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
For the Fiscal Year Ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-89194
MAY DRILLING PARTNERSHIP 1984-2
MAY LIMITED PARTNERSHIP 1984-2
(Exact name of registrant as specified in its charter)
75-1985009
Texas 75-1985008
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4610 South Ulster Street Parkway
Suite 200
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]
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE:
Part of Form 10-K into
Document which it is incorporated
The General Partnership Agreement and the Limited Partnership
Agreement filed as an Exhibit to Registration Statement No. 0-89194 Part IV
<PAGE>
PART I
ITEM 1 - BUSINESS
May Drilling Partnership 1984-2 (the "Drilling or General Partnership") and May
Limited Partnership 1984-2 (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 Hallwood Energy Partners,
L.P., which is a subsidiary of Hallwood Energy Corporation ("HEC"). 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 HEC. In February 2000, HPI
employed 100 full-time employees.
Pursuant to the terms of the general partnership agreement and the limited
partnership agreement, HEC is obligated, from time to time, to contribute
certain amounts, in property, cash or unreimbursed services, to the Limited
Partnership. As of December 31, 1999, all such required contributions had been
accrued.
The partnership agreements governing the Drilling Partnership and the Limited
Partnership provide for a fifteen-year term of existence. As a result, the term
of the Drilling Partnership and the Limited Partnership ended on September 18,
1999.
Over the first four months of 2000, the general partner will proceed to wind-up
the Drilling Partnership and the Limited Partnership. This process includes
preparing a final accounting, paying the liabilities of the Drilling Partnership
and the Limited Partnership, and making a liquidating distribution in accordance
with the capital accounts of the partners. The general partner believes that it
would be in the best interest of the limited partners to sell the assets of the
Limited Partnership and distribute any cash remaining after payment of
liabilities. The distribution of a pro rata direct working interest in the
Freddie Aker #1 well to each of the partners would not be practicable because of
the large number of partners involved (over 700), the small size of the
resulting interests and, in general, the risks and inconvenience that can be
associated with being a small working interest owner. The general partner
intends to sell the investors' interest in the Freddie Aker #1 well at a public
auction in the first quarter of 2000.
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.
<PAGE>
Drilling General
Partnership Partner
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)
<PAGE>
(1) Includes expenses that would otherwise be allocated as lease acquisition
expenses and/or capital expenses but that relate to abandoned properties.
(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 equals 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:
1999 1998 1997
---- ---- ----
Limited Partner 68.0% 68.1% 68.2%
General Partner 32.0% 31.9% 31.8%
In 2000, the sharing ratio will be 68.0% to the limited partner and 32.0% to the
general partner.
To the extent that the characterization of any expense to 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.
<PAGE>
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 Customers
For the years ended December 31, 1999, 1998 and 1997, purchases by the following
companies exceeded 10% of the total oil and gas revenues of the Limited
Partnership:
1999 1998 1997
---- ---- ----
Conoco Inc. 68% 48% 41%
Plains All American Inc. 31%
Marathon Petroleum Company 16% 39%
TXG Gas Marketing 17% 19%
Scurlock Permian LLC 17%
Although the Limited Partnership sells the majority of its production to a small
number of purchasers, there are numerous other purchasers in the area, so the
loss of any 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 Limited Partnership's historical
environmental expenditures have not been material and are not expected to be
material in the future. The general partner is continually taking all actions it
believes necessary in its operations to ensure conformity with applicable
federal, state and local environmental regulations and does not presently
anticipate that 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.
<PAGE>
Cautionary Statement Regarding Forward-Looking Statements
In the interest of providing the partners with certain information regarding the
Limited Partnership's future plans and operations, certain statements set forth
in this Form 10-K relate to management's future plans and objectives. Such
statements are forward-looking statements. Although any forward-looking
statements contained in this Form 10-K or otherwise expressed by or on behalf of
the Limited 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 Limited 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 Limited
Partnership's oil and gas operations, the inexact nature of interpretation of
seismic and other geological and geophysical data, imprecision of reserve
estimates, the Limited Partnership's ability to replace and expand oil and gas
reserves, and such other risks and uncertainties described from time to time in
the Limited Partnership's periodic reports and filings with the Securities and
Exchange Commission. Accordingly, partners are cautioned that certain events or
circumstances could cause actual results to differ materially from those
projected, estimated or predicted.
