UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999
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, 1999 and
December 31, 1998.................................... 3
Statements of Operations for the three and nine
months ended September 30, 1999 and 1998.............. 4
Statement of Partners' Capital for the nine months
ended September 30, 1999.............................. 5
Statements of Cash Flows for the nine months ended
September 30, 1999 and 1998........................... 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
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PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
Part I. Financial Information
Item 1. Financial Statements
BALANCE SHEETS
September 30, December 31,
1999 1998
------------ -----------
(Unaudited)
ASSETS
Current assets:
Cash $ 211,635 $ 185,320
Accounts receivable - oil and gas sales 170,774 120,424
----------- ----------
Total current assets 382,409 305,744
----------- ----------
Oil and gas properties - at cost, based on the
successful efforts accounting method 12,041,403 12,038,382
Accumulated depletion (10,122,578) (9,980,171)
----------- ----------
Net oil and gas properties 1,918,825 2,058,211
----------- ----------
$ 2,301,234 $ 2,363,955
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Accounts payable - affiliate $ 38,575 $ 11,216
Partners' capital:
Managing general partner 21,351 22,251
Limited partners (17,208 interests) 2,241,308 2,330,488
----------- ----------
2,262,659 2,352,739
----------- ----------
$ 2,301,234 $ 2,363,955
=========== ==========
The financial information included as of September 30, 1999 has been prepared by
management without audit by independent public accountants.
The accompanying notes are an integral part of these financial statements.
3
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PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
September 30, September 30,
--------------------- ---------------------
1999 1998 1999 1998
--------- --------- --------- ---------
Revenues:
Oil and gas $ 307,914 $ 222,706 $ 715,163 $ 719,778
Interest 2,686 3,104 6,991 9,878
Gain on disposition of assets - 656 - 6,091
-------- -------- -------- --------
310,600 226,466 722,154 735,747
-------- -------- -------- --------
Costs and expenses:
Oil and gas production 139,246 174,931 432,937 514,701
General and administrative 9,238 6,681 21,455 21,593
Depletion 32,312 131,657 142,407 279,417
Abandoned property - 70 - 20,459
-------- -------- -------- --------
180,796 313,339 596,799 836,170
-------- -------- -------- --------
Net income (loss) $ 129,804 $ (86,873) $ 125,355 $(100,423)
======== ======== ======== ========
Allocation of net income (loss):
Managing general partner $ 1,298 $ (868) $ 1,254 $ (1,004)
======== ======== ======== ========
Limited partners $ 128,506 $ (86,005) $ 124,101 $ (99,419)
======== ======== ======== ========
Net income (loss) per limited
partnership interest $ 7.47 $ (5.00) $ 7.21 $ (5.78)
======== ======== ======== ========
Distributions per limited
partnership interest $ 5.85 $ 3.27 $ 12.39 $ 15.53
======== ======== ======== ========
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
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PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
STATEMENT OF PARTNERS' CAPITAL
(Unaudited)
Managing
general Limited
partner partners Total
----------- ------------- -------------
Balance at January 1, 1999 $ 22,251 $ 2,330,488 $ 2,352,739
Distributions (2,154) (213,281) (215,435)
Net income 1,254 124,101 125,355
---------- ----------- -----------
Balance at September 30, 1999 $ 21,351 $ 2,241,308 $ 2,262,659
========== ============ ============
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
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PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months ended
September 30,
------------------------
1999 1998
---------- ----------
Cash flows from operating activities:
Net income (loss) $ 125,355 $ (100,423)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depletion 142,407 279,417
Gain on disposition of assets - (6,091)
Changes in assets and liabilities:
Accounts receivable (50,350) 26,301
Accounts payable 27,359 10,830
--------- ---------
Net cash provided by operating activities 244,771 210,034
--------- ---------
Cash flows from investing activities:
Additions to oil and gas properties (3,630) (8,877)
Proceeds from asset dispositions 609 6,091
--------- ---------
Net cash used in investing activities (3,021) (2,786)
--------- ---------
Cash flows used in financing activities:
Cash distributions to partners (215,435) (270,014)
--------- ---------
Net increase (decrease) in cash 26,315 (62,766)
Cash at beginning of period 185,320 259,795
--------- ---------
Cash at end of period $ 211,635 $ 197,029
========= =========
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
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PARKER & PARSLEY 86-B, LTD.
