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 September 30, 1998
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>
PARKER & PARSLEY 86-B, LTD.
TABLE OF CONTENTS
Page
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets as of September 30, 1998 and
December 31, 1997........................................ 3
Statements of Operations for the three and nine
months ended September 30, 1998 and 1997.................. 4
Statement of Partners' Capital for the nine months
ended September 30, 1998.................................. 5
Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997............................... 6
Notes to Financial Statements............................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 7
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K............................ 12
27.1 Financial Data Schedule
Signatures.................................................. 13
2
<PAGE>
PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
Part I. Financial Information
Item 1. Financial Statements
BALANCE SHEETS
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash $ 197,029 $ 259,795
Accounts receivable - oil and gas sales 141,874 168,175
----------- -----------
Total current assets 338,903 427,970
----------- -----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 12,036,919 12,263,266
Accumulated depletion (9,215,257) (9,171,064)
----------- -----------
Net oil and gas properties 2,821,662 3,092,202
----------- -----------
$ 3,160,565 $ 3,520,172
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 46,166 $ 35,336
Partners' capital:
Managing general partner 29,867 33,572
Limited partners (17,208 interests) 3,084,532 3,451,264
----------- -----------
3,114,399 3,484,836
----------- -----------
$ 3,160,565 $ 3,520,172
=========== ===========
The financial information included as of September 30, 1998 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 OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
---------- ---------- ---------- ----------
Revenues:
Oil and gas $ 222,706 $ 287,228 $ 719,778 $1,013,600
Interest 3,104 3,961 9,878 12,212
Gain on disposition of assets 656 - 6,091 -
--------- --------- --------- ---------
226,466 291,189 735,747 1,025,812
--------- --------- --------- ---------
Costs and expenses:
Oil and gas production 174,931 152,855 514,701 464,740
General and administrative 6,681 8,617 21,593 30,408
Depletion 131,657 73,360 279,417 235,091
Abandoned property 70 - 20,459 -
--------- --------- --------- ---------
313,339 234,832 836,170 730,239
--------- --------- --------- ---------
Net income (loss) $ (86,873) $ 56,357 $ (100,423) $ 295,573
========= ========= ========= =========
Allocation of net income (loss):
Managing general partner $ (868) $ 564 $ (1,004) $ 2,956
========= ========= ========= =========
Limited partners $ (86,005) $ 55,793 $ (99,419) $ 292,617
========= ========= ========= =========
Net income (loss) per limited
partnership interest $ (5.00) $ 3.24 $ (5.78) $ 17.00
========= ========= ========= =========
Distributions per limited
partnership interest $ 3.27 $ 9.79 $ 15.53 $ 38.11
========= ========= ========= =========
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)
STATEMENT OF PARTNERS' CAPITAL
(Unaudited)
Managing
general Limited
partner partners Total
---------- ---------- ----------
Balance at January 1, 1998 $ 33,572 $3,451,264 $3,484,836
Distributions (2,701) (267,313) (270,014)
Net loss (1,004) (99,419) (100,423)
--------- --------- ---------
Balance at September 30, 1998 $ 29,867 $3,084,532 $3,114,399
========= ========= =========
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)
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
--------------------------
1998 1997
----------- -----------
Cash flows from operating activities:
Net income (loss) $ (100,423) $ 295,573
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depletion 279,417 235,091
Gain on disposition of assets (6,091) -
Changes in assets and liabilities:
Accounts receivable 26,301 97,795
Accounts payable 10,830 (41,927)
---------- ----------
Net cash provided by operating
activities 210,034 586,532
---------- ----------
Cash flows from investing activities:
Additions to oil and gas properties (8,877) -
Proceeds from asset dispositions 6,091 16,884
---------- ----------
Net cash provided by (used in)
investing activities (2,786) 16,884
---------- ----------
Cash flows from financing activities:
Cash distributions to partners (270,014) (662,425)
---------- ----------
Net decrease in cash (62,766) (59,009)
Cash at beginning of period 259,795 294,971
---------- ----------
Cash at end of period $ 197,029 $ 235,962
========== ==========
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.
6
<PAGE>
PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
Note 1. Organization and nature of operations
Parker & Parsley 86-B, Ltd. (the "Partnership") is a limited partnership
organized in 1986 under the laws of the State of Texas.