ITEM 2 - PROPERTIES
The Limited Partnership's oil and gas reserves are located on properties in
south Louisiana. Natural gas accounts for 55% of estimated future gross revenues
in the Limited Partnership's reserve report as of December 31, 1999.
Significant Properties
At December 31, 1999, the following prospect accounted for all of the Limited
Partnership's proved oil and gas reserves. Reserve quantities were obtained from
the December 31, 1999 reserve report prepared by HPI's petroleum engineers.
Meaux Prospect. The Meaux prospect is located in Lafayette Parish, Louisiana.
The Limited Partnership's interest in the prospect contains one productive well
(the Freddie Aker) and has estimated remaining net proved reserves of 7,000 bbls
of oil and 79,000 mcf of gas as of December 31, 1999. The Limited Partnership's
working interest in this well is 13.1%. The prospect produces from one zone, the
Bol Mex.3 formation, at 15,275 feet.
As part of the liquidation process, the general partner intends to sell the
investors' interest in the Freddie Aker #1 well at public auction during the
first quarter of 2000.
ITEM 3 - LEGAL PROCEEDINGS
None.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
No matter was submitted to a vote of participants during the fourth quarter of
1999.
<PAGE>
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
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, 1999, there were approximately 746 holders of record of
partnership interests in the Drilling Partnership.
c) Distributions paid by the Limited Partnership were as follows(in thousands):
General Limited
Partner Partner
1999 $107 $191
1998 289 546
1997 436 865
ITEM 6 - SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Limited Partnership
As of or for the Year Ended December 31,
----------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Total revenues $309 $586 $1,311 $2,010 $1,170
Oil and gas revenues 304 574 1,287 1,996 1,156
Net income 179 451 1,098 1,796 988
Working capital 166 271 605 806 580
Total assets 321 362 652 818 597
Partners' capital -- -- 638 806 580
Net assets in liquidation 166 271 -- -- --
</TABLE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The terms of the partnership agreements governing the General Partnership and
the Limited Partnership provide for a fifteen year term of existence which
extended through September 18, 1999. The partnerships are expected to be
liquidated prior to the end of the second quarter of 2000. As a result, the
General Partnership and the Limited Partnership changed their basis of
accounting from the going concern basis to the liquidation basis effective
December 31, 1998. Accordingly, assets have been valued at estimated realizable
value, net of estimated disposition costs, and liabilities have been adjusted to
estimated settlement amounts, as follows (in thousands):
December 31,
1999 1998
---- ----
Appreciation of oil and gas properties $ 76 $ 77
Deferral of appreciated gain on oil and gas properties (76) (77)
<PAGE>
Liquidity and Capital Resources
Material changes in the Limited Partnership's cash position for the years ended
December 31, 1999 and 1998 are summarized as follows:
1999 1998
---- ----
(In thousands)
Cash provided by operating activities $ 305 $ 676
Distributions to partners (298) (835)
Contributions from partners 17 35
Additions to oil and gas properties (94)
---- -----
Decrease in cash $ (70) $(124)
==== ====
Cash provided by operating activities in 1999 was used primarily for
distributions to the partners and for capital expenditures.
The reserves of the Limited Partnership have been estimated by HPI's in-house
engineers and have been reviewed by independent petroleum engineers. Proved
reserves and discounted future net revenues valued at year-end prices
(discounted at 10% and before general and administrative expenses) from proved
reserves were estimated at 7,000 bbls and 79,000 mcf valued at $299,000 in 1999
and 10,000 bbls and 105,000 mcf valued at $293,000 in 1998. The increase in
discounted future net revenues and in the quantities resulted from an increase
in year-end oil and gas prices, partially offset by current year production and
decreases in the estimated rates of future production on the Freddie Aker well
as it is nearing the end of its productive life. Estimates of discounted future
net revenues should not be construed as the current market value of the
estimated oil and gas reserves. In accordance with requirements of the
Securities and Exchange Commission, the estimated discounted future net revenues
from proved reserves are generally based on prices and costs as of the date of
the estimate, whereas actual future prices and costs may be materially higher or
lower. In addition, the 10% discount factor, which is required by the SEC for
reporting purposes, is not necessarily the most appropriate discount factor
based on risks associated with the production of the reserves or the oil and gas
industry in general. Accordingly, the price received from the sale of oil and
gas reserves is not generally the same as the estimated future net revenues for
those reserves and the amount received in liquidation of the assets.
