UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/x/ Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1996, or
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _________ to _________
Commission File No. 33-3353B
PARKER & PARSLEY 86-B, LTD.
(Exact name of Registrant as specified in its charter)
Texas 75-2140235
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
303 West Wall, Suite 101
Midland, Texas 79701
(Address of principal executive offices) (Zip code)
Registrant's Telephone Number, including area code: (915)683-4768
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /x/ No / /
Page 1 of 14 pages.
There are no exhibits.
<PAGE>
PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
BALANCE SHEETS
March 31, December 31,
1996 1995
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents, including
interest bearing deposits of
$168,463 at March 31 and $151,136
at December 31 $ 181,619 $ 151,763
Accounts receivable - oil and gas sales 195,438 178,375
---------- ----------
Total current assets 377,057 330,138
Oil and gas properties - at cost, based
on the successful efforts accounting
method 13,852,401 14,156,180
Accumulated depletion (9,473,991) (9,685,808)
---------- ----------
Net oil and gas properties 4,378,410 4,470,372
---------- ----------
$ 4,755,467 $ 4,800,510
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 95,938 $ 70,218
Partners' capital:
Limited partners (17,208 interests) 4,614,210 4,684,266
Managing general partner 45,319 46,026
---------- ----------
4,659,529 4,730,292
---------- ----------
$ 4,755,467 $ 4,800,510
========== ==========
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended
March 31,
1996 1995
---------- ----------
Revenues:
Oil and gas sales $ 395,800 $ 389,765
Interest income 2,410 2,425
Salvage income from equipment disposals 6,887 -
Gain on sale of properties 4,332 -
--------- ---------
Total revenues 409,429 392,190
Costs and expenses:
Production costs 200,259 196,653
General and administrative expenses 11,874 11,693
Depletion 92,052 140,362
Abandoned property costs 1,486 3,328
--------- ---------
Total costs and expenses 305,671 352,036
--------- ---------
Net income $ 103,758 $ 40,154
========= =========
Allocation of net income:
Managing general partner $ 1,038 $ 401
========= =========
Limited partners $ 102,720 $ 39,753
========= =========
Net income per limited partnership
interest $ 5.97 $ 2.31
========= =========
Distributions per limited partnership
interest $ 10.04 $ 10.33
========= =========
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
(Unaudited)
Managing
general Limited
partner partners Total
----------- ----------- -----------
Balance at January 1, 1995 $ 52,788 $ 5,353,642 $ 5,406,430
Distributions (1,795) (177,726) (179,521)
Net income 401 39,753 40,154
---------- ---------- ----------
Balance at March 31, 1995 $ 51,394 $ 5,215,669 $ 5,267,063
========== ========== ==========
Balance at January 1, 1996 $ 46,026 $ 4,684,266 $ 4,730,292
Distributions (1,745) (172,776) (174,521)
Net income 1,038 102,720 103,758
---------- ---------- ----------
Balance at March 31, 1996 $ 45,319 $ 4,614,210 $ 4,659,529
========== ========== ==========
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
Three months ended
March 31,
1996 1995
---------- ----------
Cash flows from operating activities:
Net income $ 103,758 $ 40,154
Adjustments to reconcile net income to
net cash provided by operating activities:
Depletion 92,052 140,362
Salvage income from equipment disposals (6,887) -
Gain on sale of properties (4,332) -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (17,063) 5,630
Increase in accounts payable 18,878 22,130
--------- ---------
Net cash provided by operating
activities 186,406 208,276
Cash flows from investing activities:
Proceeds from salvage income on
equipment disposals 6,887 -
Proceeds from sale of properties 4,332 -
(Additions) disposals of oil and
gas properties 6,752 (8,159)
--------- ---------
Net cash provided by (used in)
investing activities 17,971 (8,159)
Cash flows from financing activities:
Cash distributions to partners (174,521) (179,521)
--------- ---------
Net increase in cash and cash equivalents 29,856 20,596
Cash and cash equivalents at beginning
of period 151,763 141,681
--------- ---------
Cash and cash equivalents at end of period $ 181,619 $ 162,277
========= =========
The financial information included herein has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
NOTE 1.
Parker & Parsley 86-B, Ltd. (the "Registrant") is a limited partnership
organized in 1986 under the laws of the State of Texas.