The Partnership 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. Basis of presentation
In the opinion of management, the unaudited financial statements of the
Partnership as of September 30, 1998 and for the three and nine months ended
September 30, 1998 and 1997 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. These interim results are
not necessarily indicative of results for a full year.
Certain information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted in this Form 10-Q pursuant to the rules and
regulations of the Securities and Exchange Commission. The financial statements
should be read in conjunction with the financial statements and the notes
thereto contained in the Partnership's Report on Form 10-K for the year ended
December 31, 1997, as filed with the Securities and Exchange Commission, a copy
of which is available upon request by writing to Rich Dealy, Vice President and
Chief Accounting Officer, 5205 North O'Connor Boulevard, 1400 Williams Square
West, Irving, Texas 75039-3746.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (1)
Results of Operations
Nine months ended September 30, 1998 compared with nine months ended
September 30, 1997
Revenues:
The Partnership's oil and gas revenues decreased 29% to $719,778 from $1,013,600
for the nine months ended September 30, 1998 and 1997, respectively. The
decrease in revenues resulted from lower average prices received, offset by an
increase in production. For the nine months ended September 30, 1998, 35,372
barrels of oil, 16,911 barrels of natural gas liquids ("NGLs") and 75,188 mcf of
7
<PAGE>
gas were sold, or 64,814 barrel of oil equivalents ("BOEs"). For the nine months
ended September 30, 1997, 35,530 barrels of oil and 128,979 mcf of gas were
sold, or 57,027 BOEs.
As of September 30, 1997, the Partnership began accounting for processed natural
gas production as processed natural gas liquids and dry residue gas.
Consequently, separate product volumes will not be comparable to periods prior
to September 30, 1997. Also, prices for gas products will not be comparable as
the price per mcf for natural gas for the three and nine months ended September
30, 1998 is the price received for dry residue gas and the price per mcf for
natural gas for the three and nine months ended September 30, 1997 is a price
for wet gas (i.e., natural gas liquids combined with dry residue gas).
The average price received per barrel of oil decreased $6.24, or 32%, from
$19.71 for the nine months ended September 30, 1997 to $13.47 for the same
period in 1998. The average price received per barrel of NGLs during the nine
months ended September 30, 1998 was $7.23. The average price received per mcf of
gas decreased 34% from $2.43 for the nine months ended September 30, 1997 to
$1.61 for the same period in 1998. 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 Partnership may
therefore sell its future oil and gas production at average prices lower or
higher than that received during the nine months ended September 30, 1998.
During most of 1997, the Partnership benefitted from higher oil prices as
compared to previous years. However, during the fourth quarter of 1997, oil
prices began a downward trend that has continued into 1998. On October 30, 1998,
the market price for West Texas intermediate crude was $13.33 per barrel. A
continuation of the oil price environment experienced during the first three
quarters of 1998 will have an adverse effect on the Partnership's revenues and
operating cash flow and could result in additional decreases in the carrying
value of the Partnership's oil and gas properties.
A gain on disposition of assets of $6,091 was recognized during the nine months
ended September 30, 1998 from the sale of equipment on one well plugged and
abandoned during 1998. Abandoned property costs of $20,459 were also incurred
during the nine months ended September 30, 1998 to plug and abandon this well.
Costs and Expenses:
Total costs and expenses increased to $836,170 for the nine months ended
September 30, 1998 as compared to $730,239 for the same period in 1997, an
increase of $105,931, or 15%. This increase was due to increases in production
costs, depletion and abandoned property costs, offset by a decline in general
and administrative expenses ("G&A").
Production costs were $514,701 for the nine months ended September 30, 1998 and
$464,740 for the same period in 1997, resulting in a $49,961 increase, or 11%.
The increase was due to an increase in well maintenance costs incurred in an
effort to stimulate well production, offset by a decrease in production taxes.
8
<PAGE>
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A
decreased, in aggregate, 29% from $30,408 for the nine months ended September
30, 1997 to $21,593 for the same period in 1998.
Depletion was $279,417 for the nine months ended September 30, 1998 compared to
$235,091 for the same period in 1997, representing an increase of $44,326, or
19%. This increase was primarily attributable to a decrease in oil reserves
during the period ended September 30, 1998 as a result of lower commodity
prices, offset by a reduction in the Partnership's net depletable basis from
charges taken in accordance with 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") during the fourth quarter of 1997 and a
slight decrease in oil production for the period ended September 30, 1998
compared to the same period in 1997.