Results of Operations
1999 Compared to 1998
Gas Revenue
Gas revenue decreased $195,000 during 1999 compared with 1998. The decrease is
due to a 53% decrease in production partially offset by an increase in the
average gas price from $2.50 per mcf during 1998 to $2.64 per mcf during 1999.
The decrease in production from 154,502 mcf in 1998 to 72,618 mcf in 1999 is due
to the shut-in of the Freddie Aker #1 well during October 1999 while workover
procedures were performed and increased rates of water production on the well.
Oil Revenue
Oil revenue decreased $75,000 during 1999 compared with 1998. The decrease is
comprised of a 52% decrease in production, partially offset by an increase in
the average price from $12.99 per barrel in 1998 to $16.34 per barrel in 1999.
The decrease in production from 14,367 barrels in 1998 to 6,833 barrels in 1999
is due to the shut-in of the Freddie Aker #1 well during October 1999 while
workover procedures were performed and increased rates of water production on
the well.
<PAGE>
Interest Income
Interest income decreased $7,000 during 1999 compared with 1998 due to a lower
average cash balance during 1999.
Lease Operating
Lease operating expense decreased $6,000 during 1999 compared with 1998
primarily due to decreased maintenance activity during 1999.
Production Taxes
Production taxes decreased $18,000 during 1999 compared with 1998 as a result of
a decreased oil and gas production during 1999.
General and Administrative
General and administrative expenses decreased $4,000 during 1999 compared with
1998 primarily due to a decrease in performance based compensation expense.
Depletion
Depletion expense increased $21,000 during 1999 compared with 1998 primarily due
to an increase in capitalized costs during 1999 resulting from workover
procedures performed on the Freddie Aker #1 well.
Professional Services and Other
Professional services and other expense increased $2,000 during 1999 compared to
1998 due to an increase in numerous miscellaneous items, none of which is
individually significant.
1998 Compared to 1997
Gas Revenue
Gas revenue decreased $406,000 during 1998 compared with 1997. The decrease is
due to a decrease in the average gas price from $3.07 per mcf during 1997 to
$2.50 per mcf during 1998, combined with a 40% decrease in production. The
decrease in production from 258,483 mcf in 1997 to 154,502 mcf in 1998 is due to
increased rates of water production on the Freddie Aker #1 well in Louisiana.
Oil Revenue
Oil revenue decreased $307,000 during 1998 compared with 1997. The decrease is
comprised of a 41% decrease in production, combined with a decrease in the
average price from $20.28 per barrel in 1997 to $12.99 per barrel in 1998. The
decrease in production from 24,353 barrels in 1997 to 14,367 barrels in 1998 is
due to due to increased rates of water production on the Freddie Aker #1 well in
Louisiana.
Interest Income
Interest income decreased $3,000 during 1998 compared with 1997 due to a lower
average cash balance during 1998.
Other
Other income during 1997 is comprised of insurance proceeds which reimbursed a
portion of expense incurred in a prior period to settle certain litigation.
Lease Operating
Lease operating expense decreased $12,000 during 1998 compared with 1997
primarily due to decreased maintenance activity during 1998.
Production Taxes
Production taxes decreased $46,000 during 1998 compared with 1997 as a result of
a decreased oil and gas production during 1998.
General and Administrative
General and administrative expenses increased $1,000 during 1998 compared with
1997 primarily due to an increase in performance based compensation expense.
Depletion
Depletion expense decreased $22,000 during 1998 compared with 1997 due to a
lower depletion rate caused by a decrease in production and a decrease in
capitalized costs during 1998.
<PAGE>
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Limited Partnership's primary market risk relates to changes in the prices
received from sales of oil and natural gas production. The Limited Partnership
manages its commodity price risks by using well-trained and experienced
marketing personnel to sell its production. The Limited Partnership does not use
any financial instruments or derivative commodity instruments that are subject
to price or interest rate risk.