The Registrant engages primarily in oil and gas development and production in
Texas and is not involved in any industry segment other than oil and gas.
NOTE 2.
In the opinion of management, the unaudited financial statements as of March 31,
1996 of the Registrant include all adjustments and accruals consisting only of
normal recurring accrual adjustments which are necessary for a fair presentation
of the results for the interim period. However, these interim results are not
necessarily indicative of results for a full year.
The financial statements should be read in conjunction with the financial
statements and the notes thereto contained in the Registrant's Report on Form
10-K for the year ended December 31, 1995, as filed with the Securities and
Exchange Commission, a copy of which is available upon request by writing to
Steven L. Beal, Senior Vice President, 303 West Wall, Suite 101, Midland, Texas
79701.
NOTE 3.
On May 25, 1993, a final settlement agreement was negotiated, drafted and
finally executed, ending litigation which had begun on September 5, 1989, when
the Registrant filed suit along with other parties against Dresser Industries,
Inc.; Titan Services, Inc.; BJ-Titan Services Company; BJ- Hughes Holding
Company; Hughes Tool Company; Baker Hughes Production Tools, Inc.; and Baker
Hughes Incorporated alleging that the defendants had intentionally failed to
provide the materials and services ordered and paid for by the Registrant and
other parties in connection with the fracturing and acidizing of 523 wells, and
then fraudulently concealed the shorting practice from Parker & Parsley
Development L.P. ("PPDLP"). The May 25, 1993 settlement agreement called for a
payment of $115 million in cash by the defendants, and Southmark, the
6
<PAGE>
Registrant, and the other plaintiffs indemnified the defendants against the
claims of Jack N. Price. The managing general partner received the funds,
deducted incurred legal expenses, accrued interest, determined the general
partner's portion of the funds and calculated any inter-partnership allocations.
On May 3, 1993, Jack N. Price, the attorney who represented Gary G. "Zeke"
Lancaster in the Federal Court lawsuit, filed suit in State Court in Beaumont
against all of the plaintiff partnerships, including the Registrant and others,
alleging his entitlement to 12% of the settlement proceeds. Price's lawsuit
claim for approximately $13.8 million is predicated on a purported contract
entered into with Southmark Corporation in August 1988 in which he allegedly
binds the Registrant and the other defendants, as well as Southmark. Although
PPDLP believes the lawsuit was without merit and has vigorously defended it,
PPDLP has held in reserve approximately 12.5% of the total settlement (the
"Reserve") pending final resolution of the litigation.
A distribution of $91,000,000 was made to the working interest owners, including
the Registrant, on July 30, 1993. The limited partners received their
distribution of $5,500,648, or $319.66 per limited partnership interest, in
September 1993. The allocation of the lawsuit settlement amount was based on the
original verdict entered on October 26, 1990. The allocation to the working
interest owners in each well (including the Registrant) was based on a ratio of
the relative amount of damages due to overcharges for services and materials
("Materials") and damages for loss of past and future production ("Production"),
each as determined in that initial judgment. Within the Registrant, damages for
Materials were allocated between the partners based on their original sharing
percentages for costs of acquiring and/or drilling of wells. Similarly, damages
related to Production were allocated to the partners in the Registrant based on
their respective share of revenues from the subject wells.
As a condition of the purchase by Parker & Parsley Petroleum Company of Parker &
Parsley Development Company ("PPDC"), which was merged into PPDLP on January 1,
1995, from its former parent in May 1989, PPDC's interest in the lawsuit and
subsequent settlement was retained by the former parent. Consequently, all of
PPDC's share of the settlement related to its separately held interests in the
wells and its partnership interests in the sponsored partnerships (except that
portion allocable to interests acquired by PPDC after May 1989) was paid to the
former parent.
On September 20, 1995, the Beaumont trial judge entered a summary judgment
against Southmark for the $13,790,000 contingent fee sought by Price, together
with prejudgment interest, and also awarded Price an additional $5,498,525 in
attorneys' fees. On January 22, 1996, the trial judge entered an interlocutory
7
<PAGE>
summary judgment against Dresser Industries and Baker Hughes for an amount yet
to be determined. Pursuant to their indemnity obligations, the Registrant,
Southmark, PPDLP and other original plaintiffs have vigorously protected the
rights of both Dresser and Baker Hughes. Southmark has vigorously pursued its
appeal of the judgment, and has posted a supersedeas bond using the Reserve as
collateral. On April 29, 1996, all of the parties, including the Registrant and
Southmark, entered into a $7.4 million settlement with Price which fully and
finally resolves all of the litigation and disputes between the parties,
including the Registrant's indemnity obligations to Dresser and Baker Hughes.