(A Texas Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(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, 1999 and for the three and nine months ended
September 30, 1999 and 1998 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, 1998, 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, 1999 compared with nine months ended September
30, 1998
Revenues:
The Partnership's oil and gas revenues decreased slightly to $715,163 from
$719,778 for the nine months ended September 30, 1999 and 1998, respectively.
The decrease in revenues resulted from a decrease in production, offset by
higher average prices received. For the nine months ended September 30, 1999,
30,744 barrels of oil, 16,814 barrels of natural gas liquids ("NGLs") and 65,111
7
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mcf of gas were sold, or 58,410 barrel of oil equivalents ("BOEs"). For the nine
months ended September 30, 1998, 35,372 barrels of oil, 16,911 barrels of NGLs
and 75,188 mcf of gas were sold, or 64,814 BOEs.
The average price received per barrel of oil increased $1.83, or 14%, from
$13.47 for the nine months ended September 30, 1998 to $15.30 for the same
period in 1999. The average price received per barrel of NGLs increased 13% from
$7.23 during the nine months ended September 30, 1998 to $8.16 for the same
period in 1999. The average price received per mcf of gas increased 2% from
$1.61 for the nine months ended September 30, 1998 to $1.65 for the same period
in 1999. 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, 1999.
The volatility of commodity prices has had, and continues to have, a significant
impact on the Partnership's revenues and operating cash flow and could result in
additional decreases to 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 decreased to $596,799 for the nine months ended
September 30, 1999 as compared to $836,170 for the same period in 1998, a
decrease of $239,371, or 29%. This decrease was due to declines in depletion,
production costs, abandoned property costs and general and administrative
expenses ("G&A").
Production costs were $432,937 for the nine months ended September 30, 1999 and
$514,701 for the same period in 1998, resulting in an $81,764 decrease, or 16%.
The decrease was due to declines in well maintenance costs, ad valorem taxes and
production taxes.
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, 1% from $21,593 for the nine months ended September 30,
1998 to $21,455 for the same period in 1999.
Depletion was $142,407 for the nine months ended September 30, 1999 compared to
$279,417 for the same period in 1998, representing a decrease of $137,010, or
49%. This decrease was primarily attributable to an increase in proved reserves
during the period ended September 30, 1999 as a result of higher commodity
prices, a decrease in oil production of 4,628 barrels for the nine months ended
September 30, 1999 compared to the same period in 1998 and 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 1998.
8
<PAGE>
Three months ended September 30, 1999 compared with three months ended September
30, 1998
Revenues:
The Partnership's oil and gas revenues increased 38% to $307,914 from $222,706
for the three months ended September 30, 1999 and 1998, respectively. The
increase in revenues resulted from higher average prices received, offset by a
decrease in production. For the three months ended September 30, 1999, 10,385
barrels of oil, 6,039 barrels of NGLs and 23,109 mcf of gas were sold, or 20,276
BOEs. 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.
The average price received per barrel of oil increased $6.93, or 56%, from
$12.34 for the three months ended September 30, 1998 to $19.27 for the same
period in 1999. The average price received per barrel of NGLs increased $4.01,
or 62%, from $6.45 during the three months ended September 30, 1998 to $10.46
for the same period in 1999. The average price received per mcf of gas increased
21% from $1.60 during the three months ended September 30, 1998 to $1.93 for the
same period in 1999.
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 decreased to $180,796 for the three months ended
September 30, 1999 as compared to $313,339 for the same period in 1998, a
decrease of $132,543, or 42%. This decrease was due to declines in depletion,
production costs and abandoned property costs, offset by an increase in G&A.
Production costs were $139,246 for the three months ended September 30, 1999 and
$174,931 for the same period in 1998, resulting in a $35,685 decrease, or 20%.
The decrease resulted from declines in well maintenance costs and ad valorem
taxes, offset by an increase in production taxes.
During this period, G&A increased from $6,681 for the three months ended
September 30, 1998 to $9,238 for the same period in 1999. The increase in G&A
was due to accrued 1999 tax processing services as compared to the 1998 tax
services which were paid during the first six months of 1999.