<PAGE>
<TABLE>
<CAPTION>
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
Page
FINANCIAL STATEMENTS:
<S> <C>
Independent Auditors' Report 13
Statements of Net Assets in Liquidation at December 31, 1999 and 1998 -
May Drilling Partnership 1984-2 14
Statements of Net Assets in Liquidation at December 31, 1999 and 1998 -
May Limited Partnership 1984-2 15
Statement of Changes in Net Assets in Liquidation for the Year Ended December
31, 1999 and Statements of Operations for the Years Ended December 31, 1998
and 1997 -
May Limited Partnership 1984-2 16
Statements of Changes in Partners' Capital for the Years Ended
December 31, 1998 and 1997 -
May Limited Partnership 1984-2 17
Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997 -
May Limited Partnership 1984-2 18
Notes to Financial Statements - May Drilling Partnership 1984-2
and May Limited Partnership 1984-2 19-23
SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (UNAUDITED) 24
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of May Drilling Partnership 1984-2 and
May Limited Partnership 1984-2:
We have audited the accompanying financial statements of May Drilling
Partnership 1984-2 ("General Partnership") and May Limited Partnership 1984-2
("Limited Partnership") 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.
As discussed in Note 1 to the financial statements, the terms of the partnership
agreements governing the General Partnership and the Limited Partnership provide
for a fifteen year term of existence which extended through September 18, 1999.
The partnerships are expected to be liquidated in 2000. As a result, the General
Partnership and the Limited Partnership have changed their basis of accounting
from the going concern basis to the liquidation basis effective December 31,
1998.
In our opinion, such financial statements present fairly, in all material
respects, (1) the net assets in liquidation of the General Partnership and the
Limited Partnership as of December 31, 1999 and 1998, (2) the changes in net
assets in liquidation of the Limited Partnership for the year ended December 31,
1999 and (3) the results of operations and cash flows of the Limited Partnership
for the years ended December 31, 1998 and 1997 in conformity with generally
accepted accounting principles on the bases described in the preceding
paragraph.
DELOITTE & TOUCHE LLP
Denver, Colorado
March 6, 2000
<PAGE>
<TABLE>
<CAPTION>
MAY DRILLING PARTNERSHIP 1984-2
STATEMENTS OF NET ASSETS IN LIQUIDATION
AT DECEMBER 31, 1999 AND 1998
(In thousands)
1999 1998
-------------- ---------
ASSETS
<S> <C> <C>
Investment in May Limited Partnership 1984-2 $ - $77
==== ==
NET ASSETS IN LIQUIDATION $ - $77
==== ==
<FN>
Note: The statements of operations, changes in net assets in liquidation,
changes in partners' capital and cash flows for May Drilling Partnership 1984-2
are not presented because such information is equal to the Limited Partners'
share of such activity as presented in the May Limited Partnership 1984-2
financial statements. The May Drilling Partnership carries its investment in May
Limited Partnership 1984-2 on the equity method. The May Limited Partnership
1984-2 financial statements should be read in conjunction with this statement of
net assets in liquidation. The May Limited Partnership 1984-2 changed its basis
of accounting from the going concern basis to the liquidation basis effective
December 31, 1998 as described in Note 1 to the financial statements.