Pursuant to the settlement agreement, all of the pending lawsuits and judgments
will be dismissed, the supersedeas bond released, and the Reserve released as
collateral. It is expected that before the end of the third quarter, the
necessary dismissals and releases will be effected, the managing general partner
will conduct an accounting of income and expenses among the parties, and a final
distribution will be made to the working interest owners, including the
Registrant and its partners.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS(1)
The Registrant was formed October 29, 1986. On January 1, 1995, Parker & Parsley
Development L.P. ("PPDLP"), a Texas limited partnership, became the sole
managing general partner of the Registrant, by acquiring the rights and assuming
the obligations of Parker & Parsley Development Company ("PPDC"). PPDLP acquired
PPDC's rights and obligations as managing general partner of the Registrant in
connection with the merger of PPDC, P&P Producing, Inc. and Spraberry
Development Corporation into MidPar L.P., which survived the merger with a
change of name to PPDLP. The sole general partner of PPDLP is Parker & Parsley
Petroleum USA, Inc. PPDLP has the power and authority to manage, control and
administer all Registrant affairs. The limited partners contributed $17,208,000
representing 17,208 interests ($1,000 per interest) sold to a total of 1,466
limited partners.
Since its formation, the Registrant invested $14,324,581 in various prospects
that were drilled in Texas. At March 31, 1996, the Registrant had 51 producing
oil and gas wells. Interests in five wells have been sold; one well in 1991 and
four wells in 1996, two of which were plugged and abandoned in a prior year. The
Registrant received interests in one additional producing oil and gas well in
1993 due to the Registrant's back-in after payout provisions.
8
<PAGE>
Results of Operations
Revenues:
The Registrant's oil and gas revenues increased to $395,800 from $389,765 for
the three months ended March 31, 1996 and 1995, respectively, an increase of 2%.
The increase in revenues resulted from a 10% increase in the average price
received per barrel of oil and an 8% increase in the average price received per
mcf of gas, offset by a 9% decrease in barrels of oil produced and sold and a 3%
decrease in mcf of gas produced and sold. For the three months ended March 31,
1996, 14,826 barrels of oil were sold compared to 16,279 for the same period in
1995, a decrease of 1,453 barrels. For the three months ended March 31, 1996,
52,867 mcf of gas were sold compared to 54,433 for the same period in 1995, a
decrease of 1,566 mcf. The decreases in production volumes were primarily due to
the decline characteristics of the Registrant's oil and gas properties. Because
of these characteristics, management expects a certain amount of decline in
production to continue in the future until the Registrant's economically
recoverable reserves are fully depleted.
The average price received per barrel of oil increased $1.76 from $17.24 for the
three months ended March 31, 1995 to $19.00 for the same period in 1996 while
the average price received per mcf of gas increased from $2.00 for the three
months ended March 31, 1995 to $2.16 for the same period in 1996. The market
price for oil and gas has been extremely volatile in the past decade, and
management expects a certain amount of volatility to continue in the foreseeable
future. The Registrant may therefore sell its future oil and gas production at
average prices lower or higher than that received during the three months ended
March 31, 1996.
Salvage income of $6,887 was received during the three months ended March 31,
1996 from the disposal of equipment on one fully depleted well.
A gain was realized as a result of the receipt of $4,332 in proceeds from the
sale of four fully depleted properties during the three months ended March 31,
1996.
Costs and Expenses:
Total costs and expenses decreased to $305,671 for the three months ended March
31, 1996 as compared to $352,036 for the same period in 1995, a decrease of
$46,365, or 13%. This decrease was due to declines in depletion and abandoned
property costs, offset by increases in production costs and general and
administrative expenses ("G&A").
9
<PAGE>
Production costs were $200,259 for the three months ended March 31, 1996 and
$196,653 for the same period in 1995, resulting in a $3,606 increase. This
increase was primarily due to additional well repair and maintenance costs
incurred in an effort to stimulate well production, offset by a decline in ad
valorem taxes.
