5) (283) (5) (261) (8) (451)
End of Period 39 1,844 39 1,870 46 2,279
Proved Developed
Reserves:
Beginning of period 39 1,870 46 2,267 58 2,852
End of period 39 1,844 39 1,870 46 2,267
</TABLE>
Certain reserve value information is provided directly to partners pursuant to
the Agreement. Accordingly, such information is not presented herein.
(a) See Note 3 to financial statements.
ITEM 9 - DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
--------
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Drilling Partnership and Limited Partnership are managed by affiliates of
HEP and do not have directors or executive officers.
ITEM 11 - EXECUTIVE COMPENSATION
The partnerships pay no salaries or other direct remuneration to officers,
directors or key employees of the general partner or HPI. The Limited
Partnership reimburses the general partner for general and administrative costs
incurred on behalf of the partnerships. See Note 2 to the Financial Statements.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
To the knowledge of the general partner, no person owns of record or
beneficially more than 5% of the Drilling Partnership's outstanding units, other
than HEP, the address of which is 4582 S. Ulster Street Parkway, Denver,
Colorado 80237, and which beneficially owns approximately 37.2% of the
outstanding units. The general partner of HEP is Hallwood Energy Corporation.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For information with respect to the Limited Partnership and its relationships
and transactions with the general partner, see Part I, Item 1 and Part II, Item
7.
PART IV
-------
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. Financial Statements and Schedules:
See Index at Item 8.
b. Reports on Form 8-K - None.
c. Exhibits:
3.1 The General Partnership Agreement and the Limited Partnership Agreement
filed as an Exhibit to Registration Statement No. 0-11313, are
incorporated herein by reference.
SIGNATURES
- ----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Partnerships have duly caused this report to be
signed on their behalf by the undersigned, thereunto duly authorized.
MAY DRILLING PARTNERSHIP 1983-3
MAY LIMITED PARTNERSHIP 1983-3
BY: EDP OPERATING, LTD., GENERAL
PARTNER
BY: HALLWOOD G.P., INC.
GENERAL PARTNER
By: /s/William L. Guzzetti
--------------------------
William L. Guzzetti
President, Chief Executive
Officer and Director
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/Robert S. Pfeiffer Vice President February 29, 1996
--------------------------- (Principal -----------------
Robert S. Pfeiffer Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-K
for the year ended December 31, 1995 for May Limited Partnership 1983-3 and is
qualified in its entirety by reference to such Form 10-K.
</LEGEND>
<CIK> 0000743453
<NAME> MAY LIMITED PARTNERSHIP 1983-3
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 153
<SECURITIES> 0
<RECEIVABLES> 189
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 342
<PP&E> 16,509
<DEPRECIATION> 15,741
<TOTAL-ASSETS> 1,110
<CURRENT-LIABILITIES> 26
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,084
<TOTAL-LIABILITY-AND-EQUITY> 1,110
<SALES> 619
<TOTAL-REVENUES> 628
<CGS> 0
<TOTAL-COSTS> 128
<OTHER-EXPENSES> 245
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 255
<INCOME-TAX> 0
<INCOME-CONTINUING> 255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 255
<EPS-PRIMARY> 10.32
<EPS-DILUTED> 10.32
</TABLE>