</FN>
<FN>
The accompanying notes are an integral part of the
financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MAY LIMITED PARTNERSHIP 1984-2
STATEMENTS OF NET ASSETS IN LIQUIDATION
AT DECEMBER 31, 1999 AND 1998
(In thousands)
1999 1998
-------------- ---------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 92 $ 162
Accrued oil and gas revenues 71 61
Due from affiliate 30
Contribution receivable from general partner 14 17
OIL AND GAS PROPERTIES:
At estimated net realizable value 144 92
------- --------
TOTAL ASSETS 321 362
------- -------
LIABILITIES
Accounts payable and accrued liabilities 16 14
Due to affiliate 63
Deferred appreciated gain on oil and gas properties 76 77
-------- --------
NET ASSETS IN LIQUIDATION $ 166 $ 271
======= =======
<FN>
The accompanying notes are an integral part of the
financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MAY LIMITED PARTNERSHIP 1984-2
STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
FOR THE YEAR ENDED DECEMBER 31, 1999 AND STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(In thousands, except for Unit and per Unit Information)
1999 1998 1997
---- ---- ----
REVENUES
<S> <C> <C> <C>
Gas revenue $ 192 $ 387 $ 793
Oil revenue 112 187 494
Interest income 5 12 15
Other 9
---------- ---------- ----------
Total 309 586 1,311
------ ------ ------
COSTS AND EXPENSES
Lease operating 27 33 45
Production taxes 22 40 86
General and administrative 29 33 32
Depletion 39 18 40
Professional services and other 13 11 10
-------- -------- --------
Total 130 135 213
------- ------- -------
NET INCOME FROM OPERATIONS 179 $ 451 $ 1,098
======= ======
NET ASSETS IN LIQUIDATION,
BEGINNING OF PERIOD 271
DISTRIBUTIONS TO PARTNERS (298)
CONTRIBUTIONS FROM PARTNERS 14
--------
NET ASSETS IN LIQUIDATION,
END OF PERIOD $ 166
=======
ALLOCATION OF NET INCOME:
General Partner $ 148 $ 358
======= =======
Limited Partner $ 303 $ 740
======= =======
Per initial $1,000 Limited Partner investment $ 35.10 $ 85.71
====== ======
Weighted average initial $1,000 Limited
Partner investment units outstanding 8,633 8,633
====== ======
<FN>
The accompanying notes are an integral part of the
financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MAY LIMITED PARTNERSHIP 1984-2
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(In thousands)
Net Assets
General Limited in
Partner Partner Liquidation Total
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996 $ 361 $ 445 $ 806
Capital contributions 35 35
Net income 358 740 1,098
Distributions (436) (865) (1,301)
------ ------ ------
BALANCE, December 31, 1997 318 320 638
Capital contributions 17 17
Net income 148 303 451
Distributions (289) (546) (835)
Adjustments to liquidation basis:
Eliminate Partners' Capital (194) (77) (271)
Revaluation of assets and liabilities $ 271 271
--------- --------- ------ --------
BALANCE, December 31, 1998 $ -0- $ -0- $ 271 $ 271
======= ======= ====== ========
<FN>
The accompanying notes are an integral part of the
financial statements.
</FN>
</TABLE>
<TABLE>
<CAPTION>
MAY LIMITED PARTNERSHIP 1984-2
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
(In thousands)
1998 1997
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 451 $ 1,098
Adjustment to reconcile net income
to net cash provided by operating activities:
Depletion 18 40
Changes in assets and liabilities provided (used) cash:
Accrued oil and gas revenues 131 128
Due from affiliate 76 8
Accounts payable and accrued liabilities 2
---------- ---------
Net cash provided by operating activities 676 1,276
------ ------
INVESTING ACTIVITIES -
Additions to gas and oil properties (73)
---------- -------
FINANCING ACTIVITIES -
Distributions to partners (835) (1,301)
Contributions from partners 35 32
-------- --------
Net cash used in financing activities (800) (1,269)
------- ------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (124) (66)
CASH AND CASH EQUIVALENTS:
BEGINNING OF YEAR 286 352
------ ------
END OF YEAR $ 162 $ 286
====== ======
<FN>
The accompanying notes are an integral part of the
financial statements.
</FN>
</TABLE>
MAY DRILLING PARTNERSHIP 1984-2
AND
MAY LIMITED PARTNERSHIP 1984-2
NOTES TO FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES AND OTHER MATTERS
General Partnership
May Drilling Partnership 1984-2, a Texas general partnership (the
"General Partnership"), was organized by May Petroleum Inc. ("May") for
the purposes of oil and gas exploration through May Limited Partnership
1984-2 (the "Limited Partnership"). The General Partnership was formed on
September 18, 1984, with investors ("Participants") subscribing an
aggregate of $8,633,000 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. During 1985, May assessed the
Participants 5% of initial contributions. No additional assessments have
been made since 1985.
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 (as
set forth in the partnership agreement) of the Limited Partnership's net
assets no later than December 31, 1988, and during each succeeding year,
if such net assets are positive. The manager has made repurchase offers
in all years since 1989.