Depletion was $32,312 for the three months ended September 30, 1999 compared to
$131,657 for the same period in 1998, representing a decrease of $99,345, or
75%. This decrease was primarily attributable to an increase in proved reserves
during the period ended September 30, 1999 as a result of higher commodity
prices, a decrease in oil production of 1,075 barrels for the three months ended
September 30, 1999 compared to the same period in 1998 and a reduction in the
Partnership's net depletable basis from charges taken in accordance with SFAS
121 during the fourth quarter of 1998.
9
<PAGE>
Liquidity and Capital Resources
Net Cash Provided by Operating Activities
Net cash provided by operating activities increased $34,737 during the nine
months ended September 30, 1999 from the same period ended September 30, 1998.
This increase was primarily due to declines in production costs paid of $53,422,
in G&A expenses paid of $45,009 and in abandoned property costs paid of $20,459,
offset by declines in oil and gas sales receipts of $84,153.
Net Cash Used in Investing Activities
The Partnership's investing activities during the nine months ended September
30, 1999 and 1998 were related to the replacement of oil and gas equipment on
active properties.
Proceeds from disposition of assets of $609 received during the nine months
ended September 30, 1999 were due to equipment credits 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.
Net Cash Used in Financing Activities
Cash was sufficient for the nine months ended September 30, 1999 to cover
distributions to the partners of $215,435 of which $2,154 was distributed to the
managing general partner and $213,281 to the limited partners. For the same
period ended September 30, 1998, cash was sufficient for 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.
From the third quarter of 1997 through the first quarter of 1999, there was a
declining trend in oil and gas price levels. During the first quarter of 1999,
the Organization of Petroleum Exporting Countries and certain other crude oil
exporting nations announced reductions in their planned export volumes. These
announcements, together with the enactment of announced reductions in export
volumes, have had a positive impact on world crude oil prices since first
quarter of 1999. No assurances can be given that the reductions in export
volumes or the positive trend in oil and gas commodity prices can be sustained
for an extended period of time.
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
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.
10
<PAGE>
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.
As of September 30, 1999, the assessment phase of the managing general partner's
Year 2000 project is complete and has included, but was not limited to, the
following procedures:
o the identification of necessary remediation, upgrades 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 distributed Year 2000 problem inquiries to over 500
entities and has received responses to approximately 52% of the inquiries.
The remedial phase of the managing general partner's Year 2000 project is in the
final stages of completion as it pertains to the remediation of information
technology and non-information technology applications and systems in the United
States, Canada and Argentina. As of September 30, 1999, the remedial phase of
the managing general partner's Year 2000 project was approximately 98% complete,
on a world wide basis, subject to continuing evaluations of the responses to
third party inquiries and to the testing phase results. 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 through remedial coding and has completed the testing of the
system for Year 2000 compliance. The remediation of non-information technology
was 97% complete as of September 30, 1999, and was completed in October 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 completed the testing of non-information
technology remediation in October 1999. The testing of information technology
remediation is scheduled to be completed by the end of November 1999.
11
<PAGE>
The managing general partner now expects that its total costs related to the
Year 2000 problem will approximate $2.9 million. As of September 30, 1999, the
managing general partner's total costs incurred on the Year 2000 problem were
$2.5 million.
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 most likely
worst case scenario 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 business continuity and contingency planning phase of the managing
general partner's Year 2000 project, contingency plans were designed to mitigate
the exposures to mission critical information technology systems, such as oil
and gas sales receipts, vendor and royalty cash distributions, debt compliance,
accounting, and employee compensation. Such contingency plans anticipate the
extensive utilization of third-party data processing services, personal computer
applications and the substitution of courier and mail services in place of
electronic data interchange. 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
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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 8, 1999 By: /s/ Rich Dealy
----------------------------------
Rich Dealy, Vice President and
Chief Accounting Officer
13
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<ARTICLE> 5
<CIK> 0000789790
<NAME> 86B
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 211,635
<SECURITIES> 0
<RECEIVABLES> 170,774
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 382,409
<PP&E> 12,041,403
<DEPRECIATION> 10,122,578
<TOTAL-ASSETS> 2,301,234
<CURRENT-LIABILITIES> 38,575
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,262,659
<TOTAL-LIABILITY-AND-EQUITY> 2,301,234
<SALES> 715,163
<TOTAL-REVENUES> 722,154
<CGS> 0
<TOTAL-COSTS> 596,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 125,355
<INCOME-TAX> 0
<INCOME-CONTINUING> 125,355
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125,355
<EPS-BASIC> 7.21
<EPS-DILUTED> 0
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