G&A's components are independent accounting and engineering fees, computer
services, postage and managing general partner personnel costs. During this
period, G&A increased, in aggregate, 2% from $11,693 for the three months ended
March 31, 1995 to $11,874 for the same period in 1996. The Partnership agreement
limits G&A to 3% of gross oil and gas revenues.
Depletion was $92,052 for the three months ended March 31, 1996 compared to
$140,362 for the same period in 1995. This represented a decrease in depletion
of $48,310, or 34%, primarily attributable to the adoption of the provisions of
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
effective for the fourth quarter of 1995 and the reduction of net depletable
basis resulting from the charge taken upon such adoption. Depletion was computed
property-by-property utilizing the unit-of-production method based upon the
dominant mineral produced, generally oil. Oil production decreased 1,453 barrels
for the three months ended March 31, 1996 from the same period in 1995, while
oil reserves of barrels were revised upward by 15,292 barrels, or 2%.
Abandoned property costs of $1,486 were incurred on one well during the three
months ended March 31, 1996 compared to $3,328 for the same period in 1995.
On May 25, 1993, a final settlement agreement was negotiated, drafted and
finally executed, ending litigation which had begun on September 5, 1989, when
the Registrant filed suit along with other parties against Dresser Industries,
Inc.; Titan Services, Inc.; BJ-Titan Services Company; BJ- Hughes Holding
Company; Hughes Tool Company; Baker Hughes Production Tools, Inc.; and Baker
Hughes Incorporated alleging that the defendants had intentionally failed to
provide the materials and services ordered and paid for by the Registrant and
other parties in connection with the fracturing and acidizing of 523 wells, and
then fraudulently concealed the shorting practice from PPDLP. The May 25, 1993
settlement agreement called for a payment of $115 million in cash by the
defendants, and Southmark, the Registrant, and the other plaintiffs indemnified
the defendants against the claims of Jack N. Price. The managing general partner
received the funds, deducted incurred legal expenses, accrued interest,
determined the general partner's portion of the funds and calculated any
inter-partnership allocations.
10
<PAGE>
On May 3, 1993, Jack N. Price, the attorney who represented Gary G. "Zeke"
Lancaster in the Federal Court lawsuit, filed suit in State Court in Beaumont
against all of the plaintiff partnerships, including the Registrant and others,
alleging his entitlement to 12% of the settlement proceeds. Price's lawsuit
claim for approximately $13.8 million is predicated on a purported contract
entered into with Southmark Corporation in August 1988 in which he allegedly
binds the Registrant and the other defendants, as well as Southmark. Although
PPDLP believes the lawsuit was without merit and has vigorously defended it,
PPDLP has held in reserve approximately 12.5% of the total settlement (the
"Reserve") pending final resolution of the litigation.
A distribution of $91,000,000 was made to the working interest owners, including
the Registrant, on July 30, 1993. The limited partners received their
distribution of $5,500,648, or $319.66 per limited partnership interest, in
September 1993. The allocation of the lawsuit settlement amount was based on the
original verdict entered on October 26, 1990. The allocation to the working
interest owners in each well (including the Registrant) was based on a ratio of
the relative amount of damages due to overcharges for services and materials
("Materials") and damages for loss of past and future production ("Production"),
each as determined in that initial judgment. Within the Registrant, damages for
Materials were allocated between the partners based on their original sharing
percentages for costs of acquiring and/or drilling of wells. Similarly, damages
related to Production were allocated to the partners in the Registrant based on
their respective share of revenues from the subject wells.
As a condition of the purchase by Parker & Parsley Petroleum Company of PPDC,
which was merged into PPDLP on January 1, 1995, from its former parent in May
1989, PPDC's interest in the lawsuit and subsequent settlement was retained by
the former parent. Consequently, all of PPDC's share of the settlement related
to its separately held interests in the wells and its partnership interests in
the sponsored partnerships (except that portion allocable to interests acquired
by PPDC after May 1989) was paid to the former parent.