Three months ended September 30, 1998 compared with three months ended September
30, 1997
Revenues:
The Partnership's oil and gas revenues decreased 22% to $222,706 from $287,228
for the three months ended September 30, 1998 and 1997, respectively. The
decrease in revenues resulted from lower average prices received, offset by an
increase in production. For the three months ended September 30, 1998, 11,460
barrels of oil, 6,131 barrels of NGLs and 26,133 mcf of gas were sold, or 21,947
BOEs. For the three months ended September 30, 1997, 10,803 barrels of oil and
41,533 mcf of gas were sold, or 17,725 BOEs.
The average price received per barrel of oil decreased $5.95, or 33%, from
$18.29 for the three months ended September 30, 1997 to $12.34 for the same
period in 1998. The average price received per barrel of NGLs during the three
months ended September 30, 1998 was $6.45. The average price received per mcf of
gas decreased 26% from $2.16 during the three months ended September 30, 1997 to
$1.60 in 1998.
A gain on disposition of assets of $656 was recognized during the three months
ended September 30, 1998 from the sale of equipment on one well plugged and
abandoned during 1998. Abandoned property costs of $70 were also incurred during
the three months ended September 30, 1998 to plug and abandon this well.
Costs and Expenses:
Total costs and expenses increased to $313,339 for the three months ended
September 30, 1998 as compared to $234,832 for the same period in 1997, an
increase of $78,507, or 33%. This increase was due to increases in depletion,
production costs and abandoned property costs, offset by a decrease in G&A.
Production costs were $174,931 for the three months ended September 30, 1998 and
$152,855 for the same period in 1997, resulting in a $22,076 increase, or 14%.
The increase resulted from an increase in well maintenance costs incurred in an
effort to stimulate well production and ad valorem taxes, offset by a decrease
in production taxes.
9
<PAGE>
G&A's components are independent accounting and engineering fees and managing
general partner personnel and operating costs. During this period, G&A decreased
in aggregate, 22% from $8,617 for the three months ended September 30, 1997 to
$6,681 for the same period in 1998.
Depletion was $131,657 for the three months ended September 30, 1998 compared to
$73,360 for the same period in 1997, representing an increase of $58,297, or
79%. This increase was primarily attributable to a decrease in oil reserves
during the period ended September 30, 1998 as a result of lower commodity prices
and an increase in oil production of 657 barrels for the period ended September
30, 1998 compared to the same period in 1997, offset by a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
121 during the fourth quarter of 1997.
Liquidity and Capital Resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities decreased $376,498 during the nine
months ended September 30, 1997 from the same period ended September 30, 1998.
This decrease was primarily due to a decline in oil and gas sales receipts and
an increase in production costs paid, offset by a decrease in G&A expenses paid.
Net Cash Provided by (Used in) Investing Activities
The Partnership's investing activities during the nine months ended September
30, 1998 were related to the replacement of oil and gas equipment on active
properties.
Proceeds from disposition of assets of $6,091 received during the nine months
ended September 30, 1998 consisted of equipment credits on one property plugged
and abandoned during 1998. Proceeds from disposition of assets of $16,884
recognized during the nine months ended September 30, 1997 were related to the
disposal of oil and gas equipment on active properties.
Net Cash Used in Financing Activities
Cash was sufficient for the nine months ended September 30, 1998 to cover
distributions to the partners of $270,014 of which $2,701 was distributed to the
managing general partner and $267,313 to the limited partners. For the same
period ended September 30, 1997, cash was sufficient for distributions to the
partners of $662,425 of which $6,625 was distributed to the managing general
partner and $655,800 to the limited partners.
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.
Year 2000 Project Readiness
Historically, many computer programs have been developed that use only the last
two digits in a date to refer to a year. As the year 2000 nears, the inability
10
<PAGE>
of such computer programs and embedded technologies to distinguish between
"1900" and "2000" has given rise to the "Year 2000" problem. Theoretically, such
computer programs and related technology could fail outright, or communicate
inaccurate data, if not remediated or replaced. With the proliferation of
electronic data interchange, the Year 2000 problem represents a significant
exposure to the entire global community, the full extent of which cannot be
accurately assessed.