As the General Partnership is the sole limited partner of the Limited
Partnership, and there are no other revenues or expenses of the General
Partnership, its results of operations, changes in partners' capital and
cash flows are equal to the limited partner's share of the Limited
Partnership's results of operations, changes in partners' capital and
cash flows as set forth herein. Therefore, separate statements of
operations, changes in net assets in liquidation, changes in partners'
capital and cash flows 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. As of December 31, 1999, all such
contributions had been accrued.
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.
<PAGE>
The terms of the partnership agreements governing the General Partnership
and the Limited Partnership provide for a fifteen year term of existence
which extends through September 18, 1999. The partnerships are expected
to be liquidated prior to the end of the second quarter of 2000. As a
result, the General Partnership and the Limited Partnership changed their
basis of accounting from the going concern basis to the liquidation basis
effective December 31, 1998. Accordingly, assets have been valued at
estimated realizable value, net of estimated disposition costs, and
liabilities have been adjusted to estimated settlement amounts, as
follows (in thousands):
December 31,
1999 1998
---- ----
Appreciation of oil and gas properties $ 76 $ 77
Deferral of appreciated gain on oil and gas properties (76) (77)
The Partnership obtained fair market appraisals of its properties as of
December 31, 1999 and 1998. When the appraised value is compared to the
historical net carrying value of the Limited Partnership's oil and gas
properties, there is an appreciation of $76,000 and $77,000 at December
31, 1999 and 1998, respectively. Because of the inherent uncertainty
about the timing and amount of the gain that may ultimately be realized,
such estimated gain has been deferred at December 31, 1999 and 1998.
The statements of operations, and cash flows of the Limited Partnership
for each of the two years in the period ended December 31, 1998 have been
prepared using the historical cost (going concern) basis of accounting on
which the General Partnership and the Limited Partnership had previously
reported their financial condition and results of operations.
The Limited Partnership will be wound up prior to the end of the second
quarter of 2000. This process includes preparing a final accounting,
paying the liabilities of the Drilling Partnership and the Limited
Partnership, and making a liquidating distribution in accordance with the
capital accounts of the partners. The general partner believes that it
would be in the best interest of the limited partners to sell the assets
of the Limited Partnership and distribute any cash remaining after
payment of liabilities. The general partner intends to sell the
investors' interest in the Freddie Aker #1 well at a public auction in
the first quarter of 2000.
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:
1999 1998 1997
---- ---- ----
Limited Partner 68.0% 68.1% 68.2%
General Partner 32.0% 31.9% 31.8%
<PAGE>
Significant Customers
For the years ended December 31, 1999, 1998 and 1997, purchases by the
following companies exceeded 10% of the total oil and gas revenues of the
Limited Partnership:
1999 1998 1997
---- ---- ----
Conoco Inc. 68% 48% 41%
Plains All American Inc. 31%
Marathon Petroleum Company 16% 39%
TXG Gas Marketing 17% 19%
Scurlock Permian LLC 17%
Although the Limited Partnership sells the majority of its production to
a small number of purchasers, there are numerous other purchasers in the
area, so the loss of any 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
Prior to December 31, 1998, the Limited Partnership followed the full
cost method of accounting for oil and gas properties and, accordingly,
capitalized 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 units of
production basis. Full cost amortization per dollar of gross oil and gas
revenues was $.13 in 1999, $.03 in 1998 and $.03 in 1997.
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.
Gas Balancing
The Limited Partnership uses the sales method of 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 or repaid at a future date.
As of December 31, 1999, the Limited Partnership had a net over-produced
position of 1,064 mcf ($2,873 valued at year-end gas prices). The General
Partner believes that this imbalance can be made-up from production on
the existing well. The reserves disclosed in Supplemental Oil and Gas
Reserve Information have been decreased by 1,064 mcf in order to reflect
the Partnership's gas balancing position.
<PAGE>
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
Partnership had a payable to HPI of $63,000 as of December 31, 1999 and a
receivable from HPI of $30,000 as of December 31, 1998. These balances
represent net revenue 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.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses,
gains, and losses) in a full set of general purpose financial statements.