On September 20, 1995, the Beaumont trial judge entered a summary judgment
against Southmark for the $13,790,000 contingent fee sought by Price, together
with prejudgment interest, and also awarded Price an additional $5,498,525 in
attorneys' fees. On January 22, 1996, the trial judge entered an interlocutory
summary judgment against Dresser Industries and Baker Hughes for an amount yet
to be determined. Pursuant to their indemnity obligations, the Registrant,
Southmark, PPDLP and other original plaintiffs have vigorously protected the
rights of both Dresser and Baker Hughes. Southmark has vigorously pursued its
appeal of the judgment, and has posted a supersedeas bond using the Reserve as
11
<PAGE>
collateral. On April 29, 1996, all of the parties, including the Registrant and
Southmark, entered into a $7.4 million settlement with Price which fully and
finally resolves all of the litigation and disputes between the parties,
including the Registrant's indemnity obligations to Dresser and Baker Hughes.
Pursuant to the settlement agreement, all of the pending lawsuits and judgments
will be dismissed, the supersedeas bond released, and the Reserve released as
collateral. It is expected that before the end of the third quarter, the
necessary dismissals and releases will be effected, the managing general partner
will conduct an accounting of income and expenses among the parties, and a final
distribution will be made to the working interest owners, including the
Registrant and its partners.
Liquidity and Capital Resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased to $186,406 for the three
months ended March 31, 1996, an 11% decrease from the same period ended March
31, 1995. This decrease was due to a decline in oil and gas sales receipts and
an increase in expenditures for production costs. The decrease in oil and gas
sales receipts was due to a decline in barrels of oil and mcf of gas produced
and sold. The increase in production cost expenditures was due to additional
well repair and maintenance costs incurred in an effort to stimulate well
production.
Net Cash Provided by (Used in) Investing Activities
The Registrant's investing activities during the three months ended March 31,
1996 included $6,752 received from the disposal of oil and gas equipment on
active properties, while the three months ended March 31, 1995 included
expenditures of $8,159 related to repair and maintenance activity on various oil
and gas properties.
Proceeds of $6,887 were received during the three months ended March 31, 1996
from equipment credits received on one fully depleted well.
Four fully depleted properties were sold during the three months ended March 31,
1996, resulting in the receipt of $4,332 in proceeds from the sale.
Net Cash Used in Financing Activities
Cash was sufficient for the three months ended March 31, 1996 to cover
distributions to the partners of $174,521 of which $172,776 was distributed to
the limited partners and $1,745 to the managing general partner. For the same
12
<PAGE>
period ended March 31, 1995, cash was sufficient for distributions to the
partners of $179,521 of which $177,726 was distributed to the limited partners
and $1,795 to the managing general partner.
It is expected that future net cash provided by operating activities will be
sufficient for any capital expenditures and any distributions. As the production
from the properties declines, distributions are also expected to decrease.
- - ---------------
(1) "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations" contains forward looking statements that involve
risks and uncertainties. Accordingly, no assurances can be given that the
actual events and results will not be materially different than the
anticipated results described in the forward looking statements.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Registrant is a party to material litigation which is described in Note 3 of
Notes to Financial Statements above.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - none
(b) Reports on Form 8-K - none
13
<PAGE>
PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
S I G N A T U R E S
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARKER & PARSLEY 86-B, LTD.
By: Parker & Parsley Development L.P.,
Managing General Partner
By: Parker & Parsley Petroleum USA, Inc.
("PPUSA"), General Partner
Dated: May 14, 1996 By: /s/ Steven L. Beal
------------------------------------
Steven L. Beal, Senior Vice
President and Chief Financial
Officer of PPUSA
14
<PAGE>
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<ARTICLE> 5
<CIK> 0000789790
<NAME> 86B.TXT
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 181,619
<SECURITIES> 0
<RECEIVABLES> 195,438
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 377,057
<PP&E> 13,852,401
<DEPRECIATION> 9,473,991
<TOTAL-ASSETS> 4,755,467
<CURRENT-LIABILITIES> 95,938
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 4,659,529
<TOTAL-LIABILITY-AND-EQUITY> 4,755,467
<SALES> 395,800
<TOTAL-REVENUES> 409,429
<CGS> 0
<TOTAL-COSTS> 305,671
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 103,758
<INCOME-TAX> 0
<INCOME-CONTINUING> 103,758
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 103,758
<EPS-PRIMARY> 5.97
<EPS-DILUTED> 0
</TABLE>