In proactive response to the Year 2000 problem, the managing general partner
established a "Year 2000" project to assess, to the extent possible, the
Partnership's and the managing general partner's internal Year 2000 problem; to
take remedial actions necessary to minimize the Year 2000 risk exposure to the
managing general partner and significant third parties with whom it has data
interchange; and, to test its systems and processes once remedial actions have
been taken. The managing general partner has contracted with IBM Global Services
to perform the assessment and remedial phases of its Year 2000 project.
The assessment phase of the managing general partner's Year 2000 project is 85%
complete and has included, but is not limited to, the following procedures:
o the identification of necessary remediation, upgrade and/or replacement
of existing information technology applications and systems;
o the assessment of non-information technology exposures, such as
telecommunications systems, security systems, elevators and process
control equipment;
o the initiation of inquiry and dialogue with significant third party
business partners, customers and suppliers in an effort to understand and
assess their Year 2000 problems, readiness and potential impact on the
managing general partner and its Year 2000 problem;
o the implementation of processes designed to reduce the risk of
reintroduction of Year 2000 problems into the managing general partner's
systems and business processes; and,
o the formulation of contingency plans for mission-critical information
technology systems.
The managing general partner expects to complete the assessment phase of its
Year 2000 project by the end of the first quarter of 1999 but is being delayed
by limited responses received on inquiries made of third party businesses. To
date, the managing general partner has distributed Year 2000 problem inquiries
to over 500 entities and has received responses on approximately 10% of those
inquiries.
The remedial phase of the managing general partner's Year 2000 project is
approximately 40% complete, subject to the results of the third party inquiry
assessments and the testing phase. The remedial phase has included the upgrade
and/or replacement of certain application and hardware systems. The managing
general partner has upgraded its Artesia general ledger accounting systems
11
<PAGE>
through remedial coding and is currently testing this system for Year 2000
compliance. The remediation of non-information technology is expected to be
completed by mid-1999. The managing general partner's Year 2000 remedial actions
have not delayed other information technology projects or upgrades.
The testing phase of the managing general partner's Year 2000 project is on
schedule. The managing general partner expects to complete the testing of the
Artesia system upgrades by March 1999 and all other information technology
systems by May 1999. The testing of the non-information technology remediation
is scheduled to be completed by the end of September 1999.
The managing general partner expects that its total costs related to the Year
2000 problem will approximate $3.5 million, of which approximately $500 thousand
will have been incurred to replace non-compliant information technology systems.
As of September 30, 1998, the managing general partner's total costs incurred on
the Year 2000 problem were $1.5 million, of which $200 thousand were incurred to
replace non-compliant systems. The managing general partner will allocate a
portion of the costs of the year 2000 programming charges to the Partnership
when they are incurred, along with recurring general and administrative expenses
and such allocation should not be significant to the Partnership.
The risks associated with the Year 2000 problem are significant. A failure to
remedy a critical Year 2000 problem could have a materially adverse affect on
the Partnership's results of operations and financial condition. The problems
which may be encountered as a result of a Year 2000 problem could include
information and non-information system failures, the receipt or transmission of
erroneous data, lost data or a combination of similar problems of a magnitude
that cannot be accurately assessed at this time. In the assessment phase of the
managing general partner's Year 2000 project, contingency plans are being
designed to mitigate the exposures noted above. However, given the uncertainties
regarding the scope of the Year 2000 problem and the compliance of significant
third parties, there can be no assurance that contingency plans will have
anticipated all Year 2000 scenarios.
- ---------------
(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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K - none
12
<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: Pioneer Natural Resources USA, Inc.,
Managing General Partner
Dated: November 6, 1998 By: /s/ Rich Dealy
--------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000789790
<NAME> 86B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1998
<CASH> 197,029
<SECURITIES> 0
<RECEIVABLES> 141,874
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 338,903
<PP&E> 12,036,919
<DEPRECIATION> 9,215,257
<TOTAL-ASSETS> 3,160,565
<CURRENT-LIABILITIES> 46,166
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3,114,399
<TOTAL-LIABILITY-AND-EQUITY> 3,160,565
<SALES> 719,778
<TOTAL-REVENUES> 735,747
<CGS> 0
<TOTAL-COSTS> 836,170
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (100,423)
<INCOME-TAX> 0
<INCOME-CONTINUING> (100,423)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (100,423)
<EPS-PRIMARY> (5.78)
<EPS-DILUTED> 0
</TABLE>