SFAS 130 requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. Reclassification of financial statements for
earlier periods provided for comparative purposes is required. The
Limited Partnership adopted SFAS 130 on January 1, 1998. The Limited
Partnership does not have any items of other comprehensive income for the
years ended December 31, 1999, 1998 and 1997. Therefore, total
comprehensive income is the same as net income for those periods.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 131 "Disclosures about Segments of
an Enterprise and Related Information" ("SFAS 131"). SFAS 131 establishes
standards for reporting selected information about operating segments and
related disclosures about products and services, geographic areas, and
major customers. SFAS 131 requires that an entity report financial and
descriptive information about its operating segments which are regularly
evaluated by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. The Limited Partnership
adopted SFAS 131 in 1998.
The Limited Partnership engages in the development, production and sale
of oil and gas, and the acquisition, exploration, development and
operation of oil and gas properties in the continental United States.
These activities exhibit similar economic characteristics and involve the
same products, production processes, class of customers, and methods of
distribution. Management of the Limited Partnership evaluates its
performance as a whole rather than by product or geographically. As a
result, the Limited Partnership's operations consist of one reportable
segment.
(2) GENERAL AND ADMINISTRATIVE OVERHEAD
HPI conducts the day to day operations of the Limited Partnership and
other affiliated entities of HEC. The costs of operating the entities are
allocated to each entity based upon the time spent on that entity.
General and administrative overhead allocated by HPI to the Limited
Partnership totaled $26,000 in 1999, $27,000 in 1998 and $32,000 in 1997.
(3) INCOME TAXES
As a result of differences between the accounting treatment of certain
items for income tax purposes and financial reporting purposes, primarily
depreciation, depletion and amortization of oil and gas properties and
the recognition of intangible drilling costs as an expense or capital
item, the income tax basis of oil and gas properties differs from the
basis used for financial reporting purposes. At both December 31, 1999
and 1998, the income tax bases of the Limited Partnership's oil and gas
properties were approximately $4,100.
<PAGE>
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 -
For the Year Ended December 31,
1999 1998 1997
---- ---- ----
(In thousands)
Development costs $ 94 $ - $ 73
=== === ===
Oil and Gas Reserves (valued at year-end prices discounted at 10%) -
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Mcf Bbls Mcf Bbls Mcf Bbls
--- ---- --- ---- --- ----
(In thousands)
Total Proved Reserves:
<S> <C> <C> <C> <C> <C> <C>
Beginning of period 105 10 290 27 345 33
Revisions to previous
estimates 47 4 (30) (3) 203 18
Production (73) (7) (155) (14) (258) (24)
---- --- ---- - ---- ---- ----
End of period 79 7 105 10 290 27
==== ==== ==== ==== ==== =====
Proved Developed Reserves:
Beginning of period 105 10 290 27 345 33
==== === ==== ==== ==== =====
End of period 79 7 105 10 290 27
===== ==== ==== ==== ==== =====
</TABLE>
Certain reserve value information is provided directly to partners pursuant to
the Agreement. Accordingly, such information is not presented herein.
<PAGE>
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 HEC 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 4610 S. Ulster Street Parkway, Denver, Colorado 80237,
and which beneficially owns approximately 34% of the outstanding
units.
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. 0-89194, are incorporated
herein by reference.
27 Financial Data Schedule
<PAGE>
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 1984-2
MAY LIMITED PARTNERSHIP 1984-2
By: HALLWOOD ENERGY PARTNERS, L.P.
General Partner
By: HEC ACQUISITION CORP.
General Partner
Date: March 6, 2000 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/William J. Baumgartner Vice President March 6, 2000
- ---------------------------
William J. Baumgartner Chief Financial Officer
(Principal Financial and
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, 1999 for May Litmited Partnership 1984-2 and is
qualified in its entirety by reference to such Form 10-K.
</LEGEND>
<CIK> 0000757385
<NAME> May Limited Partnership 1984-2
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 92
<SECURITIES> 0
<RECEIVABLES> 85
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 177
<PP&E> 144
<DEPRECIATION> 0
<TOTAL-ASSETS> 321
<CURRENT-LIABILITIES> 79
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 321
<SALES> 304
<TOTAL-REVENUES> 309
<CGS> 0
<TOTAL-COSTS> 49
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 179
<INCOME-TAX> 0
<INCOME-CONTINUING> 179
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 179
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
